MBA – I

Semester II
Subject: Marketing
Management -201

Dr. Manisha Jagtap

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UNIT 1 PRODUCT

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 What is Marketing?
Marketing is the process of discovering and translating
consumer wants into products and services and then in turn
making it possible for them to enjoy the products and
services
Discovering consumer wants

Translating into products and

services

Customer Satisfaction
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 Marketing involves finding out what
your customers want and supplying it
to them at a profit

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 What is Marketing Mix?
It is the combination of four inputs which
constitute the core of a company’s marketing
system:
• product,
• price structure,
• promotional activities
• distribution system (Place)

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Marketing Mix
 The term "marketing mix" is a
foundation model for
businesses, historically
centered around product,
price, place, and promotion.
The marketing mix has been
defined as the "set of
marketing tools that the firm
uses to pursue its marketing
objectives in the target
market".

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 Purpose of Marketing Mix
The purpose of marketing mix is to satisfy the
needs and wants of the customers in most
effective and economical manner

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Elements of Marketing Mix

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 Product
 Product refers to the goods and services offered by
the organisation.
 A pair of shoes, a plate of dahi-vada, a lipstick, all
are products. All these are purchased because they
satisfy one or more of our needs. We are paying
not for the tangible product but for the benefit it
will provide. So, in simple words, product can be
described as a bundle of benefits which a marketer
offers to the consumer for a price.
 While buying a pair of shoes, we are actually
buying comfort for our feet, while buying a
lipstick we are actually paying for beauty because
lipstick is likely to make us look good. Product can
also take the form of a service like an air travel,
telecommunication, etc. Thus, the term product
refers to goods and services offered by the
organisation for sale.

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 Role of a Product as a Market offering
 Consumer’s needs and wants are fulfilled through Market offerings.
 The offerings are some combination of products, services, information,
or experiences offered to a market to satisfy a need or a want.
 These offerings are not limited to physical products. They also include
services activities or benefits offered for sale that are essentially
intangible and do not result in the ownership of anything.

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 Goods-Service Continuum
 It enables marketers to see total products’ relative goods/services composition. A product position on the
continuum, in turn, allows marketers to spot opportunities. At the pure goods ends of the continuum,
goods with no related services are positioned. At the pure services, the future is services that are not
associated with physical products. Products that are a combination of goods and services fall between the
two ends.
 In the goods-services continuum, services can be classified under the range or degree of tangibility-
highly tangible to highly intangible.
 1. Highly Tangible Services: They have a high degree of tangibility because services are rendered on
certain goods, e.g. car rentals. It is a service-based entirely on cars. If a place had no vehicles, such a
service would cease to exist. For the marketer, it is both a boon and a curse.
 2. Service Linked to Tangible Goods: In this, the service is linked to goods independently as a part of
the marketer’s offer. The service becomes a part of the total product concept if it is the latter. This occurs
when Videocon, the home appliance company, includes repair as part of its marketing m 3. Highly
Intangible Services: In this classification under the continuum model, service is high intangible. The
services cannot be touched, felt or seen—for example, counselling, psychotherapy, physiotherapy, etc.
 Most business theorists see a continuum with pure service on one terminal point and pure commodity
goods on the other terminal point. Like economists, marketers also view goods and services as two ends
of a continuum.

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PRODUCT CLASSIFICATION
Based on use, the product can be classified as:
 (a) Consumer Goods; and
 (b) Industrial (Business)Goods.

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A. Consumer Goods
Consumer goods:
 Goods meant for personal consumption by the households or ultimate
consumers are called consumer goods. This includes items like toiletries,
groceries, clothes etc. Based on consumers’ buying behaviour the consumer
goods can be further classified as :
 (i) Convenience Goods;
 (ii) Shopping Goods;
 (iii) Specialty Goods; and
 (iv) Unsought Goods

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A. Consumer Goods
(i) Convenience Goods
 Those products customers buy often and without much thought or planning are classified as convenience
goods.
 Consumers typically make a choice once on their brand preference for these products and repeat that choice
over many purchases.

Examples - Soap, Toothpaste, soft drinks, biscuits, milk, and deodorants, etc.

CHARACTERISTICS -

1.Products purchased at convenient locations , with least efforts and time .

2.These are products that appeal to a very large market segment. They are generally consumed regularly
and purchased frequently.
3. DEMAND - Regular and continuous , as the products are essential products .
4.PRICING- Price per item tends to be relatively :Low- Because of the high purchase volume by
consumers . Standardized -As most of the consumer products are branded .

From the marketer’s perspective the low price of convenience products means that profit per unit sold is
very low. In order to make high profits marketers must sell in large volume. Consequently, marketers
attempt to distribute these products in mass through as many retail outlets as possible.

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A. Consumer Goods
ii) Shopping Goods:
Consumer goods in which buying decisions are detailed considerations of price, quality , suitability and value for
products are classified as shopping goods.

Examples - Laptop , Clothing, Furniture , Shoes , Television and Mobile etc .

CHARACTERISTICS -

1. Durable in nature-survive many uses .

2. Profit margin is high.

3. High unit Price - So consumers compare the products of different companies before making selection .

4. Purchases of shopping products are generally pre- planned and there is a little degree of impulse buying in
these products .

5. Retailers generally play an important role in the sale of shopping products as lot of persuasive effort is needed
to convince the buyers to purchase them.

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 A. Consumer Goods
(iii) Specialty Goods:
Consumer goods which have certain special features because of which customers make special
efforts to purchase.

Examples - Collection of artwork or antiques, designer clothing, high specification laptop, sports car,
rare ornaments, etc. The brand image in the market is the USP of these products like Ferrari,
Gucci, etc.

CHARACTERISTICS -

1. Tend to promote very strong brand identities, often resulting in strong brand loyalty among
consumers.

2. DEMAND- Limited as relatively small number of people buy. It is relatively inelastic demand i.e ,
even if the price is increased , the demand does not come down .

3. PRICE - Products are generally costly .

4. These products are available for sale at few places as the number of customers is small to take
extra efforts in the purchase of these products.

5. An aggressive promotion is required .

6. After sales services are very important for many of many of the specialty products.

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A. Consumer Goods
(iv) Unsought Goods
 The products classified as unsought goods are those that consumers don’t put much thought into and
generally don’t have compelling impulse to buy.
 These kinds of products can be ranking from old, outdated goods to the new innovative prototype.
 Consumers don’t remember these products at the top of their heads, and they are very infrequently bought
from the market.
 The unique property of this good is that the benefits are not instantly derived from the product.

Examples Helmets, Books, Fire Extinguisher and Life Insurance etc

Consumers essentially buy unsought goods when they have to, almost as an inconvenience rather than the
newest, latest, greatest product they can’t wait to purchase.

Marketing unsought goods will likely be most effective with lots of advertising and salespeople promoting the
idea of unresolved needed .

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A. Industrial (Business)Goods
Industrial goods are those purchased by organizations for use either in other
products or in their operations. The main objective of industrial products is to
use the products in business operation and earn profit.
Following are the types of Industrial products
1. Material & Parts
 Raw Materials
 Manufacturing Materials and Parts
2. Capital Items
 Installation
 Accessory Equipment
3. Supplies and
4. Business Services

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 A. Industrial (Business)Goods
Following are the types of Industrial products
1. Material & Parts
Raw Materials
 Raw materials are those business products that organizations buy for the purpose of manufacturing other goods. In other word, raw
materials are those industrial goods that will be used in the making of other products. Included in this category are natural
resources such as forest products, minerals, water, oceanic products, and agricultural products and livestock. In most instances, raw
materials lose their individual identities when used in the final product.
Example
 Natural products like coal, petroleum, iron, fish etc.
 Farm products like cotton, vegetables, wheat, livestock etc.
Manufacturing Materials and Parts
 Manufacturing materials are the parts of those business goods, which are complete in all respect and might have gone all the
manufacturing process but ultimate consumer cannot use them until when they combine with another finish product. They become
the part of finish goods.
 They complete in another manufacturing unit but can be ultimately use when they become the part of finish good.
 These are again of two types –
a. component materials like glass, iron, plastic, yarn, cement, and wires. Component materials usually are processed further.
For example, the pulp is made into paper
b. component parts such as electric bulb, steering, small motors, tires, casting and battery. Component parts enter into the finished
product wholly. Unlike raw materials, parts usually have been processed before being used in the finished product. Although they
may not be visible, parts are left intact and assembled into the total product.
For example, amplifiers are fixed in CD players.

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 A. Industrial (Business)Goods
Following are the types of Industrial products
2. Capital Items To make any manufacturing business or large scale industry possible, capital items are used. Capital items generally fall
under the Assets column of the balance sheet. These are items necessary for the functioning of the organization, and very useful to be invested
in for the long term. Due to their very nature, these capital items have a residual value to the company. And hence a company which has large
capital, has to ensure that it has large revenue, otherwise Capital (which is a fixed cost) will bring the company down. There are two types of
capital items
a. Installation
 An organization’s major expensive, long-lived equipments (fixed Assets) is called installation.
 Large installations such as factories, warehouses and other buildings are capital items which require long time installation and are used
for an even longer time.
Example
 Large Generator used in a Dam, Large printing press, Long live Asset (depreciable Asset) such as machinery.
b. Equipments
 The equipments are those industrial products, which are bought by the organization or individual to support the real business operations,
they may be revenue nature, or capital nature.
 Equipments are both – heavy machineries as well as a utility to the organization using them. All these are equipments which are assets.
They have a short span of life when compared to installations, but as compared to the life span of normal operating supplies (paper, pen)
they have a longer life span.
 This equipment includes industrial products used to facilitate the production process or middleman sales.
 It does not become part of the finished product but aids in the overall production or selling effort.
Example
 Equipments in case of factories will be caterpillars, trucks, cranes and what not. Equipment in case of industrial services will be
computers, hardware and design equipment, printers, copiers etc. Also Typewriter, Table, Chairs, Computer etc
 Accessory equipment would include tools, shelving, and many other products that tend to have a lower cost and shorter life than major

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equipment.
Dr.Manisha Jagtap www.dimr.edu.in
A. Industrial (Business)Goods
Following are the types of Industrial products
3. Supplies
 Any short term goods or material which is necessary for the day to day operations or a company or businesses is termed as
supplies. A simple example is A4 sized paper. Can you imagine the amount of paper it takes to make an educational
institute like DIMR work? An office might need 1000’s of papers a day for print outs.
 They never become part of the finished goods but they are used to facilitate the business operation.
 Supplies can be treated as convenience products of the industrial market as they are purchased with minimal effort.

Supplies are divided in 2 formats

 a) Maintenance and repair supplies – Paints are a form of maintenance supplies and Asian paints is the leader in that.
Cleaning services are another form of maintenance, Examples are brooms for cleaning the factory floor, stationary, and
lubricating oil.
 b) Operating supplies – Pen and paper, notepads, lubricants for automobiles are part of the operating supplies needed on
a day to day basis. Kangaro is an excellent brand which comes to mind when it comes to staplers and staple pins.

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A. Industrial (Business)Goods
Following are the types of Industrial products
4. Business Services
 Business services are generally third party services given to businesses and they are in form right now
because businesses do not want to spend the time or the energy on getting regular things running. Hence
they either use Business advisory services or business maintenance services.
 These services are generally provided through contracts by small producers and manufacturers of the
original equipment.
These include:
 a) Business advisory services – Any business out there requires a Chartered accountant. This accountant
can be hired or it can be a firm which handles the business. Similarly legal, consulting,
distribution,advertising, marketing are all business agencies within themselves which provide services to
industries. These advisory services are on the rise because of the growing economy of developing nations.
 b) Maintenance and repair services – There is a difference between repair goods and repair services.
Where paint is a repair good, a repair service is window cleaning or printer and copier repairing,
something which is best left to the professionals. And there are many professionals out there who pick
industrial contracts for an annual year towards repair and maintenance of day to day products and
equipments within an organization.

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Difference in Marketing Mix for Consumer &
Industrial Goods
The marketing mix for industrial products is quite different from that for
consumer products due to the features of selling "business to business":
 Specialist buyers and sellers: buyers are businesses – will have
specialist requirements and more experience. Often dealing with
professional “buyers”
 Buyer-seller relationship: strong emphasis on customer relationship
management and repeat business
 Transaction value: purchase value often substantial in a single
transaction (e.g. bulk purchase contract)
 Quality and Price: greater emphasis on product quality and price
(where there are acceptable alternative products). Price is often
negotiated by the buyer
 Support: greater requirement for after-sales support

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 PRODUCT HIERARCHY

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 PRODUCT HIERARCHY
1. PRODUCT NEED
 Firstly, the product hierarchy example is product need which symbolizes
the reason for which a product exists.
For product hierarchy example: People need products for their health care. Now
here is the basic product need that Colgate satisfies.
2. PRODUCT FAMILY :
 Secondly, the product family is from the point of view of the business
market and is company-specific. So this level refers to the basic need that
the company’s product satisfies. All the product family that can satisfy a
core need with reasonable effectiveness
For product hierarchy example: In oral hygiene of Colgate there can be a
variety of options like toothpaste, toothbrushes, floss, and mouthwash.
3. PRODUCT CLASS :
 A group of products within the product family recognized as having a
certain functional coherence. It describes the group under the specific
product family having a unique function also called the product
subcategory.
For product hierarchy example: Colgate with its whitening category or
sensitivity factor (Sensodyne) is called product class.

