MARKETING MANAGEMENT

MARKETING MANAGEMENT

What is MARKETING?
Marketing is the study and management of exchange relationships. Marketing is the business process of creating relationships
with and satisfying customers. With its focus on the customer, marketing is one of the premier components of business
management.

Philip Kotler defines marketing as Satisfying needs and wants through an exchange process. Definitions:
F, E. Clark, “Marketing consists of those efforts which effect transfer in ownership of goods and core for their physical
distribution.”

Stanton and Others, “Marketing is a total system of business activities designed to plan price promotes and
distribute wants-satisfying products to target markets to achieve organisational objectives.”

Kotler and Armstrong, “Marketing is a social and managerial process by which individuals and groups obtain
what they need and want through creating and exchanging products and values with others.”

The objective of marketing is to ascertain consumer needs, convert them into ideas, products or services and move such
ideas etc. to the final consumer or user, to satisfy certain needs and wants of specific consumer segments with emphasis
on profitability, ensuring the optimum use of the resources available to the organisation.

Concepts of Marketing-
 Production Concept: The idea of production concept – “Consumers will favor products that are available and highly
affordable”. This concept is one of the oldest in business, holds that consumers prefer products that are widely
available and inexpensive. A firm focusing on a production orientation specializes in producing as much as possible of
a given product or service in order to achieve economies of scale or economies of scope
 Product Concept: The product concept holds that the consumers will favor products that offer the most in quality,
performance and innovative features. Here; under this concept, Marketing strategies are focused on making
continuous product improvements. Product quality and improvement are important parts of marketing strategies,
sometimes the only part. Targeting only on the company’s products could also lead to marketing myopia.

 Selling Concept: The selling concept holds the idea- “consumers will not buy enough of the
firm’s products unless it undertakes a large-scale selling and promotion effort”.

• Here the management focuses on creating sales transactions rather than on building longterm, profitable customer
relationships.
• In other words; the aim is to sell what the company makes rather than making what the market wants. Such aggressive
selling program carries very high risks.

• A firm using a sales orientation focuses primarily on the selling/promotion of the firm's existing products, rather than
determining new or unmet consumer needs or desires. Consequently, this entails simply selling existing products, using
promotion and direct sales techniques to attain the highest sales possible.

Marketing Concept
The marketing concept holds- “achieving organizational goals depends on knowing the needs and wants of target markets and
delivering the desired satisfactions better than competitors do”.

▪ Here marketing management takes a “customer first” approach.

▪ Under the marketing concept, customer focus and value are the routes to achieve sales and profits.

▪ The marketing concept is a customer-centered “sense and responds” philosophy. The job is not to find the right customers for
your product but to find the right products for your customers. ▪ The marketing concept and the selling concepts are two
extreme concepts and totally different from each other.

Societal marketing concept

The societal marketing is a marketing concept that holds that a company should make marketing decisions not only by
considering consumers' wants, the company's requirements, but also society's long-term interests. Therefore, marketers
must endeavour to satisfy the needs and wants of their target markets in ways that preserve and enhance the well-being
of consumers and society as a whole. Sustainable marketing or green marketing is an extension of societal marketing.
Holistic marketing concept
A Holistic Marketing approach states that business is considered as a whole wherein all the departments viz. R&D,
Marketing, Finance, HR, etc. are integrated and work collectively towards the marketing and sale of a product. This
approach has recently gained popularity because of the increased competition in the market where everyone is trying to
create the brand image in the minds of the customers.

Holistic marketing is based on 360-degree view approach, where ideas and suggestions from everyone who are directly or
indirectly related to the business are taken to match up with the changing marketing trends.

There are four components that can very well characterize the holistic marketing approach:

1. Relationship Marketing– Relationship marketing focuses on building a strong and longlasting relationship
with all who can directly or indirectly add to the success of an organization. This is the most essential character of holistic
marketing that results in a “marketing network” that shows how well all the stakeholders have created mutually profitable
business relationships.

2. Integrated Marketing– Integrated marketing means how well the 4 P’s of the marketing mix (product, price,
place, promotion) are synced to deliver the efficient message to the prospective customers.
3. Internal Marketing– Internal marketing means hiring, training, motivating and inculcating business values in able
employees who can serve customers well.This approach is based on a general understanding that if employees do not have
full information about the product then how can we expect them to convince the customers to purchase it.Thus, internal
marketing is an important holistic marketing trait that is prevalent at all the levels of the organization.

4. Performance Marketing– Performance marketing focuses on the returns to the business from the marketing activities
undertaken as well as the effects of the same on the society as a whole. The marketer has to give answers to the top
authority for the amount spent on marketing activities along with its effects on business.
Marketing Process
Under the marketing concept the firm must find a way to discover unfulfilled customer needs and bring to market, products
that satisfy those needs.

Situational Analysis:

 A thorough analysis helps the firm to identify opportunities to satisfy unfulfilled customer needs. In addition, the firm must
understand its own capabilities and the environment in which its operating.
 It can be viewed as an analysis of the external environment and an internal analysis of the firm itself.