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 PRODUCT HIERARCHY
4. PRODUCT LINE
 This area deals with various products that fall under the umbrella of one product
class that are closely associated due to the same function performed by them
marketed to the same channels, sold to the same customers, or have similar price
ranges.
For product hierarchy example: Colgate Sensodyne has three varieties which are
termed as product line as they perform the same function of dealing with sensitive areas
in our teeth. So the product line here is 3.
5. PRODUCT TYPE
 This level now describes the items which are present in a specific product line that
shares one specific function.
For product hierarchy example: Colgate Sensodyne has three flavours namely normal
whitening, mint, and Ayurveda. So the individual products are referred to as product
types.
6. ITEM / PRODUCT VARIANT / STOCK KEEPING UNIT
 Finally or the last destination in the product hierarchy example is an item or
commonly known as SKU. This category differentiates the product type with a
specific price, appearance, size, or other attributes.
For product hierarchy example: Colgate Sensodyne mint variant is available in 30
grams, 60 grams, and 100 grams as well with different cost structures. So a 100-gram
product is termed as ITEM.

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 What Is Product Mix?
 Product mix, also known as product assortment, refers to the total number of product lines that
a company offers to its customers. The product lines may range from one to many and the
company may have many products under the same product line as well. All of these product lines
when grouped together form the product mix of the company.
 The product mix is a subset of the marketing mix and is an important part of the business
model of a company. The product mix has the following dimensions or components:
a. Width
b. Length
c. Depth
d. Consistency

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 Dimensions of a Product Mix
 Width
The width of the mix refers to the number of product lines the company has to offer.
For example – if a company produces only soft drinks and juices, this means its mix is two products
wide. Coca-Cola deals in juices, soft drinks, and mineral water, and hence the product mix of Coca-Cola
is three products wide.
 Length
The length of the product mix refers to the total number of products in the mix. That is if a company has 5
product lines and 10 products each under those product lines, the length of the mix will be 50 [5 x 10].
 Depth
The depth of the product mix refers to the total number of products within a product line. There can be
variations in the products of the same product line. For example – Colgate has different variants under
the same product line like Colgate advanced, Colgate active salt, etc. Moreover, if it sells in various sizes,
that will also count as depth. Suppose Colgate sells toothpaste in three sizes and two flavors; it would
mean a depth of six.
 Consistency
Product mix consistency refers to how closely products are linked to each other. Less the variation among
products, more the consistency. For example, a company dealing in just dairy products has more
consistency than a company dealing in all types of electronics.

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 PRODUCT LEVELS: CUSTOMER VALUE HIERARCHY

 Every product has five different product levels associated with it. Each level
adds more customer value, and together the five constitute Customer Value
Hierarchy.
 It is a system of worth that businesses across the country, both large and
small, have turned to as a means of determining customer satisfaction.
 Each product is related to certain other products. The product
hierarchy stretches from basic needs to particular items that satisfy those
needs.
 In planning market offering, the marketer needs to think through five levels
of the product.

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Let’s example each level of a product;
1. Core Benefit
 The first and the basic level is the core product/benefit the customers look at. It is the basic good or service purchased, aside from its
packaging or accompanying services. We buy a product first because of its core or fundamental benefit – the problem it solves or
the need it satisfies.
 From a bar soap, for example, the core benefit we look at is: it cleans our skin. While the purchaser of a cosmetic item buys beauty,
the purchaser of a lottery ticket buys hope, and so on. A core product’s benefits range from tangible to intangible.
2. Generic Product or Basic Product
 The benefits that customers look at must be turned into a basic product by the marketer. A calculator, for example, includes plastic,
metal, electronic circuits, and a liquid display crystal.
 The most fundamental level is the basic product, which seeks an answer to the question: What is the buyer really buying? The basic
product forms the nucleus of the total product. It constitutes the problem-solving features or basic benefits that consumers seek
when they acquire a product.
 A person buying a car acquires mobility, which enables him to move from one place to another. Theodore Levitt has pointed out that
buyers “do not buy quarter-inch drills; they buy quarter-inch holes.”
3. Expected Product
 The next level is the expected level. It includes a set of attributes and conditions that the buyer expects which marketer should
provide for purchase to take place. In the case of a calculator, the buyers expect it to be handy, easy to operate, and so on. Hotel
guests minimally expect a clean bed, fresh towels, working lamps, and a relative degree of quiet.

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Let’s example each level of a product;
4. Augmented Product
 The Fourth Level of a Product is the Augmented Level or the augmented product. The augmented product is what the customer is
really buying. It is a good, service, or an idea enhanced by its accompanying benefits.
 It is a combination of what the seller intends, and the buyer perceives. An augmented product gives customers more than they
expect. People do not buy products; they buy the expectations of benefits. The marketing view demands the active recognition of
this and acts accordingly.
 Modern-day marketers compete with each other through the augmented product. A marketer deciding to augment his product should
be well aware of the total consumption system of buyers.
 Understanding the total consumption system means identifying the tasks customers perform through the use of the product.
Identifying this will give him leads on which he can augment his product.
 In formulating the product augmentation policy, the marketer should take note of a number of things. Since augmentation requires
the company substantial costs, it should know whether customers will be willing to take this load.
 After getting the augmented benefits for sometimes, customers start thinking those as rights, i.e., they consider those benefits as
expected, not augmented. The company should, therefore, look for additional benefits to offer.
 The company should also note that soon after it offers augmented products at a premium price, some competitors may start offering
the basic or expected product at a much lower price.
 This will obviously pull a significant number of customers, thus causing the firm a fall in sales. The company should therefore
remain ever alert so that augmentation yields the desired result.
5. Potential Product
 The last level of a product is the potential product. It encompasses all the augmentations and transformations that the product might
ultimately undergo in the future’. Here is where companies search for new ways to satisfy customers and distinguish their offering

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FIVE PRODUCT LEVELS
Core benefit of the product

Potential product Generic product

Expected product

Augmented product
What is New Product Development ?
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". It is a difficult task to define a new product.
The concept of a new product is highly multi dimensional, which has capabilities of satisfying the wants of desirous and
interested stockholders. It also provides strategic competitive advantage to significant number of interested consumers.
This also leads to significant opportunity for a firm to create value in the competitive market. There are various
perspectives from which a new product could be defined.

Definition of New Product Development

 According to Musselman and Jackson :
"A product is said to be a new product when it serves an entirely new function or makes a major improvement in a
present function."
 According to Kotler :
"New product mean original products, improved products, modified products and new brands which are developed by the
firm through its own research and development efforts and includes those products which the consumers see as new. A
new product is thus perceived differently by different people. It is a need satisfying concept with benefit for buyers
bundle of need satisfying features, for marketers, a way to add value for intermediaries, an opportunity to design, for
R&D and to assemble and process for production department.
After product planning, the next step is product development. The process of identifying the probability of producing a
product is called product development. Under this process, the feasibility and profitability of producing a new product is
assessed before making a final decision.

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 Need for New Product Development
The organisations which are aiming at advanced levels of growth have to consider the following points :
 Need for New Product Development
1) Meeting Changes in Consumer Demand :
 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. The organisations need to keep an eye on these
changes taking place in their surroundings.
 Customers always give preference to the products which are better in terms of quality, fashion, price, etc. An organisation has to
proactively respond to such vibrant demands, which in turn results in innovations in products and services. By doing this, the
organisations can keep themselves updated and can strengthen their relationship with the customers.
2) Making New Profits :
 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. 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. 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. 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 :
 There are various environmental threats faced by a business organisation. One way to handle these threats is to find out a new product
which is capable enough to combat against it. These threats spring from various environmental factors, like socio-economic,
technological, political, and demand and supply, etc. Moreover, the biggest threat that is always present in such environment is
competition in the market and products.
 Hence, it becomes vital to fight these risk factors by introducing new products. More prospects of growth and development are opened
through it, which further ensures endurance and feasibility for the organisation.. I also distributes the risk factor among the old and new

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 Need for New Product Development
The organisations which are aiming at advanced levels of growth have to consider the following points :
Need for New Product Development
4) Other Necessities :
 The other strategic needs for new product development are as follows :
 New products can provide the organisation a source for gaining competitive edge.
 They can ensure long-term financial return on the investments made. They also help in optimum utilization of the available resources.
 New products make best use of research and development.
 They can provide new opportunities for making changes in the strategic plans of the company.
 New products can bring most out of the marketing practices and brand equity.
 It enhances the corporate image of the organisation/brand.

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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.

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 Failure of New Products
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) Incorrect STP Approach :
 A product may fail to capture the market, when a marketer incorrectly segments the market, targets the target audience and positions
the new product.
8) Technical Issues :
 While using a new product, if a customer faces any technical issues, then he may discontinue purchasing the same product again.

9) 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.
10) 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.
11) Ineffective Promotion :
 Ineffective utilization 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.

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Booz, Allen, and Hamilton Classification Scheme for New Products

New Products are classified into two categories based upon its origin.
 a) New Products emerging due to technological innovation.
 b) New Products emerging due to market modifications.

Booz, Allen and Hamilton have identified six categories of new product in the terms of
their newness to the company and to the market place.
 i. New to the world – New products that create an entirely new product.
 ii. New product lines – New Product that allows a company to enter an established
market for the first time.
 iii. Additions to the existing product lines – New products that supplement a
company’s established product line.
 iv. Improvements in revision to existing product – New products that provide
improved performance or greater perceived value and replace existing product.
 v. Repositioning – Existing products that are targeted to new markets or market
segmentation.
 vi. Costs reductions – New product that provides similar performance at lower costs.

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Booz, Allen, and Hamilton Classification Scheme for New Products
1) New-to-the-World :
 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. 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. 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 :
 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. This means that if the firm wants to produce such product, it actually wants
to introduce a new product line. Hence, new-to-the-firm products can also be known as
new product-lines for the firms.

3) Addition to Existing Product-Lines :

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

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Booz, Allen, and Hamilton Classification Scheme for New Products
4) Improved and Revised :
 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". Generally. this category is found in organisations
producing beauty products and electronic goods.
5) Re-Positioning :
 It has been found that the products which are already being used
can serve some other purposes as well. After realizing 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 :
 Manufacturing an entirely new product can prove to be an
expensive affair. Yet, on close scrutiny the organizations can
discover that similar product can be produced with lower expense,
which would also help in bringing down the prices. Briefly, the
cheaper version of an expensive product can be called cost
reduction or reduction in cost.

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PROCESS : NEW PRODUCT DEVELOPMENT
 The NPD process consists of a series of activities that firms employ in the complex
process of delivering new products to the market. Every new product will pass through
a series of stages from ideation through design, manufacturing and market
introduction.
 Development of new products is not a luxury but a necessity. Firms need a perpetual
supply of new products to make up for the ones that decline and fade out. The failure
to launch new products and improve the existing ones makes a firm vulnerable to
decline. It for this reason, firms establish a department dedicated to developing new
products.

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STAGES OF PRODUCT DEVELOPMENT
PROCESS
It is important to understand that there is no one generic product development process and
that each rendition of such a process will vary depending on the depth and detail that each
explanation covers. It explains 8 stages of the product development process and these are
listed below.
1. Idea Generation: The first stage in the product development process is idea
generation. In this stage, the company comes up with many different and unique ideas
based on both internal and external sources. Internal idea sources more often than not
refer to the in-house research and development teams of the company and external
sources refer to competitor innovations, the customer wants, distributors and
suppliers, and so on. The company thereby focuses on coming up with as many
feasible ideas as possible.
2. Idea Screening: The next stage involves the screening of this often-large set of ideas.
The primary objective of this stage is to focus on ideas that are in line with the
company’s customer value and financial goals. The stage focuses on the filtering
out of ideas that are poor or are not feasible and retaining those that have good
potential. This is to ensure that the company does not face losses by moving ahead
with fickle ideas that do not promise adequate returns.

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 STAGES OF PRODUCT DEVELOPMENT
PROCESS
3. Concept Development and Testing: The third of the product development process steps is concept
development and testing. In this stage, good product ideas must be developed into detailed product
concepts that are conveyed in consumer-oriented terms. The concept must be made in order to protect
the product in terms of how it is perceived by consumers and how it will potentially be received in the
market and by which set of potential customers. This concept must then be tested by presenting it to the
target consumers and their response must be taken into account.
4. Development of Marketing Strategy: The new product development process in marketing is
covered in stage four. In this step, the company tries to come up with strategies to introduce a promising
product into the market. The company must therefore come up with the price, and potential revenue
figures as well as advertising and distributing channels in this step.
5. Business Analysis: The product concept is put through a vigorous business analysis or test in order to
ascertain projected sales and revenue and also assess risk and whether the production of the product is
financially feasible. The company’s objectives are considered and if these are satisfied, the product is
moved on to the next step.

6. Product Development: This is the step that comes after the management of a company declares a
product concept to be in line with the goals of the company and issues green light for development. The
research and development wing of the company then works on the product concept for many months
and even years in some cases, to come up with a working and functional prototype of the product
concept.

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 Dr.Manisha Jagtap www.dimr.edu.in

STAGES OF PRODUCT DEVELOPMENT PROCESS

7. Test Marketing: This is the penultimate stage of the new product development process and involves the testing of the product and its
suggested marketing program in realistic market settings. This stage provides an insight into how the product will be introduced into the
market, advertised, produced, packaged, distributed, and eventually sold to the customers, and therefore any optimizations if required can be
made by the company. The Consumer goods market testing explains all the goods that are used by consumers directly, this test is
conducted to know the consumer behavior towards the product. The companies aim customers to go through this entire flow:
 Trial —> Repeat —>Adoption —-> Purchase
To attain all these stages following types of tests are conducted:
Sales-wave Research
 This test is conducted to determine the potential of the product to be consumed/accepted every time it is offered to the customer. The
samples are often distributed for free to analyze the willingness of consumers to accept the product. One major example is a free trial of
new lipsticks, perfumes offered to the existing customers, and feedback.
Simulated Market test
 This test is conducted to ascertain the preference of the customer and their product selection. A group of people are invited to the stores
and are given some discount offers to motivate them to shop in the store. The New Product is placed with the old ones or the
competitors and customers are observed closely, to know if the new product was picked up over other alternatives.
 The products are also distributed for free to acquire more customers for the test and they are inquired about the product later on.
The example is in departmental stores where new products are placed and consumers’ behavior is tracked.
Controlled Market test
 In this test new products are introduced to the chain stores and the presentation of the product is controlled by the brand- their
presentation, sales, pitch, introduction, etc. It is not distributed for free to make people try the product for the price they will get in the
future. In cafes, you are pitched by the waiter for their new recipes and they even ask you to share the feedback multiple times.
Test Markets
 Every brand has its market, they know the demographics and geographics of their customers. A test market is a set of particularly
selected areas or segments of the audience used for a launch (product launch on a small scale), this small test market is representative of
the entire market size of the company.