Several frameworks can be used like:

1. 5 C Analysis: company, customers, competitors, collaborators, climate. Company represents the internal analysis
whereas the other four cover aspects of the external situation. 2. PEST Analysis

3. SWOT Analysis

Marketing Strategy:
 Once the best opportunity is identified, a strategic plan for perusing the opportunity can be developed.
 Market Research will provide specific market information that will permit the firm to select the target market segment and
optimally position the offering within that segment.

The market strategy then involves:

1. Segmentation
2. Targeting (target market selection)
3. Positioning the product within the target market
4. Value proposition to the target market.

Marketing Mix Decisions:

Detailed targeting decisions then are made for the controllable parameters of the marketing mix.

 Product development: specifying, designing, and producing the first units of the product.
 Pricing decisions
 Distribution contacts
 Promotional campaign development.

Implementation and Control:

At this point in the process, the marketing plan has been developed and the product has been launched. Given that few
environments are static, the results of the marketing effort should be monitored closely.

As the market changes, the marketing mix can be changed to accommodate the changes. Like small changes in consumer
wants can be addressed by changing the advertising message. As changes become more significant, a product redesign or
an entirely new product may be needed.Continuous monitoring is needed to fulfil customer needs over the long term.
Relationship Building Blocks: Customer Value and Satisfaction
• The basis of relationship marketing is customer loyalty because retaining customers over their life will contribute to enhanced
profitability. This implies that companies have to learn continuously about their customers’ needs and expectations, which
are ever changing and unpredictable.
• Customer relationships can then be enhanced by offering increased value which companies are able to derive from their
learning.

• Enhancing relationships with customers means treating them fairly, enhancing the core service by adding extra value ,
providing a highly customized service for each individual.

• Managers should also deploy loyalty schemes to keep the existing customers satisfied.

Customer satisfaction and value are both fundamental concepts in the understanding of marketing. It is important to note
that while they are highly interrelated, they also operate independently.

 Customer Value: A customer buys from the firm that offers the highest customer perceived value – the customer’s
evaluation of the difference between all the benefits and all the costs of a marketing offer relative to those competing offers.
Value is when a consumer perceives that they will get a good deal from the company, brand, product or service. To put this
in more marketing terms, the consumer will see value when the benefits they expect to receive exceed the expected costs
and effort involved in acquiring the product. The difference between the total benefits and the total costs constitutes
customer value.

This means that value is a pre-purchase assessment of the product by the consumer. If a consumer perceives that the
product brand or service offers very little value based on their pre purchase assessment OR if they perceive that it offers
less value than a competitive offering, then the consumer will not buy that particular item

 Customer Satisfaction: Customer satisfaction, on the other hand, occurs after the consumer has become a customer.
That means they have purchased the product or have had dealings with a service firm with. Customer satisfaction is their
assessment of how well that value was delivered – that is, did they get the value that they expected to receive? In terms of
the buyer decision process, this customer satisfaction assessment occurs in the post-purchase phase.

Therefore, the difference between customer satisfaction and value is that one is a prepurchase assessment and the
other is a post purchase assessment; as shown in the following model.

Marketing Mix
Marketing decisions fall into the following four controllable categories:
 Product
 Price
 Place
 Promotion

These four P’s are the parameters of the marketing manager can control, subject to internal and external constraints of the
marketing environment.

• The term marketing mix became popularized after Neil H. Borden published his 1964 article, The Concept Of Marketing Mix.
• The ingredients in Borden’s marketing mix was later grouped into 4 categories product, price, place and promotion by E.
Jerome McCarthy.
DEFINITION MARKETING DECISIONS
CATEGORY

A product refers to an item that Product design – features, quality

PRODUCT satisfies the consumer's needs or Product assortment – product range, product mix, product lines
wants. Branding
Products
( may be tangible goods) orPackaging and labelling
intangible
( services, ideas or Services (complementary service, after-sales service, service level)
experiences). Guarantees and warranties
Returns
Managing products through the life-cycle

PRICE Price refers to the Price strategy

amount a cust for a omer pays Price tactics
product. Price may Price-setting
als the sacrifice are o refer to Allowances – e.g. rebates for distributors
prepared t acquire a consumers o Discounts – for customers
pro time or effort). make to duct
Payment terms – credit, payment methods
Price is the on that (e.g.
has impli revenue.
Price also ly variable
considerations cations for
customer value.
includes of
perceived

Refers to providing customer accessStrategies such as intensive distribution, selective distribution,

PLACE Considers providing convenience exclusive distribution
for consumer. Franchising;
Market coverage
Channel member selection and channel
member relationships Assortment
Location decisions
Inventory
Transport, warehousing and logistics

Promotion refers to Promotional mix - appropriate balance of advertising, PR, direct

marketing marketing and sales
Y
PROMOTI communications promotion
N May comprise elements such as: Message strategy -
what is to be
advertising, PR, direct marketing communicated
and sales promotion. Channel/ media strategy target
- how to reach the
audience

Message Frequency - how often to

communicate

In 1981, Booms and Bitner proposed a model of 7 Ps, comprising the original 4 Ps plus process, people and physical
evidence, as being more applicable for services marketing.