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 For example, many tech companies launch their new features in particularly selected areas on the basis of sales, customer loyalty, etc.
 Dr.Manisha Jagtap www.dimr.edu.in

STAGES OF PRODUCT DEVELOPMENT PROCESS

7. Test Marketing:

How to do test
marketing?
It has 5 major practical
steps:

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 STAGES OF PRODUCT DEVELOPMENT
PROCESS
8. Commercialization: The final step of the product
development process is that of commercialization. Based
on the information gathered during the test marketing
process, the business management may either decide to go
ahead with the launch of the product or put it on the
backburner. In case the go-ahead is given, the product is
finally introduced into the market and this process is called
commercialization. Also other factors the company will
have to take under consideration in commercialization
are timing i.e. market entry time, geographical
strategy where to launch the product single locality,
region, several regions, etc., target market prospects i.e.
within the rollout markets, the company must target its
distribution and promotion to the best prospect groups. And
finally the introductory market strategy wherein the
company must target its distribution and promotion to the
best prospect groups. This stage often leads to massive
costs in terms of initial infrastructural investments as well
as sales promotions and advertisements.

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 STAGES ACTIVITIES

Idea generation The systematic search for new ideas

Idea Screening Screening new product ideas in order to spot good ideas and drop poor ones

Concept
Development A product idea, product concept, and product image are developed and then tested
&Testing

Designing initial marketing strategy for A new product based on the product
Marketing strategy
concept

a review of the sales, costs, and profits projections for a new product to find out
Business analysis
(whether these factors satisfy the company’s objectives.

A strategy for company growth by offering modified or new products to current

Product development
market segments
Test marketing the product and marketing program are tested in more realistic market settings

Commercialisation introducing a new product into the market

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 Branding
definition

“Branding is
endowing
products and
services with
the power of a
brand” (Kotler &
Keller, 2015)

Branding is a type of marketing practice where a

company creates a name or a symbol or even a
design that can be easily identifiable, about the
belonging of the company. The brand acts as a
true representation of the individuality of the
business, and the way the business wants to
flourish, this can be perceived from the brand of
that particular company.

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 Features of Branding
The features of Branding are as follows
Competitiveness
 For a brand to truly be successful the needs are required to be focused as being competitive in today’s world is very important. A
company has an entire team who is working behind a brand, to make that a hit. A successful brand goes beyond consumer
expectations to give a competitive edge cutting to the industry.

Distinctiveness
 To create an identity of the brand, the creation needs to be highly distinctive from the other. The world’s most popular brands, like
Apple, Starbucks, or the BMW cars have successfully created this impact in the minds of the customers. Take for instance the
Apple product which is renowned for its technical approach to design and technology gets appreciation for the innovation in its
products. Starbucks promises services across the globe. Hence, we see that brands have a distinctive approach always.

Consistency
 Being consistent is always the catch. It is highly important for the company to remain consistent with the devotion it does to create
the brand. They should maintain the flow of efforts. Consistency will help the customers be familiar with the brand.

Leadership
 The greatest brands in the world are always supported by the leaders who have the power to inspire and continually aspire for their
greatness. This works the same for a sports team, and hence also for a large corporation or a small business, the most successful
business ought to have an influential leader backing them.

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Functions of Branding
The functions of Branding are achieved by a consistent effort. There is a whole team
backing up the process of Branding and making efforts to keep a continued effect on the
minds of the customers. Branding is totally a mind’s game hence, it is the mind that will
help the branding to achieve its function effectively. The features of branding are the actual
function of branding as well, as the concept of branding is only dedicated as an overall
process.
The functions done by branding are as follows –
 Differentiation.
 Authenticity.
 Value Setting and Centering.
 Unification.

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Brand
Brand definition
 “A brand is a name, term, design, symbol, or any
other feature that identifies one seller’s good or
service as distinct from those of other sellers”
(American Marketing Association).

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Brand Equity
 Brand Equity is the value and strength of the Brand that decides its worth.
 It can also be defined as the differential impact of brand knowledge on consumers response to
the Brand Marketing.
 Brand Equity exists as a function of consumer choice in the market place.
 The concept of Brand Equity comes into existence when consumer makes a choice of a product
or a service.
 It occurs when the consumer is familiar with the brand and holds some favourable positive
strong and distinctive brand associations in the memory.
 This is the impact a brand can impose over the purchasing decision of a customer.it is a set of
brand assets and liabilities which can either add or subtract from the brand value.

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 END OF UNIT I

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UNIT 2 PRICE

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 What Is a Price?

Price - Exchange value of a

good or service
Price is the only element in the
marketing mix that produces
revenue; all other elements
represent costs.
So Cost =FACT;
Price (cost+Margin)
= POLICY

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 Pricing Puzzle
Minimize Optimize Maximize
Costs + Margins = PRICE
VALUE

• Production costs  Product performance

• Indirect costs • Usefulness & Quality
• Advertising costs  Image / Aspirations
• Brand Equity
• Distribution costs
 Availability
• Manufacturer’s margin • Distribution Strategy
• Distributor’s margin  Service
• Seller’s margin • Before/During & After sales

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 VALUE
Value is a ratio between what customer gets and what
he gives
Value = Benefits/Costs

How to increase its Value?

•Raise benefits
•Reduce costs
•Raise benefits and reduce costs
•Raise benefits by more than the rise of costs
•Lower benefits by less than the reduction of
costs

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 Synonyms for Price

• Rent • Special assessment

• Tuition • Bribe
• Fee • Dues
• Fare • Salary
• Rate • Interest
• Toll
• Donation
• Premium
• Commission
• Honorarium
• Tax
• Wage

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 Common Pricing Mistakes
• Determine costs and take traditional industry margins
• Failure to revise price to capitalize on market changes
• Setting price independently of the rest of the marketing mix
• Failure to vary price by product item, market segment,
distribution channels, and purchase occasion

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 Pricing Puzzle

4 P’s 4 C’s
• PRODUCT • CUSTOMER VALUE
• PRICE • COST
• PLACE • CONVENIENCE
• PROMOTION • COMMUNICATION

Seller’s Dilemma

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 Pricing Puzzle
4 P’s 4 C’s
• PRODUCT • CUSTOMER VALUE
• PRICE • COST
• PLACE • CONVENIENCE
• PROMOTION • COMMUNICATION

“ Tomorrow’s winner companies will be those

who offer distinct products at comparatively low
market prices ”

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Key = Differentiation
The key to drive value is to offer relevant and
distinctive product differentiation
• Physical Differences
– Features, performance, durability, conformance, design, etc…
• Availability Differences
– Distribution channels ; Stores, mail-order, internet, etc…
• Service Differences
– Delivery, installation, training, consulting, maintenance, etc…
• Price Differences
– Price positioning (Very high / High / Medium / Low / Very Low)
• Image Differences
– Symbols, atmosphere, events, media, etc…

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 Key = Differentiation
Differentiation : Examples
• Physical Differences
– Levi’s Engineered Jeans (Ergonomic construction, durability, style)
• Availability Differences
– Dell Computer’s customized production, Volkswagen “e.lupo”
• Service Differences
– Acıbadem Hospital – Mother Care Division, Nissan “5-year Warranty”
• Image Differences
– Audi vs Mercedes, DuPont (Innovation Leader)

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 Key = Differentiation
Differentiating commodities…
• Perdue Chicken (USA)
– Guaranteed tenderness (30 % market-share, 10 % premium pricing)
• Flora Drinking Water (Turkey – Sabancı Holding)
– Service, packaging, attributes, operation
• Starbuck’s Coffee (USA)
– Atmosphere, standard service

Everything can be differentiated !...

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 Price mix is the combination of different ‘price-related variables’
determined by a producer to fix the price of the product or service he
offers. These variables include the cost of making the product, the
factors that influence the pricing decisions, the various pricing
strategy, the pricing objectives, etc.

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 PRICE MIX is the value of the product determined by the producers. Price mix
includes the decisions as to: Price level to be adopted; discount to be offered; and,
terms of credit to be allowed to customers.

 Price —The amount of money charged for a product or service, or the sum of the values
that consumers exchange for the benefits of having or using the product or service.

 PRICE MIX is the value of the product determined by the producers. Price mix
includes the decisions as to: Price level to be adopted; discount to be offered; and, terms of
credit to be allowed to customers.

Your pricing strategy should reflect your product’s positioning in the market and the
resulting price should cover the cost per item and the profit margin. The amount should not
project your business as timid or greedy.
 Low pricing hinders your business’ growth while high pricing kicks you out of the
competition.
 There are a number of pricing strategies that you can follow. Some strategies may call for
complex computation methods and others are intuitive decisions. Select a pricing strategy
that’s based on the product itself, competitive environment, customer demand, and other
products that you offer.

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Importance of Pricing in Marketing Mix
 Most of the time marketers give more importance to activities like market
research, product management, promotion and distribution. These are
considered important aspects of marketing mix.
 But pricing is also a very important element in the 4 P’s of marketing
mix.
 This is the only element that generates revenue and supports other
activities like product distribution, promotion and advertisement.

 Pricing is Flexible. Pricing is the only single variable that is flexible and
can be changed within no time. On the other hand, the remaining elements of
marketing mix like distribution channels, promotional campaigns and can
increase the cost.

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Importance of Pricing in Marketing Mix
 Set the right Price. When setting the price keep in mind the strategic
objective of the organization.
For example, if a marketer set too high or too low in both pricing decisions
it can affect the sale growth.
Positioning. When setting a price, it conveys a message to your potential
customers about your product and service and creates a perceived value of
marketing mix. This perceived value can affect the consumer decision-
making process. High pricing means high-quality products and services.
Low pricing products and services indicate that you are a low-cost
provider.

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 Factors Affecting Pricing Strategies
let us discuss what factors to consider when companies setting prices.
 Internal Factors Affect Pricing Decisions
Those internal factors affect the pricing consist
• Cost. It is the base for the price that can be charged for products and services. When
setting the prices, a company should cover both fixed and variable costs.
• Marketing mix strategy. price is important marketing mix tool that helps to achieve the
marketing objectives. Price decisions coordination product, placement and promotion
decisions must be coordinated
• Marketing Objectives of your company like your target market and
positioning strategies
• Product Life Cycle. Different stages of product life cycle affect the pricing decisions
• Image of the Firm. Another factor affects the pricing decision is the image and
goodwill of the company.

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 Factors Affecting Pricing Strategies
External Factors Affect PricingDecision

 Competition. When setting the product price, the company must

understand the level of competition in the market.
 Consumers. When fixing the price keep in mind the consumer purchasing power and
price sensitivity.
 Economic Conditions. The economic factors include interest rate, inflation and economic
boom and recession.
 Government Controlled Economy is another factor to be
considered.

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 Steps in Setting the Price

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Steps in Setting the Price
STEP 1 Selecting the pricing objective
The company first decides where it wants to position its market offering. The clearer a firm’s objectives, the easier it is to set price.
Five major objectives are:
 Survival: Companies pursue survival, as their major objective if they are plagued with overcapacity intense competition, or
changing consumer wants. As long as prices cover variable costs and some fixed costs, the company stays in business. Survival is a
short-run objective: in the long run, the firm must learn how to add value or face extinction.
 Maximum current profit : Many companies try to set a price that will maximize current profits. They estimate the demand and
costs associated with alternative prices and choose the price that produces maximum current profit, cash flow or rate of return on
investment. This strategy assumes that the firm has knowledge of its demand and cost functions; in reality these are difficult to
estimate.
 Maximum market share: Some companies want to maximize their market share. They believe that a higher sales volume will lead
to lower unit costs and higher long-run profit. They set the lowest price, assuming the market is price sensitive. The following
conditions favor setting a low price. The market is highly price sensitive, and a low price stimulates market growth. Production
and distribution costs fall with accumulated production experience; A low price discourages actual and potential competition
 Maximum market skimming: is where a company sets a high price to capture those customers who are willing to pay more for a
product. It is skimming the cream off the top of the market, and it works well with an innovative or new technology product.
Companies unveiling a new technology favor setting high prices to “skim” the market. Sony is a frequent practitioner of market
skimming pricing.
 Product-quality leadership : is where a company aims to provide the best quality product in the market, and therefore charges
more than its competitors. These companies are usually market leaders.

Pricing objectives must fit in with the overall marketing objectives. They must fully integrate with and support all the other

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Dr.Manisha Jagtap www.dimr.edu.in
Steps in Setting the Price

STEP 2 Determining the demand

 Following the identification of objectives , the firm needs to determine demand. Each price will lead to a different level of
demand and therefore have a different impact on a company’s marketing objectives. In the normal case, demand and price are
inversely related: the higher the price, the lower the demand .In the case of prestige goods, the demand curve sometimes slopes
upward. E.g. Perfume Company raised its price and sold more perfume rather than less! Some consumers take the higher price to
signify a better product. However if the price is too high, the level of demand may fall.
 Do you agree that generally speaking customers are most price-sensitive to products that cost a lot or are bought frequently?
They are less price-sensitive to low cost items or items they buy infrequently. They are also less price-sensitive when price is
only a small part of the total cost of obtaining, operating and servicing the product over its lifetime. A seller can charge a higher
price than competitors and still get the business if the company can convince the customer that it offers the lowest total cost of
ownership (TCO).
The process of estimating demand therefore leads to
i. Estimating Price sensitivity of market : Affects the demand of a product. If the price of the product rises then the demand falls
and vice versa. In this case, the demand may shift to the substitute of the product. A marketer tries to study the price sensitivity of
the product for making decisions about the price of the product.
ii. Estimating and analyzing demand curve : Implies a statistical tool that shows a relationship between the demand and price of a
product. It helps in knowing the demand and price fluctuations of the product.
iii. Determining price elasticity of demand: refers to a percentage change in the demanded quantity of the product with respect to the
percentage change in the price of the product. If the demand of a product changes with the change in price then the demand is
said to be elastic. On the other hand, if the demand of a product does not change with the change in price then the demand is said
to be inelastic.

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 Steps in Setting the Price

STEP 3 Estimating Costs

In order to continue working successfully, companies need to manage their costs so that they are left with a good profit margin. Therefore,
to achieve this, a company needs to establish a production level at which it will be able to maintain its fixed and variable costs.
In general, the cost per unit decreases as production level increases. That is simply due to the learning curve effect that comes with
increased experience. So to ensure you profit with this strategy, you need to allocate the costs and set the price accordingly.
For determination the price of product company should estimate the cost of product.
 Variable and Fixed Cost :
Price must cover variable & fixed costs and as production increases costs may decrease. The firm gains experience, obtains raw materials at
lower prices, etc., so costs should be estimated at different production levels.
 Differential Cost in Differential Market :
Firms must also analyze activity-based cost accounting (ABC) instead of standard cost accounting. ABC takes into account the costs of
serving different retailers as the needs of differ from retailer to retailer.
 Target Costing :
Also the firm may attempt Target Costing (TG). TG is when a firm estimates a new product’s desired functions & determines the price that
it could be sold at. From this price the desired profit margin is calculated. Now the firm knows how much it can spend on production
whether it be engineering, design, or sales but the costs now have a target range. The goal is to get the costs into the target range.

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 Steps in Setting the Price
STEP 4 Analysing Competitors’ Costs, Prices and offers-

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 Steps in Setting the Price
STEP 4 Analyzing Competitors’ Costs, Prices and offers-
 Every company has to track its competitors carefully. That especially goes for pricing, costs, and promotional
offers.
 Companies need to know just how much their competitors’ prices can fluctuate in comparison to their own. They
also need to be ready to adjust to those fluctuations with their own offers. The firm should benchmark its price
against competitors, learn about the quality of competitors offering, & learn about competitor’s costs.
 While demand sets a ceiling and costs set a floor to pricing, competitors’ prices provide an in between point you
must consider in setting prices. Study the price and quality of each competitor’s product or service by sending out
comparison shoppers to price and compare. Acquire competitors’ price lists and buy competitors’ products and
analyze them. Also ask customers how they perceive the price and quality of each competitor’s product or service.
 If your product or service is similar to a major competitor’s product or service, then you will have to price close to
the competitor or lose sales. If your product or service is inferior, you will not be able to charge as much as the
competitor. Be aware that competitors might even change their prices in response to your price.
 Within the range of possible prices determined by market demand and company costs, the firm must take
competitors’ costs, prices, and possible price reactions into account.
A) The firm should first consider the nearest competitor’s price.
B) The introduction of any price or the change of any existing price can provoke a response from customers,
competitors, distributors, suppliers, and even the government.
C) How can a firm anticipate a competitor’s reactions?
1)One way is to assume the competitor reacts in the standard way to a price being set or changed

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 Steps in Setting the Price
 STEP 5 Selecting a Pricing Method

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Steps in Setting the Price
 STEP 5 Selecting a Pricing Method
There are several ways to set the price for your products or services.
These are the most popular ones:
 The markup method means that you’re setting a price based on your desired profit level.
For example, a particular item’s fixed and variable costs are $20, and the marketer decides to make a
profit of 20%, then the product’s price will be $24/= $(20+4).
 Target return means that you’re setting a price based on the company’s desired ROI.
For example, a company has invested $1,000,000/- in its business and expects a sale of 100,000 units,
and the per-unit cost is $10/-. The company wants to achieve a 20% rate of return on investment. In this
case, its target return price will be $12/-. The formula used to calculate target return pricing is as follows:
Target Return Price = Unit Cost + { ( Desired Return x Invested Capital ) / Unit Sales }

 Perceived value is as simple as setting a price based on how much your consumers believe your
product or service is worth to them in reality. To build up perceived value in the buyers’ minds,
marketers use non-price variables such as durability, reliability, service, etc. in their marketing mix.
Perceived value is captured to set a price accordingly.
 There are also auction type pricing and group pricing methods, but they are less popular.
Given the three Cs – the Customer’s demand schedule, the cost function and the competitors’ prices
– the firm is now ready to select a price. The Fig 3.3.1 summarizes the three major considerations in
price setting. Costs set a floor to the price. Competitors’ price and the price of substitutes provide an
orienting point.

Customers’ assessment of unique features establishes the price ceiling. Firms select a pricing approach
that includes one or more of these three considerations. The pricing approaches are cost-based or buyer-
based or competition-based. These approaches were discussed at length in the previous lesson.

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 Steps in Setting the Price
 STEP 6 Selecting the Final Price
Pricing methods narrow the range from which the company must select its final
price. In selecting the final price, management must consider the following a
factors: the psychology of prices, the influence of other marketing-mix
elements on price (e.g., the brand's quality and advertising relative to
competition), company pricing policy, and impact of price on other parties
(such as distributors, dealers, competitors, suppliers, and government).
In selecting that price, the company must consider additional factors.
 Impact of other marketing activities
 Company pricing policies
 Gain-and-risk-sharing pricing
 Impact of price on other parties

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Steps in Setting the Price
 STEP 6 Selecting the Final Price

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 Price Adaption Strategies
 Adapting the price that can bring the most customers to buy your product can be competitively advantageous.
 Price is not only an element that displays the value of the product; it is more. It can generate interest among
customers and is a great way to do promotion.
 As a good marketer, you should understand the changing market's nuances and changing consumer behaviour
and come up with pricing strategies that can best suit your customer. Understanding price adaptation strategies
can help you do that.
 Prices set by a company do not always remain the same. Over time, the original price established for almost any
product will have to be adjusted.
 The marketer will find it necessary to change the product’s price several times during the course of its life cycle.
 They are changed or adapted depending on the needs or situations. A company needs to adapt its prices to
different situations, i.e., it may charge different prices depending on geographic variation, variations in segments,
purchase timing, order levels, delivery frequency, guarantees, service contracts, and some other factors.
Price adaptations are made to pursue a number of goals;
 change of purchase patterns;
 market segmentation;
 market expansion;
 utilization of excess capacity;
 implementation of channel strategy; and,
 to meet the competition.

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 Price Adaption Strategies
 The price of a company may be adapted following a number of
adaptation strategies. A company may choose one or more of these
strategies depending on the policies it decides to pursue.
 Different price-adaptation strategies to be discussed here are;
1. Geographical pricing
where the company decides how to price to distant customers.
2. Price discounts and allowance
where the company establishes cash discounts, quantity discounts,
functional discounts, seasonal discounts, and allowances.
3. Promotional pricing
where the company decides on loss-leader pricing, special-event pricing,
cash pricing, low-interest financing, and psychological discounting.
4. Differentiated pricing
where the company establishes different prices for different customer
segments, product forms, brand images, places, and times.

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 Price Adaption Strategies
 Different price-adaptation strategies to be discussed here are;
1. Geographical Pricing (Cash. Counter trade. Barter)
Geographical pricing involves the company in deciding how to price its products to different customers in different
locations and countries.
For example, should the company charge higher prices to distant customers to cover the higher shipping costs or a
lower price to win additional business? Another issue is how to get paid. This issue is critical when buyers lack
sufficient hard currency to pay for their purchases. Many buyers want to offer other items in payment, a practice known
as counter trade. American companies are often forced to engage in counter trade if they want the business. Counter
trade may account for 15 to 25 percent of world trade and takes several forms: barter, compensation deals, buyback
agreements, and offset.
Geographical pricing is used for customers in different parts of the country or the world.
 FOB-origin pricing: FOB-origin (free on board) pricing is a geographical pricing strategy in which goods are
placed free on board a carrier; the customer pays the freight from the factory to the destination.
 Uniform-delivered pricing is a geographical pricing strategy in which the company charges the same price plus
freight to all customers, regardless of their location.
 Zone pricing is a strategy in which the company sets up two or more zones where customers within a given zone
pay the same price.
 Basing-point pricing means that a seller selects a given city as a “basing point” and charges all customers the
freight cost from that city to the customer.
 Freight-absorption pricing is a strategy in which the seller absorbs all or part of the freight charges in order to
get the desired business.

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 1. Geographical pricing

Barter Compensation deal

Direct exchange of goods Payment in products and cash

Buyback arrangement Offset

Payment in form of products
manufactured by the supplied Receives payment in cash but agrees to
equipment and cash spend some of the money in the products of
that country
 Price Adaption Strategies
 Different price-adaptation strategies to be discussed here are;

2. Promotional Pricing
 A promotional price adaptation strategy is the approach of reducing the price of the product on a temporary basis to attract
customers to buy your product.
The types of promotional price adaptation strategy are as follows:
 Loss-leader pricing: This pricing is mainly adapted to get consumers in the store and increase brand awareness. In this case, the
prices of the products might be even lower than the cost of their production, but the strategy is such that the lower price of the
product is what bring consumers in the store and they buy in volume.
 Special Event Pricing: Remember headlines like “This Diwali Season, get everything at 50% off” or “Enjoy a candlelight dinner
with your Valentine under just ₹999”. This pricing is changed or adapted based on any special event to bring customer traffic.
 Special Customer Pricing: This is based on the type of customers. Generally, loyal customers are said to gain the most benefits.
For example, a gold card member at Pantaloons might get larger discounts than a green card member.
 Cash Rebates: This pricing includes giving refunds to customers who buy from you within a specified time. For example,
Marketer gives a 20% discount to the customer at the time of purchase of a cell-phone.
 Low-Interest Financing: Here, the Marketer does not cut the price of the product, but give low-interest financing. An example
of this is smartphone companies providing easy EMIs with a low-interest rate.
 Warranties and Service Contracts: the Marketer can increase sales by giving extended, low cost or free warranties and service
contracts to the customers. Look at the image below for example,

 Psychological discounting:
Here the Marketer plays with the customer’s mind a little by excessively increasing the price of the product and then giving heavy
discounts. The following image will give you an idea of psychological discounting.

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 2. Promotional pricing

Special-event pricing Longer

payment
terms

Low-interest
financing

Cash rebates
Warranties and
service contracts
 Price Adaption Strategies
 Different price-adaptation strategies to be discussed here are;

3.Price Discounts and allowance

 Most companies will modify their basic price to reward customers for such acts as early payment, volume purchases and off-search
buying. These price adjustment – called discounts and allowances can be of various types such as:-
a. Cash Discounts: A cash discount is a price reduction to buyers who promptly pay their bills. Such discounts, serve the purpose of
reducing the sellers liquidity and reducing credit-collection cost and bad-debts. The discount that you might give to a buyer who
pays all bills punctually. Take a look at your monthly electricity bill; you will see the following column in there.

b. Quantity Discount: A quantity discount is a price reduction to buyers who buy large volumes. Quantity discounts must not exceed
the cost savings to the seller associated with selling large quantities. These savings include reduced expense of selling, inventory and
transportation. For eg. The marketer may offer a quantity discount to your buyer who buys in large volumes. Remember asking for a
discount on 2 kg apples like “Bhaiya 100 rupaiye lelo 2 kg apple lugi (I will give 100rs for 2kg rather than 70rs for 1kg)”, quantity
discount works like that. Volume purchases reduce the unit cost of manufacturing, marketing and transporting.
c. Functional discounts:- functional discounts are offered by the manufacturers to trade channel members if they will perform certain
functions such as storing and record keeping. The discounts the marketers give to various members across the distribution channel
are called functional discounts. They are also called as trade discounts. In simple terms, functional discounts are those that you give
to a distributor or a retailer as incentives to buy from you.
 Seasonal discounts:-a seasonal discounts is a price reduction to buyers who buy merchandise or service out of season. Seasonal
discounts allow the seller to maintain steadier production during the year. That discounts you might give to your buyers to increase
sales in the off-season is called a seasonal discount. For example, a “Happy Hour”. Restaurants give discounts during lunch hours or
tea-time hours when traffic to the restaurant is at the least.

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 3. Price discounts and allowances

Cash discount Quantity discount

Discounts given to cash, Discounts given to those
early or prompt payments who buy large volumes

Seasonal discount
Discounts given to products or
services that are out of season

Trade discount Allowances

Discounts given by Discounts given to gain
manufacturers to resellers reseller participation in
special programs
 Price Adaption Strategies
 Different price-adaptation strategies to be discussed here are;
4. Differentiated Pricing
Companies often adjust their basic price to accommodate differences among customers, products, locations, and so on. Lands’ End creates
men’s shirts in many different styles, weights, and levels of quality. In March 2014, a men’s white button-down shirt could cost as little as
$19.99 or as much as $70.00.
Price discrimination occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in
costs. In first-degree price discrimination, the seller charges a separate price to each customer depending on the intensity of his or her
demand.
In second-degree price discrimination, the seller charges less to buyers of larger volumes. With certain services such as cell phone service,
however, tiered pricing results in consumers actually paying more with higher levels of usage. With the iPhone, 3 percent of users
accounted for 40 percent of the traffic on AT&T’s network, resulting in costly network upgrades to AT&T and causing the firm to set
higher prices for those users.
In third-degree price discrimination, the seller charges different amounts to different classes of buyers, as in the following cases:
 Customer-segment pricing. Different customer groups pay different prices for the same product or service. For example, museums
often charge a lower admission fee to students and senior citizens.
 Product-form pricing. Different versions of the product are priced differently, but not in proportion to their costs. Evian prices a 2-
liter bottle of its mineral water as low as $1 but 5 ounces of the same water in a moisturizer spray for as much as $12.
 Image pricing. Some companies price the same product at two different levels based on image differences. A perfume manufacturer
can put a scent in one bottle, give it a name and image, and price it at $10 an ounce. The same scent in another bottle with a different
name and image can sell for $30 an ounce.
 Channel pricing. Coca-Cola carries a different price depending on whether the consumer purchases it from a fine restaurant, a fast-
food restaurant, or a vending machine.
 Location pricing. The same product is priced differently at different locations even though the cost of offering it at each location is
the same. A theater varies its seat prices according to audience preferences for different locations.
 Time pricing. Prices vary by season, day, or hour. Restaurants charge less to “early bird” customers, and some hotels charge less on

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 Concept of Transfer Pricing
 Transfer pricing is just the demonstration of pricing of merchandise, goods, services, or intangibles when they are given to another division, subsidiary,
or related party for utilizing, channelizing, or consumption. It is utilized for depicting the pricing arrangements between organizations that identify with
exchanges between comparable business entities, divisions, and parties that incorporate physical as well as intellectual alongside various financing
exchanges. Tax administrations and taxpayers involved in multinational business operations consider tax pricing highly significant, as it helps in finding
out the costs and income of relating ventures. In this way, Transfer Pricing decides their taxable profits in various tax jurisdictions of different
countries.
Motivations behind Transfer Pricing The key goals behind having Transfer Pricing are
 Ensuring separate profit for every one of the divisions

 Empowering performance assessment of every division independently

 Not just affecting the reported profits of every division but additionally influencing the allotment of an organization’s assets
Business needs to understand Transfer Pricing
 With the end goal of effective management accounting and reporting, MNCs have some measure of tact while characterizing how to distribute the
profits and expenses to the different divisions and subsidiaries situated in other nations.

 Sometimes a division of an organization may be separated into sections or may be represented as an independent business.
 In all such cases, transfer pricing helps in designating revenue and costs to such divisions, subsidiaries, or parties in the correct way.

 Here, a business needs to understand that the profitability of a division or subsidiary relies upon the prices at which the inter-company transactions take
place. When transfer pricing is applied, it could affect investors’ or shareholders’ wealth, as this impacts the organization’s taxable income along with
after-tax and free cash flow.

 So, a business dealing with cross-border intercompany exchanges ought to comprehend what is transfer pricing and its working, especially for
compliance necessities according to law, and to dispose of the risks associated with non-compliance.

International Transactions subject to Transfer Pricing

Sale of completed or Purchase of the raw Purchase of the fixed Sale or acquisition or Sale or purchase of
finished products or materials resources or assets purchase of hardware, Intangibles
goods machinery and so forth

Management fees Royalty fee Corporate Guarantee fee Technical Service fees Software Development S
ervices

Reimbursement of costs IT Enabled Support administrations The loan got or paid, etc.

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 Concept of Dynamic pricing

 Dynamic pricing is a pricing strategy that uses flexible prices instead of fixed ones. Prices vary based on different changes in the market, such as
competitor pricing, demand, supply, time, and customers’ behavior.
 Dynamic pricing is also referred to as surge pricing, demand pricing, or time-based pricing. This is a pricing strategy in which businesses can set
flexible prices based on current market demands. To put it more simply, this is a strategy in which product prices continuously adjust. It may be in a
matter of minutes, hours, or days, depending on the type of the market.
 Dynamic pricing in practice is often a responsive or a reactive pricing strategy. This means that the marketer adjust the prices according to various
market changes.
 Generally speaking, this means reacting to changes in supply and demand in a timely manner, so the marketer can capitalize on those changes. This
is also the main incentive for companies to use dynamic pricing.
 Dynamic pricing strategy is popular among many business models. But the first companies that spring to mind are the airline industry, eCommerce
businesses, public transportation, retail, and entertainment. Since each of these industries has different mechanics, they use different types of
dynamic pricing models.
Some popular examples of dynamic pricing
 eCommerce: Many businesses adjust their prices automatically based on competitors, market price, seasons, and internal marketing efforts (new
collection, outlet seasons, etc..).
 Events: dynamic pricing helps the event industry to generate more revenue by using the levers of urgency and scarcity. Cheaper early bird or more
expensive last chance tickets are great examples.
 BnB and hotel Industry: here prices are correlated with seasons and certain times of the year such as holidays, special days, or events.
 Ride-hailing services: Snowy, rainy, rush-hour, or during the storm, riding services use dynamic pricing (surge pricing) to benefit from the
environmental conditions.
 Airline pricing: regulars can organize their flights 5 months in advance. But business people often need to reserve flights at the last minute.
Therefore ticket prices change in a matter of minutes with time-based pricing strategies.
 Google ads: the price of ads (keywords) is determined by the market's current supply and demand rate. Say you want to target the keyword "gift
ideas" in the Christmas season, you can pay a lot more than a typical day.

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 Pricing in online marketing
Freemium Pricing
 Freemium pricing is a combination of two terms; premium and free. However, it’s a pricing strategy that
offers basic services for free, and advanced features for the premium price. This strategy attracts the attention
of customers by offering some services for free. If the customers like the basic services, then they have to a
certain price to enjoy the additional services.
 For businesses and companies that offer free and paid services permanently, the freemium tag doesn’t apply to
them. It’s only applicable to those businesses that limited trial services for free.
 The reason companies use the freemium pricing method is to convince customers and lure them with a free
option, and they could upgrade it to the paid version anytime whenever they want.
According to one Harvard Business Review article, most companies with a freemium model have a 2% – 5%
conversion rate from free users to paying customers. To find out if this conversion rate is enough for your business,
consider the following:
 Customer acquisition cost
 Business expenses
 Customer lifetime value

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 Pricing in online marketing
Freemium Pricing
Some of the main examples of freemium pricing are as follows;
 Spotify is one of the best-known companies with a highly successful freemium model; the online music streaming service
boasts an impressive 381 million users, and about 172 million of those users are paid subscribers.
 Online magazines and newspapers like Harvard Business Review offer a limited number of free articles, if the user wants
unlimited access, then he has to pay for it.
 Skype, the firm that allows you to make video or voice calls over the internet. There's no cost to set up a Skype account, the
software can be downloaded for free, and there's no charge for their basic service—calling from a computer (or a cell phone or
tablet) to another computer. But for more advanced services, such as placing a call to a landline or a mobile phone, you do have
to pay, albeit a small amount compared to conventional phone company charges.
 One of the earliest to do so—is King, the developer of the highly popular internet game Candy Crush Saga. The addictive
activity, available on the king.com site, on Facebook, and on apps, is free to play. It allows users an allotted number of lives
within a certain timeframe, but charges for extra lives if someone wants to play more during that window. Users also can pay
for "boosters" or extra moves to help win the levels and advance through the game more easily.
 Dropbox and LinkedIn are a study in contrasts. The former has attracted 200 million users with a simple proposition:
Everyone who enters a username and a password gets two gigabytes of cloud-based storage free. If people run out of space,
they can pay $9.99 a month (or, alternatively, $99 a year) for 100 GB of storage. The free version is adequate for basic
documents, but anyone who wants to back up photos or other media quickly hits the limit, and the reasons to upgrade are
obvious.
 Byju’s follows a Freemium Pricing. It earns through the subscription amount paid by students. BYJU's also earns by selling
products. BYJU's also provide a number of premium academic content for free.

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 Pricing in online marketing
Freemium Pricing

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Price Change
 In a dynamic business world, price administration cannot end with the setting of an initial price. Changing
marketplace conditions often require the organization to cut or increase prices to stop making changes.
 Companies often face situations where they may need to reduce or increase their prices even after developing
pricing strategies and structures.

Initiating Pricing Changes

Price cuts occur due to:
Excess capacity
Increased market share
Price increases occur due to:
Cost inflation
Increased demand
Lack of supply

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Initiating to Price Change
After goods have been produce, price is determined on the basis of its cost and taking reasonable profit. The price so
determined may also need changes. Due to external and internal environmental effects, prices may need changes. Two main
strategies can be adopted in leadership pricing as follows:
1. Initiating price cut
 Tradition holds that any competitor can lead prices down, but only dominant competitors can lead prices up. Prices may
be cut temporarily either to introduce a new product or to sell excess inventory.
 If a company’s market share is declining, the marketing executive can decide to cut the price to revive sales.
 A small competitor may institute price cuts to gain market share; however, a large competitor will follow price reductions
only if a greater amount of profit will be lost by not doing so.
 Price reduction or cut occasionally occurs even in oligopoly. The reason is that no mechanism can control all of the
companies operating in the marketplace.
 In the product’s growth stage, the marketing executive may cut the price on an incremental basis because competition
becomes greater, and the supply of competing items grows.
 The executive may also wish to tap a larger share of the target market – those who can not pay the higher price.
 To successfully compete during the maturity stage, the marketing executive will significantly cut the price since
competition peaks. The target market becomes an extremely price-sensitive group at this stage.
 Price cut may also be initiated to achieve more widespread distribution of the product or special promotional efforts or
move out excess inventory.
 A company, then, cuts price under several circumstances of which excess plant capacity, declining market share, and drive
to dominate the market through lower costs are important.

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Initiating to Price Change
2. Initiating price increase
 The changing marketplace conditions often require the organization to increase prices. It is noted that only dominant
competitors can lead prices up. This rule of thumb holds some of the time.
 Only companies with relatively large market shares are likely to be successful in leading price increases.
 One of the most frequent causes of initiating price increases is a change (rise) in the cost of producing or selling the
item.
 The impetus for a price change, thus, first comes from increased costs. Price increases may also be initiated, anticipating
increased future labor costs, basic supplies, and many fixed expenses.
 The decision to initiate price increases is also influenced by the general sensitivity of demand to price and competitors’
possible reactions. A move to a higher level of price may reflect product superiority for a firm with a highly
differentiated product. Of course, such upward moves are easier to sustain when non-price promotional efforts have
created a strong selective demand for the product. With the increase in costs, a marketing executive may decide to
increase prices rather than maintain it.
 Over demand is another variable that may motivate the marketing executive to initiate a price increase. There may be a
situation when a firm may not meet all who desire the product.
 To discourage a certain segment of buyers to cope with the over demand situation, the firm may initiate the price
increase.
Many circumstances may lead a firm to increase its price, of which cost inflation, general sensitivity of demand to price, and
over demand are notable.

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Initiating to Price Change

A company can also deal with the two situations (price cut or Price increase) without raising
prices. One of the following techniques may be adopted by a company to face cost inflation
and over demand without price increase:
 It may shrink the amount of product.
 Less expensive materials and ingredients may be used.
 It may reduce or remove some of the product features.
 It may also remove or reduce product services such as warranty, free delivery, and free
installation.
 Less expensive packaging materials may be used, or larger sized package may be
promoted.
 The number of sizes and models may be reduced.
 New economy brands may be developed.

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 Reactions To Price Changes
A company’s product’s price may affect many parties such as customers, competitors, suppliers, distributors, and
government.
The reactions of different parties to a price change in the following sections:
Reactions of Customers
 Customers may react differently to price cuts, such as the item may be abandoned; it is faulty or not selling well;
the firm may quit from this business; its quality has been reduced, or price may come down further.
 Customers may equally react to the price increase of an item.
 The price increase, though, normally reduces sales, may carry some positive meaning as well. Customers may
consider the item as “hot” and may rush to buy it, anticipating that it may not be available in the future, or they
may consider the item worth even if the price is raised.
 Customers are normally price-sensitive to costly items or items frequently bought compared to less costly and
less frequently bought items.

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 Reactions To Price Changes
A company’s product’s price may affect many parties such as customers, competitors, suppliers, distributors, and
government.
The reactions of different parties to a price change in the following sections:
Reactions of Competitors
 Marketers must have a clear idea of the competitive environment in which they operate to estimate the extent of
pricing flexibility available.
 Like the customers, competitors also react to the price change of a company’s product. This reaction is inevitable
if there are few competitors if buyers are highly informed, and if the product is homogeneous.
Reactions of Distributors
 Distributors may find it less profitable dealing with a product the price of which is raised, or they may find it
less prestigious selling a product whose price is cut.
Reactions of Suppliers
 The suppliers may ask for a higher price if the product’s price is increased.

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Responding to Competitors’ Price Changes
Following price changes is usually less risky than leading. If a dominant firm
increases its prices, smaller competitors can hold steady and hope to gain market
share.
 If they follow the leader’s increases, they are likely to hold their current
shares at least. They may even improve their profits with little risk.
 What if relative market shares are fairly even among several competitors? In
this case, the firm that leads to price increases takes the greatest risk.
Customers obviously favor price cuts, but they have to be educated about
increases.
 It is, therefore, always safer to follow, but this is not always an option. A
firm’s survival may hinge on leading with a price increase at the right
moment.
 In the case of homogeneous products, a company can either cut its price as
soon as the competitors cut their prices, or it may augment the product to
compete.
 If the competitors increase the price in a homogeneous product, a company
can match its price accordingly if it thinks that price increase will benefit the
industry.
 In non-homogeneous products, a company can react to competitors’ prices in
many ways, such as maintaining price, raising perceived quality, reducing
price, increasing the price and improving quality, and launching a low-price
fighter line.
 Competitors’ pricing actions are sometimes impossible to predict, but they
can have devastating effects.
 Marketers face difficult pricing decisions and must make them quickly.
What the marketing executive should exactly do depends on the situation.

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Responding to Competitors’ Price Changes

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 END OF UNIT 2

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UNIT 3 PLACE

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But what is Place in Marketing Mix?
The element Place in marketing mix strategy ensures the
availability of product to the intended end consumer. We need to
ensure 3 specific aspects of availability –
 The right place - Groceries must be made available at every
local supermarket or the next-door kirana store. A hatchback
car however, will only be available for purchase in company
showrooms.
 The right time - Umbrellas must hit the market before the
onset of monsoon season and must be available throughout
the season, to be replaced with wollen caps and mufflers as
winter sets in. Winter wear available in the hot months will
attract negligible sales because of seasonality.
 The right quantity - You buy only one LED TV set after
browsing through numerous models at different digital stores,
all offering appealing features at a broad price range.
However, while purchasing vegetables, you visit just a
handful of roadside stalls, observe only few aspects ensuring
freshness of product, and buy by weight.

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Place Mix
 Place mix or distribution mix is an arrangement of
channels, both physical and non-physical, through which
the product is made available to customers for purchase.
 It is the set of decisions a company undertakes to make
the product accessible to its target customers
conveniently in the most cost-efficient manner.
 Place mix is a process by which the goods are transferred
from the place of production to the place of
consumption.
There are 2 important decisions related to place mix:
 Channels of distribution
 Physical distribution

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I. Channels of Distribution
 Channels of distribution refer to the people or middlemen who help
in distributing the goods.
 Since goods are produced in one place and customers are scattered all
over the country. So, it is very difficult for the producer to distribute
goods.
 Channels of distributions are the firms or individuals who help in
transferring goods from the place of the manufacturer or the producer
to the place of the consumer.

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 Channels of Distribution
 Distribution channels make shopping easy for consumers and distribution becomes simple
for a producer. For example, a consumer can get various products at the retailer outlet.
Otherwise, he would have to visit different producers which involves a lot of effort.
 With channels of distribution, consumers can get everything that he wants to buy in one
place. As shown below:

 Without channels of distribution, the consumer has to visit different manufacturers to get
various products. As shown below:

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 Functions of distribution channels
1. Sorting / Grading / Arranging
 Intermediary get the commodities from various manufacturers, and then they do sorting, that is, they repack them according to the
quality, size, or price.
 For example, arranging apples of different size.
2. Accumulate
 Intermediary maintain a large stock of commodities, so that, there is a smooth supply of commodities without any delay.
3. Assortment
 Intermediary maintain the variety of commodities that they procure from various manufacturers and assemble them in one place so
that consumers can fulfill his requirement by visiting one place only.
 For example, Decathlon, where we can get all the sports items.
4. Packaging
 Intermediary buy the goods in bulk and then they repack them in small lots.
 For example, the wholesaler buys bags of 100 kg wheat and then repacks it in convenient packs of 5kg or 10 kg.
5. Promotion
 Intermediary also offer some sales promotional tools to attract customers.
 For example, discounts or offers or deals of the day.
6. Negotiation
 Intermediary negotiates with the manufacturer as well as with the customer on price, quality, and the guarantee.

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 Types of Channels of Distribution
 The distribution channels can be divided into two categories: direct and
indirect. However, direct and indirect distribution channels are most
commonly used. In addition, indirect channels are categorized into one-level,
two-level and three-level according to the number of intermediaries between
manufacturers and customers.

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 Types of Channels of Distribution
 1. Zero Level Channel
 The most simple and the shortest mode of distribution is direct distribution, wherein the goods are directly
available by the manufacturer to the customer, without involving any intermediary. This is a 0 level channel.
 Since the manufacturer has one-to-one interaction with its customers, and it has complete control of the product, its
image, and its user experience at all phases. Generally, manufacturers who offer perishable, expensive, and
geographically focused goods employ this distribution channel, such as consulting organizations, bakers, and
jewelers.
 This distribution channel can take various forms.
The most frequently used are:
Direct mail
 It is one of the most common direct distribution strategies. It covers a variety of mails, such as envelope mailers,
newspapers, sales letters, catalogues, brochures, postcards, and so on. Under this, direct mails are sent to the
consumer’s address.
Online sale
 It is a part of the global internet network, also referred to as I-marketing, web-marketing, e-marketing or e-
commerce. Under this, an enterprise sells its items via the internet and quickly receives its bill. It has emerged as
one of the most popular modes of sales and has swept off the requirement for intermediaries.
Personal selling
 Personal selling is when the manufacturer and the customer has personal communication regarding the sale product

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 Types of Channels of Distribution
Indirect Channel
 In this method, intermediaries are involved to ensure that the
goods are available in the consumer market. It is the most
effective means of distribution and is used to promote apparel,
machines, automobiles, furnishings etc.

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 Types of Channels of Distribution
Indirect Channel
One-level channel
 Here, only one intermediary (retailer) is involved; thus, it’s called a one-level channel. So, the manufacturers sell their products to
retailers who sell them to customers.
 Manufacturers of shopping goods like toys, apparel or furniture utilize this kind of distribution channel.

Two-level channel
 Here, two intermediaries (wholesalers and retailers) are involved; thus, it is called a two-level channel. The wholesalers usually buy
in bulk from the manufacture, divide the items into smaller proportions, and then sell them to the retailers. The retailers then sell the
products to their final purchasers.
 This channel is used for consumer goods that have customer demand from a wide range, and the purchase frequency is high.

Three-level channel
 Since three intermediaries (agent, wholesaler and retailer) are involved in this channel, it is called a three-level channel. Here, the
producer deals with an agent, and then the wholesaler buys from an agent and sells them to retailers who sell it to the end-user.
 The three-level channel is used in international marketing, where marketers deal with local wholesalers in the world market. Due to
differences in language and customs, companies hire local agents to deal with local wholesalers and thus sell their products.

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 Managing Distribution Channels
Intensive Distribution
 The technique is normally used to distribute low priced products or impulse purchases,
like chips and chocolates. These typically have high sales and are available across most
retail chains, and hence these products are found practically everywhere you go, from a
local mom-ad-pop store to the supermarket. For example, essential supplies or regular
products or items like chocolates or mint, are effectively supplied under this distribution
method.
Exclusive Distribution
 It involves limiting distribution to a single outlet. This works for high priced products
where a dealer is necessarily included in the distribution channel to drive
sales. Automobile sales is the best example of exclusive distribution where sale happens
only through exclusive dealers and dealing showrooms.
Selective Distribution
 Common with items of wide variety and price points, such as electronics and home
appliances, where consumers tend to shop around, a handful of retail outlets and chains
drive the sales through distribution.

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 Types of distribution channels
Wholesalers:
 Wholesalers are the intermediaries who buy products from the manufacturer in a large volume and then resell them to other small
businesses, usually retailers. Some wholesalers have multiple products to be sold to different retailers, while others specialize in only a
single product or a category. The pharmaceutical industry commonly has many wholesalers and retailers. They usually buy the drugs
in bulk from pharma companies and then supply to individual pharmacies, hospital pharmacies on requirement basis.
Distributors
 Distributors are also known as functional wholesalers. Distributors are not the ones who buy any product from the producers, but they
are the ones who are involved in increasing or facilitating the transaction between the retailer and the manufacturer.
Brokers and Marketing Agents
 Brokers, or agents, don’t purchase or take title to the products they sell. Their role is limited to negotiating sales contracts for
producers. They are generally paid a commission for what they sell and are assigned to different geographical territories by the
producers with whom they work. Because they have excellent industry contacts, brokers and agents are “go-to” resources for both
consumers and companies trying to buy and sell products. Apart from real estate, brokers and agents are also common in the travel
industry and are commonly used in international trade. When companies cannot approach the customers directly, and they require a
specific human interaction to close the transaction, then they approach agents or brokers. Their deals with companies are usually for a
selected and predefined time or for a selected number of products to be sold to the customer.
Retailers
 The retailer is the final link between the customer and the organization. The customer can go directly to the retailer and purchase it
from his store. Retailers are in the format of shopping malls, stores, carry out the lights, and also in the form of e-commerce websites.
Retailers buy directly from the producer and skip many intermediaries to increase their profit margin.
 Retailers stock the products in bulk and payback in the form of commission. This usually happens in the case of bookstores. Any
intermediate party which does not manufacture the product but buys the product from the company and sells it to the customer can be
termed as a retailer. The best example is the online e-commerce giant Amazon which sells millions of products to millions of
customers by purchasing it directly from the manufacturer.

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 Types of distribution channels
Franchising
 Franchising is an ancient distribution model. Franchising, or a business franchise
model, is a contractual business model or relationship whereby an established brand,
known as the 'franchisor,' allows an independent business owner, or franchisee, to use
its branding, business model, and other intellectual property. In return, the franchisee
agrees to pay an upfront franchise fee, plus ongoing royalties to the franchisor.
 A franchise arrangement legally states that the owner of a business (the franchisor)
permits a third party (the franchisee) to operate a business and distribute goods and/or
services using their business’s name and systems in return for a fee.

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 Introduction to Omni Channels
 Omnichannel is a cross-channel strategy for content that aims to improve the
customer’s experience.
 Omnichannel also aims at developing better relationships with customers through
all possible channels and touch points. It comprises both the traditional and
digital channels. Also, physical customer experience, online experience, and
point-of-sale commerce are also focused upon.
 All the channels must work in unison to create a collective experience. This
means that any channel used by the customer such as desktop, mobile, physical
store, etc will provide the same seamless experience.
Some examples of omnichannel marketing include:
 Sending out SMS messages to the customers intimating about a promotion item
or sale while they are in the store. Any other digital medium can also be used to
disseminate content.
 A customer receiving an email in case of unfinished cart checkout or
abandonment.
 Retargeting the customer with ads for the abandoned cart as he/she might still be
interested in it.

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 Introduction to Hybrid Distribution Channel
or Multi-Channel Distribution System
 Two or more marketing channels set up by a single firm to reach one or more
customer segments. In this form of multichannel distribution a variety of direct
and indirect approaches are used to deliver the firm's goods to its customers.
 Of late, many companies used a single channel to sell to a single market or
market segment. Recently, with the proliferation of customer segments and
channel possibilities, several companies have adopted multi-channel distribution
systems, it is often called hybrid marketing channels.
 For example, a manufacturer of a product or service will have a relationship
with an intermediary to distribute a product or service, though the manufacturer
may also be making the sale directly with the consumer. This example appears in
some digital transactions when you purchase from a manufacturer’s website but
the product is delivered to you by an intermediary.
 For example, The producer sells directly to consumer segment 1 using direct
mail catalogues and telemarketing, and reaches consumer segment 2 through
retailers. It sells indirectly to business segment 1 through distributors and dealers,
and to business segment 2 through its own salesforce.

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 Factors determining Choice of Channels
1. Product related factors
 It includes whether the product is industrial or a consumer product, whether it is perishable or non-perishable.
 Industrial products are usually technical, they are made according to order as they are very expensive and are purchased by few
buyers. These types of product require a short channel, that is a direct channel. For example, HP laptop.
 Consumer products are usually less expensive. These can be distributed with a long network of channels involving many middlemen.
For example, Lux, Sunsilk.
2. Company Characteristics
 A company with no financial problems should prefer indirect or direct sales with financially weak firms. They can have more
middlemen. For example, Cadbury.
 Companies which have tight control over their distribution, they prefer direct sale.
3. Competitive factors
 The type of channel selected by the competitor also affects the selection of the channel.
 For example, if Revlon cosmetic producers have chosen big retail stores for the sale of their products, its competitors may adopt door
to door selling policy.
4. Market factors
 In the industrial market, direct selling is preferred whereas in the consumer market different distribution channels are adopted.
 If customers are large or are scattered, then more Intermediaries are used for distribution.
5. Environmental factors
 Channels of distribution are also affected by the economic conditions and legal restrictions. In a depressed economy, marketers used
shorter channels to distribute their goods in an economical way.

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II. Physical Distribution
 Physical distribution means delivery of the goods.
 The planning, implementation, and controlling of the physical flow of
material or product from one point to another to meet the customer
requirements in the market is known as physical distribution.
Importance of Physical Distribution
The importance of physical distribution becomes significant when the
manufacturers and market are geographically far from each other. The following
points highlight the importance of physical distribution −
 Execute physical flow of product from the manufacture to the customers.
 Grant time and place for the product
 Build customer for the product
 Cost reduction
 Fulfill the demand of the product in the market so that business takes place

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II. Physical Distribution

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II. Physical Distribution
1. Order Processing
 Order processing is the process or work-flow associated with the picking, packing and
delivery of the packed items to a shipping carrier and is a key element of order fulfillment.
 Order processing is the first point or in other words, the starting point of the distribution activity.
The functions involved in order processing are receiving order, handling the received order,
granting of credit for the item ordered, generating invoice, dispatching of order and collecting the
bills. It involves order placement, order transmission by a salesman to the company, delivery of
goods, etc.
 Businesses should be making an effort to reduce the order cycle time which is the time between
placing an order by the customer and delivery of the goods at the customer’s place. Fast order
processing gives more satisfaction to the customer, but it involves maintaining sufficient stock.

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II. Physical Distribution
2. Transportation
 Transportation is the means of carrying goods
and raw materials from the point of production
to the point of sale.
 It is one of the major elements of physical
distribution because if goods are not made
physically available, the sale can not be
completed.
 Transportation as a component of physical
distribution is concerned with the movement
of goods from the warehouse to customer
destination. It includes loading and unloading
of goods and their movement from one place to
another. In doing so it provides time and place
utility.

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II. Physical Distribution
3. Warehousing
 Warehouses act as centers of storage and by providing the
functionality it helps businesses meet the demands of
customers. Apart from being a source of storage, a warehouse
also acts as centers for assembling the goods.
 For products like agricultural products which require long-time
storage, warehouses are located near production sites, while the
products which are perishable such as fruits, vegetables etc. or
the products which are heavy and hard to ship are stored in the
warehouses located near the market.
 The commodities produced are not sold immediately. Therefore,
every company needs to store finished goods until they are sold
in the market.
 Some goods are produced throughout the year but are
demanded in a particular season only.
 These are stored during the off-season.
For example, Air conditioners, woolen clothes, heaters, etc.

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II. Physical Distribution
4. Inventory Control
 Inventory refers to the maintenance of a stock of the goods. The inventory
needs to be maintained so that goods can be supplied whenever
demanded. Inventory involves costs, so accordingly optimum level of
inventory should be maintained.
 Inventory control refers to the process of efficient control of goods that
are stored in the warehouses. Businesses need to maintain adequate levels
of inventory in order to ensure uninterrupted fulfillment of orders.
 The level of inventory needs to be optimal, it should not be too less or too
more, as less inventory results in out of stock goods, lost business and
unhappy customers, while a high level of inventory requires huge
investment.

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II. Physical Distribution
5. Material Handling:
 Material handling refers to the activities that are associated with the
movement of goods from the site of manufacturing till it is loaded to the
transport.
 Proper material handling results in minimizing the wastage of goods
during transport, reduces unnecessary movement of goods, facilitates
quick order processing and efficient goods movement.

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 END OF UNIT 3

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 UNIT 4
PROMOTION

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 Promotion/ Communication Mix Elements
 The Communications Mix defines the ways you
communicate with your customers, i.e. the tools/elements
you use.
The promotional mix is made up of five elements, shown below:
1. Advertising (TV, radio, press, PPC)
2. Direct marketing
3. Public relations (PR)
4. Personal selling
5. Sales promotion

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 Promotion/ Communication Mix Elements
1. Advertising:
 It is an indirect, paid method used by the firms to inform
the customers about their goods and services via
television, radio, print media, online websites etc.
 Advertising is one of the most widely used methods of
communication mix wherein the complete information
about the firm’s product and services can be
communicated easily with the huge target audience
coverage.

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 Promotion/ Communication Mix Elements
1. Advertising:

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 Promotion/ Communication Mix Elements
1. Advertising:
Various types of media that are available for a marketer are listed below:
i. Print- Newspapers, periodicals, flyers, leaflets, posters.
ii. Electronic- Radio, TV channels, cable operators, movie theatres, part of movie/TV
episode storyline.
iii. Out of Home (OOH)- Hoardings, shop panels/shutters, auto rickshaw/bus/train
panels, mobile display vehicles, bus stops, railway stations, display units at airports,
malls, shopping arcades, multiplexes etc.
iv. Shop display windows.
v. Door-to-door canvasing.
vi. Sampling at various locations.

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 Promotion/ Communication Mix Elements
2. Direct Marketing
 Direct marketing refers to marketing communications
which are directly presented to a target market. Typically,
direct marketing includes what is known as a 'call to
action' and this is a technique which is designed to
stimulate the consumer to make a purchase decision. A call
to action might be delivered through targeted emails, or
direct postal mail. With the intent of technology, the
companies make use of emails, fax, mobile phones, to
communicate directly with the prospective customers
without involving any third party in between.
 Direct marketing through mass customized print media (i.e.
direct mailings) and their digital equivalent is likely to be
more cost-effective than personal selling, and can be
refined through marketing analytics.
 Direct marketing is also one way of beginning to build a
relationship with the consumer through carefully targeted
marketing content.
 An example of this is the way that Amazon recognizes
previous purchases, and then suggests similar items for a
consumer.

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 Promotion/ Communication Mix Elements
2. Direct Marketing
The following methods of direct marketing are most common:
(a) Mail Order: In this type, customers are given information about the
product and asked to order the product directly.
(b) Tele-Calling: Data of prospective customer’s contact details is
procured from secondary sources and they are called on telephone/mobile
to give information about the product and persuaded to purchase the
product directly by ordering it with money sent to the marketer.
(c) Teleshopping: Various television channels air programs where
manufacturers can display and demonstrate their products and convince
customers to order their products directly.
(d) E-Commerce: With internet becoming common to most of the
customers in developed and developing nations, marketing through internet
is becoming common. This type of marketing is called as E-commerce, a
short form for electronic commerce. Advertisements are posted on the
internet and various social networking sites to give information and
demonstrations about the product and customers are attracted and
persuaded to purchase the product by sending orders directly to the
manufacturers.

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 Promotion/ Communication Mix Elements
3. Public Relations
 Involves communication designed to help improve and promote an organization’s image and products.
 PR is often perceived as more neutral and objective than other forms of promotion because much of
the information is tailored to sound as if it has been created by an organization independent of the
seller.
 This refers to how you handle your relationships and the flow of information with your various
“publics” or the people who have a stake in or are affected by your business. This includes the general
public, consumers, shareholders, employees, partners, competitors and the government.
 Public relations materials include press releases, publicity, and news conferences. While other
techniques such as product placement and sponsorships, especially of events and experiences, tend to
generate a lot of PR, the growth of expenditures and importance of sponsorships are so critical for so
many companies that it is often considered a separate component in the communication mix.
 The companies perform several social activities with a view to creating their positive brand image in
the market. The activities that companies are undertaking such as, constructing the public
conveniences, donating some portion of their purchase to the child education, organizing the blood
donation camps, planting trees, etc. are some of the common moves of enhancing the Public Relations
 Many companies have internal PR departments or hire PR firms to find and create public relations
opportunities for them. As such, PR is part of a company’s promotion budget and their integrated
marketing communications.

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 Promotion/ Communication Mix Elements
3. Public Relations

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 Promotion/ Communication Mix
Elements
4. Personal Selling
 It means selling personally. It involves the face-to-face interaction by this the seller
directly contact his customer and sell the products. This is the two way communication
process. Here, the seller is personally explaining the need of the products to his
customers.
 Definition:
“Personal selling is an ancient art. Effective sales persons have more than instinct;
they are trained in a method of analysis and customer management. Selling today is a
profession that involves mastering and applying a whole set of principles”. -Phillip
Kotler
 Personal selling involves two-way communication. When it comes to convincing the
prospect, closing a sale and transferring the title from seller to buyer, personal selling
becomes the strongest tool of promotion.
 During personal interview, the sales person understands the needs and wants of
prospect, highlights product benefits and convinces him to buy the product.

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 Promotion/ Communication Mix Elements
4. Personal Selling

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 Promotion/ Communication Mix Elements
5 Sales Promotion
 The sales promotion includes the several short-term incentives to persuade the
customers to initiate the purchase of the goods and services.
 This promotion technique not only helps in retaining the existing customers but
also attract the new ones with the additional benefits.
 They are often developed to get customers and potential customers to take action
quickly, make larger purchases, and/or make repeat purchases.
 Rebates, discounts, paybacks, Buy- one –get- one free scheme, coupons, etc. are
some of the sales promotion tools.

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 Promotion/ Communication Mix Elements
5 Sales Promotion

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 Integrated Marketing Communication
 Integrated marketing communication (IMC) can be defined as the process
used to unify marketing communication elements, such as public relations,
social media, audience analytics, business development principles, and
advertising, into a brand identity that remains consistent across distinct
media channels.
 It allows public and private organizations and businesses to deliver an
engaging and seamless consumer experience for a product and/or service,
and to optimize an organization’s image and relationship with stakeholders.
 Integrated marketing communication refers to integrating all the
methods of brand promotion to promote a particular product or service
among target customers.

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 Steps for Developing effective
Communication

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 Steps for Developing effective
Communication

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Communication

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Communication

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Communication

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Communication

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 Steps for Developing effective
Communication

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 Push and Pull Promotion Strategies
 Promotional strategies to get your product or service to market can be
roughly divided into two separate camps.

1. PUSH STRATEGY
2. PULL STRATEGY

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 Push and Pull Promotion Strategies
1. PUSH STRATEGY

A push promotional strategy involves taking the product directly to the customer via whatever means, ensuring the customer is aware of your
brand at the point of purchase.

"Taking the product to the customer"

 The term 'push strategy' describes the work a manufacturer of a product needs to perform to get the product to the customer.
 This may involve setting up distribution channels and persuading middle men and retailers to stock your product.
 The push technique can work particularly well for lower value items such as fast moving consumer goods (FMCGs), when customers are
standing at the shelf ready to drop an item into their baskets and are ready to make their decision on the spot.
 This term now broadly encompasses most direct promotional techniques such as encouraging retailers to stock your product, designing
point of sale materials or even selling face to face.
 New businesses often adopt a push strategy for their products in order to generate exposure and a retail channel. Once your brand has
been established, this can be integrated with a pull strategy.

EXAMPLES OF PUSH TACTICS

 Trade show promotions to encourage retailer demand
 Direct selling to customers in showrooms or face to face
 Negotiation with retailers to stock your product
 Efficient supply chain allowing retailers an efficient supply
 Packaging design to encourage purchase
 Point of sale displays

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 Push and Pull Promotion Strategies
2. PULL STRATEGY
 A pull strategy involves motivating customers to seek out your brand in an active process.

"Getting the customer to come to you"

 PULL STRATEGY EXPLAINED
 'Pull strategy' refers to the customer actively seeking out your product and retailers placing orders for stock due to direct
consumer demand.
 A pull strategy requires a highly visible brand which can be developed through mass media advertising or similar tactics. If
customers want a product, the retailers will stock it - supply and demand in its purest form, and this is the basis of a pull strategy.
Create the demand, and the supply channels will almost look after themselves.
 A successful strategy will usually have elements of both the push and pull promotional methods. If you are starting a new
business and intend to sell a product through retailers, you'll almost certainly need to persuade outlets to purchase and stock your
product.
 You'll also need to raise brand awareness and start building valuable word of mouth referrals. If you have designed a product
around the customer and have considered all elements of the marketing mix, both of these aspects should be achievable.

EXAMPLES OF PULL TACTICS

 Advertising and mass media promotion
 Word of mouth referrals
 Customer relationship management
 Sales promotions and discounts

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 END OF UNIT 4

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 UNIT 5

PRODUCT
LEVEL
PLANNING

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 Product Planning
 Product planning is the process of creating a product idea and following through on it until the product is
introduced to the market. A small company must also have an exit strategy for its product in case the product
does not sell.
 Product planning in marketing includes managing the product throughout its life using marketing strategies
such as product improvements, differentiated distribution, price changes and promotions.
 Product planning aims to align the assets of the business and operational factors, to focus on product
development, design, and engineering efforts.
 Its purpose of it is to deliver the greatest probability of success in achieving business goals through effective
product strategy.
 Objectives
 It helps in planning the requirements of the resources used in building the product.
 With proper planning resources can be utilized in an effective and efficient way.
 Helpful in surviving in the market by understanding the current needs.
 Departments can be coordinated in a systematic manner.
 Analyzing the work environment is easy..
 Resourceful in understanding the Customer Requirement.
 Estimation can be done to reduce the wastage of resources.
 Efficient in reaching new customers.

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The Marketing Planning Process

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What is a marketing plan?
 A marketing plan is a strategic roadmap that businesses use to organize,
execute, and track their marketing strategy over a given period. Marketing
plans can include different marketing strategies for various marketing
teams across the company, all working toward the same business goals.
 A marketing plan contains one or more marketing strategies.
 It is the framework from which all of your marketing strategies are created
and helps you connect each strategy back to a larger marketing operation
and business goal.

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What is a marketing plan?
 The marketing plan details the strategy that a company will use to market
its products to customers.
 The plan identifies the target market, the value proposition of the brand or
the product, the campaigns to be initiated, and the metrics to be used to
assess the effectiveness of marketing initiatives.
 The marketing plan should be adjusted on an ongoing basis based on the
findings from the metrics that show which efforts are having an impact and
which are not.
 Digital marketing shows results in near real-time, whereas TV ads require
rotation to realize any level of market penetration.
 A marketing plan is part of a business plan, which describes all of the
important aspects of a business, such as its goals, values, mission statement,
budget, and strategies.

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Nature of Marketing Plan/Planning
The following points indicate the nature of marketing planning, in brief:
 Purposeful: Marketing planning is goal-oriented in the sense that plans are prepared and
implemented to achieve certain objectives.
 Primary: Marketing planning is the most basis function of management. Without plans, there is
nothing to organize and control.
 Pervasive: Marketing planning is the function of each and every manager irrespective of his rank
and area of work.
 Forward Looking: Marketing planning involves looking ahead and preparing for the future.
 Intellectual Process: Marketing Planning is a rational process involving creative thinking and a
mental exercise.
 Continuous: Marketing planning is an ongoing process. Old plans have to be revised and new
ones have to be prepared.
 Integrated Process: Each lower level plan serves as a means towards the achievement of higher
plans.
 Choice: There is no need for planning if there is only one way of doing it. Planning problem arises
only when an alternative course of action is discovered

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Contents of a marketing plan
The contents of marketing plan and as follows
 Executive Summary
 Situation Analysis
 Marketing Strategies
 Financials; and
 Controls

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 Contents of a marketing plan
Section Purpose

Presents a brief overview of the proposed plan for quick management

Executive summary
review

Presents relevant background data on the market, product, competition,

and distribution. Identifies the main threats and opportunities that
Situation Analysis
might impact the product

Presents the broad marketing approach that will be used to achieve the
Marketing strategy
plan’s objectives.

A projected profit and loss statement that forecasts the expected

Financials
financial outcomes from the plan.

Controls Indicates how the progress of the plan will be monitored.

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Contents of a marketing plan
Executive Summary
 The executive summary is the opening section of the marketing plan. The
marketing plan should open with a brief summary of the main goals and
recommendations.
 The executive summary should be only of few pages so that higher management
could grasp the plan's major thrust quickly. It presents a summary of the main
goals and recommendations to be presented in the plan.
 A table of contents should follow the executive summary. It outlines the rest of the
plan and all the supporting rationale and operational detail
 The executive summary helps top management to locate the plan’s major points
quickly. A table of contents should follow the executive summary.

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 Contents of a marketing plan
Situation Analysis
 The situation analysis is the first major section of the plan. It describes the target
market and the company’s position therein.
 This section contains information about the market, product performance,
competition, and distribution.
 It contains a market description that defines the market, including major market
segments. The market planner estimates market size as a whole and segments for the
few preceding years and then reviews customer needs and factors in the marketing
environment that may influence customer purchasing.
 This section presents relevant background data on sales, costs, the market, competi-
tors, and the macroenvironment. How do we define the market, how big is it, and
how fast is it growing? What are the relevant trends and critical issues? Firms will
use all this information to carry out a SWOT analysis.
 A subsection on competition identifies major competitors and evaluates their
strategies for product quality, pricing, distribution, and promotion. It also shows the
companies and each of its competitors present market share.

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 Contents of a marketing plan
Marketing Strategies
 In this section of the marketing plan, the manager outlines the broad marketing strategy
or ”game plan” for attaining the objectives. Marketing strategy is the marketing logic by
which the business unit hopes to achieve its marketing objectives.
 It consists of specific strategies for target markets, positioning, the marketing mix, and
marketing expenditure levels. The marketing strategy should detail the market segments
on which the company will focus.
 These segments differ in their needs and want, responses to marketing, and profitability.
The company would be smart to put its effort and energy into those market segments; it
can best-serve from a competitive perspective and then develop a marketing strategy for
each targeted segment.
 The manager should also outline specific marketing mix elements such as new products,
field sales, advertising, sales promotion, prices, and distribution. The manager should
explain how each strategy responds to the threats, opportunities, and critical issues
spelled out earlier in the plan.
 Marketing strategies should be translated into specific action programs that will indicate
what to do and when and by whom it will be done and its cost. The action plan indicates

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 Contents of a Marketing Plan
Marketing Strategies
Here the marketing manager outlines the marketing activities that will be
undertaken to execute the marketing strategy.
 The product or service offering section describes the key attributes and benefits
that will appeal to target customers.
 The pricing section specifies the general price range and how it might vary
across different types of customers or channels, including any incentive or
discount plans.
 The channel section outlines the different forms of distribution, such as direct or
indirect.
 The communications section usually offers high-level guidance about the
general message and media strategy. Firms will often develop a separate
communication plan to provide the detail necessary for agencies and other
media partners to effectively design the communication program.

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 Contents of a marketing plan
Financials
 Financial projections include a sales forecast, an expense forecast, and a break-even analysis. On the revenue side
is forecasted sales volume by month and product category, and on the expense side the expected costs of
marketing, broken down into finer categories. The break-even analysis estimates how many units the firm must
sell monthly (or how many years it will take) to offset its monthly fixed costs and average per-unit variable costs.
 Action plans allow the manager to make a supporting marketing budget that is essentially a projected profit-and-
loss statement. It shows the forecasted number of units that would be sold and the average net price for revenues.
 On the expense side, it shows the cost of production, physical distribution, and marketing. The difference is the
projected profit. Top management will review the budget and either approve or modify it.
 A more complex method of estimating profit is risk analysis. Here we obtain three estimates ( optimistic,
pessimistic, and most likely) for each uncertain variable affecting profitability, under an assumed marketing
environment and marketing strategy for the planning period. The computer simulates possible outcomes and
computes a distribution showing the range of possible rates of returns and their probabilities.
 Once approved, the budget is based on materials buying, production scheduling, personnel planning, and
marketing operations. Budgeting can be very difficult, and budgeting methods range from simple ”rules of
thumb” to complex computer models.

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Contents of a marketing plan
Controls
 Control is the last section of the marketing plan. It outlines the control
methods that will be used to monitor development. Goals and budgets are
set for a specific time period. This allows the management to review the
results each period and identify businesses or products that are not
meeting their goals.
 The last section outlines the controls for monitoring and adjusting
implementation of the plan. Typically, it spells out the goals and budget
for each month or quarter so management can review each period’s
results and take corrective action as needed.
 Persons responsible for managing these businesses and products have to
explain these problems and the corrective measures.

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 Marketing Evaluating and Controlling

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Marketing Control Process
 Marketing control is a systematic and integrated
process. A marketer follows the following steps
while exercising control over the marketing
operation in an organization:

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Marketing Control Process
1. Determining Marketing Objectives: The initial step in marketing control is the setting up of the
marketing goals, which are in alignment with the organizational objectives.
2. Establishing Performance Standards: To streamline the marketing process, benchmarking is essential.
Therefore, performance standards are set for carrying out marketing operations.
3. Comparing Results with Standard Performance: The actual marketing performance is compared and
matched with the set standards and variation is measured.
4. Analyzing the Deviations: This difference is then examined to find out the areas which require correction,
and if the deviation exceeds the decided range, it should be informed to the top management.
5. Rectification and Improvement: After studying the problem area responsible for low performance,
necessary steps should be taken to fill in the gap between the actual and expected returns.
Thus, marketing can be seen as a complete function, which needs to be performed successfully through proper
control over the related activities, to ascertain the achievement of the set goals and objectives.

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Marketing Control Process
 Marketing control is a systematic and integrated
process. A marketer follows the following steps
while exercising control over the marketing
operation in an organization:

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 Types of Marketing Control

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 Types of Marketing Control
1. Annual-plan control:
Annual-plan control is a very essential tool to determine effectiveness of
marketing efforts undertaken by the organisation. It mainly aims at sales and
profitability. Mostly top level and medium level managements are involved in
this type of control. It comprises of five tools that are sales analysis, market
share analysis, expense to sales analysis, financial analysis and customer
attitude traking(customer satisfaction).

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 Types of Marketing Control
1. Annual-plan control:
Following are the five vital tools used under the annual plan control mechanism:
 Sales Analysis:
The first one is the sales analysis, where the manager determines whether the sales target of the organization have
been achieved or not. For this purpose, the actual sales are compared with the desired sales and deviation is
computed. This method is also used for finding out the efficiency of sales personnel by comparing the individual
sales with the target set for each salesperson.
 Market Share Analysis
To evaluate the competitiveness, the management needs to find out the market share acquired by the organization.
However, it is quite challenging to determine the market share of other organizations which constitute of
unorganized firms, due to lack of sufficient data.
 Marketing Expense to Sales Analysis
Sometimes the firms spend much on the marketing of products, which diminishes their profit margin or increases
the product price. Therefore, a marketing expense to sales ratio is calculated to know the percentage of sales value
paid off as a marketing expense.
 Financial Analysis
The management needs to handle its finances well. It should examine the reasons and factors which influence the
rate of return and financial leverage and return on assets in the organization through financial analysis tools. It also
helps to enhance the financial leverage position of the company.

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 Types of Marketing Control
1. Annual-plan control:
Following are the five vital tools used under the annual plan control mechanism:
 Customer Attitude Tracking
Consumer satisfaction has been considered as an essential parameter to analyze the organization’s performance. It is
a qualitative analysis tool which can be of the following three types:
 Customer Surveys: The companies get the questionnaires filled or make calls to the past customers for finding
out the level of consumer satisfaction. It provides a direction to the sales team and the management.
 Customer Panels: The organizations form consumer panels where the customers are hired to review the
products, advertisements and other marketing activities. It helps the management to know about the consumer’s
perception and attitude.
 Feedback and Suggestion Systems: Market performance of the products can be analyzed with the help of
genuine feedback from the customers, and the same can be improved through their suggestions and input.

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Types of Marketing Control
2. Profitability control:
Profitability control demonstrates the relative profit-earning capacity of a company’s different products
and consumer group. Following is the process of profitability control in an organization:
 The first step is to understand the functional expenses, i.e., selling, distribution, administrative
and advertising expenses incurred while carrying out the marketing function of a territory
or marketing channel.
 The second step is to segregate the non-marketing expenses from the marketing overheads and
then to associate these pure marketing expenses to the marketing entities (like apportioning the
building rent into marketing function).
 Lastly, to compile everything systematically and to ascertain the profit or loss incurred on
carrying out the particular marketing activity, an individual profit and loss account is prepared for
each operation.

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 Types of Marketing Control
3. Efficiency control:
Efficiency control involves micro-level analysis of the various elements of the
marketing mix. For example: sales force, advertising, sales promotion, and
distribution.
The three essential mechanisms used under efficiency control are as follows:
 Sales Force Efficiency Indicators
The competence of the sales team can be determined by evaluating the various
factors. It includes acquisition of new customers, customer turnover, average cost
incurred on each sales call, return on time invested on the prospective customers,
market share lost to the competitors, average sales made by each person per day, etc.
 Advertising Efficiency Indicators
To know the effectiveness of the advertising activities, the marketers analyze the
various advertising functions on different grounds. For this purpose, it finds out the
brand awareness, cost incurred on each enquiry, media cost to reach per thousand
customers, advertising campaign reach, etc.
 Distribution Efficiency
The performance of the distribution channels in comparison to the cost incurred on
channel partners and distribution of products can be analyzed through the
distribution efficiency control. It includes the measurement of the channel member’s
market reach, cost incurred on operating a particular channel and the contribution of
each channel member in selling the brand’s products.

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 Types of Marketing Control
 Strategic control:
Strategic control helps managers to evaluate a company’s marketing program from a critical long-term perspective.
This represents a detailed and objective analysis of an organization. It also helps to understand organisation’s ability to
maximize its strengths and market opportunities.

 Customer Relationship Barometer

To determine the customer’s loyalty towards the brand and its products, the organization uses the relationship
barometer. Here, the company studies the customer’s perception based on the criteria like organization’s core values,
system, policies, structure, customer orientation strategy, technology, personnel attitude, knowledge, skills and
behaviour.
 Marketing Audit
Like accounting audits, marketers carry out marketing audit to get a clear picture of the company’s performance while
executing the various marketing operations. It is a systematic record which periodically examines the problem areas
and provides for the means of rectification, to overcome the weakness by utilizing the organizational strength and grab
the current opportunities.

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 MARKETING AUDIT
 Many companies have stated their desire to become more customer focused. The first step in turning this
vision into reality is to undertake an audit of the current marketing function and process, to assess the
effectiveness of the same, and provide recommendations for improvement.
 Philip Kotler introduced the concept of the marketing audit in his classic article, "The Marketing Audit
Comes Of Age".
The issues that are addressed as part of the marketing audit include:
 Present role of marketing defined?
 Co-operation between marketing and other functional areas?
 Right information gathered? Effectively used?
 Right processes in place? (for example: market planning, new product development, etc.)
 Basic marketing concepts understood? Understanding translated into practice?
 The audit methodology consists of in-depth interviews with company executives and managers. In addition,
interviews are conducted with other stakeholders; For example, customers, board members.
 Initiatives are recommended that are designed to make the client organization more responsive to the markets
and customers it wishes to serve.

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 MARKETING AUDIT
Reasons for Conducting a Marketing Audit
 As it’s human nature if we don’t learn from our mistakes done in the past, we continue to make similar
mistakes in future also, and to understand such marketing audit is performed which helps us in
 Recognizing the reason for success or failure in the market.
 It teaches us about the future course of actions.

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MARKETING AUDIT

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 How Marketing Audit should be?
Marketing Audit should be:

 Comprehensive
It should be comprehensive, which covers all the areas of marketing from the identification of the need of the
customers to the satisfaction of the need of the customers which includes starting from a new product development
process. Then product strategies, pricing strategies, so it should convert entire from a vision mission of the
company to Salesforce analysis or customer’s satisfaction.
 Systematic
It should have a well-defined systematic step to follow to teach the desired goals.
 Independent
It must be independent and not influenced by the auditor or the people who are in the organization that’s why it is
recommended that audit should be done by a third party and not from an internal people.
 Periodical
It should have some regular periodical frequency like quarter, half-yearly or yearly audit should be done.

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 Marketing Audit evaluate Key Areas

Marketing audit evaluates the following three main (key) responsible areas:
 External marketing environment : Here, the marketing audit mainly
focuses on customers and competition in the business.
 Internal marketing environment : Here, the marketing audit studies the
structure of company's marketing team and its effectiveness.
 Evaluation of current marketing strategy : Here, the marketing audit
continuously reviews current marketing strategy of a company. It also takes
help of lessons learned from its past marketing plans.

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 Types of Marketing Audit

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 Types of Marketing Audit
1. Marketing Environment Audit
 Marketing Environment Audit consists of the external environment of company. It includes natural environment, economic environment,
political environment, demographic environment, etc. The marketing audit analyses the marketing consumer, competitors, suppliers, so
on. This audit helps the company to make marketing strategies.
2. Marketing Strategy Audit
 Marketing Strategy Audit is a critical analysis of marketing objectives and strategies. It finds out whether the company's marketing
objectives are clear and proper. It also examines the marketing strategies of the company. This audit is done to find out the utility of the
marketing strategies.

3. Marketing Organization Audit

 Marketing Organization Audit is a systematic study of the company's organizational resources like manpower, organization, structure,
employee training and development, Research and Development facilities, motivation, communication and working relations.

4. Marketing Systems Audit

 Marketing Systems Audit finds out the company's ability of collecting and analyzing data. It looks for the company's ability to plan and
control the marketing activities. It also studies the company's marketing information system, planning and control system, etc.

5. Marketing Productivity Audit

 Marketing Productivity Audit finds out the profitability of the company's products. It examines the markets. It also examines the measure
to improve cost-effectiveness.

6. Marketing Function Audit

 Marketing Function Audit is a complete study of marketing functions in relation to the product, price, promotion and place of
distribution. So, it is an audit of the marketing mix (4 P's) of the company.

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 Managing the
Marketing Effort

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 END OF UNIT 5

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