People: are essential in the marketing of any product or service. Personnel stand for the service.
• In the professional, financial or hospitality service industry, people are not producers, but rather the products
themselves.
• When people are the product, they impact public perception of an organization as much as any tangible
consumer goods.
• From a marketing management perspective, it is important to ensure that employees represent the company
in alignment with broader messaging strategies.
• This is easier to ensure when people feel as though they have been treated fairly and earn wages sufficient
to support their daily lives.

Process: refers to a "set of activities that results in delivery of the product benefits". A process could be a
sequential order of tasks that an employee undertakes as a part of their job. It can represent sequential steps taken
by a number of various employees while attempting to complete a task.

Physical Evidence: refers to the non-human elements of the service encounter, including equipment,
furniture and facilities.

• It may also refer to the more abstract components of the environment in which the service encounter occurs
including interior design, colour schemes and layout.
• Some aspects of physical evidence provide lasting proof that the service has occurred, such as souvenirs,
mementos, invoices and other livery of artifacts.

Target Market
• A target market is a group of customers within a business's serviceable available market at which a business
aims its marketing efforts and resources. A target market is a subset of the total market for a product or service.
• The target market typically consists of consumers who exhibit similar characteristics (such as age, location,
income or lifestyle) and are considered most likely to buy a business's market offerings or are likely to be the
most profitable segments for the business to service.
• Selection of a target market (or target markets) is part of the overall process known as ST-P
(Segmentation→Targeting→Positioning).
• Two important factors to be considered when selecting a Target Market are the:  Attractiveness of the
segment.
 The fit between the segment and the firm’s objectives, resources and capabilities.

Target Market Strategies

• Single-segment/ concentrated strategy- one market segment is served with one marketing mix.
Strategy of choice for smaller companies.

• Selective specialization/differentiated strategy- different marketing mixes are offered to different

segments. The product may or may not be different but the promotional message varies.

• Product specialization- the firm specializes in a particular product and tailors it to different market
• Market specialization- the firm specializes in serving a particular market segment and offers that
segment an array of different products.

• Full market coverage- the firm attempts to serve an entire market i.e. mass marketing.

MARKET POSITIONING
In their 1981 book, Positioning: The Battle for your Mind, Al Ries and Jack Trout described how positioning
is used as a communication tool to reach the customer in a crowded market space.

• Refers to an overall strategy that "aims to make a brand occupy a distinct position, relative to competing
brands, in the mind of the customer".
• “positioning is the act of designing the company’s offering and image to occupy a distinct place in the target’s
mind .”- Philip Kotler

Positioning is Company’s Image

Errors in Positioning
 Under Positioning- this error occurs when marketers take little steps for promotion of product due to which
buyers are very less aware about the brand and its product’s performance and popularity. The companies either
do not have capacity to promote their product or do not have the marketing calibre of performing such roles.
Example: ASUS laptops.

 Over Positioning- it refers to the error when marketer makes the product too special, so the potential
consumer group becomes too small. The buyer believes that the product is meant for a very select audience
because it is premium priced. Example: Aqua Sure.

 Confused Positioning- when the company claims two or more benefits which contradict each other.

 Doubtful Positioning- this error occurs when doubt arises in the mind of the buyer regarding the company’s
claim of benefits through the product. Customers have doubt regarding the promises made by the company.
Example: Hair Gain Oil, Weight loss medicines.
Positioning Strategies

▪ Attribute positioning: A product attribute is a specific feature or benefit of the product. Positioning
in this way focuses on one or two of the product’s best features/benefits, relative to the competitive
offerings. For e.g. ‘Raymonds since 1925’ positions itself on its existence.

▪ Benefit positioning: Corporate may position itself as a leader in a certain benefit which they provide to
their customer. E.g. Maruti- service station

▪ Use or application positioning: Corporate may position their product for some use like
CCD café coffee day positions itself as a place for discussion and meetings e.g. CCD- A LOT
CAN HAPPEN OVER COFFEE

▪ User positioning: when a firm positions itself as best suited for a particular user class.
E.g. Johnson & Johnson- for babies

▪ Competition positioning: in this category firm claims to be better than the rival firm e.g. Thumbs up
against Pepsi.

▪ Value positioning: this strategy focuses on company’s positioning as offering the best product at lower
price. E.g. Mcdonald Burger @ 25 Rs only.

PRODUCT
Product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies
consumers and is received in exchange for money or some other unit of value.
Product is a bundle of physical, chemical and / or intangible attributes that have the potential to satisfy
present and potential customer wants.
In addition to the physical Good itself, other elements include the warranty, installation, after sales service
accessories and package. Product Levels in Marketing:
• Core Product: At the base level the utility that you are providing with the product, forms the core product
or the core service. The more important the utility or the benefit you provide, the more likelihood that the
customer needs your product. The more unique the core product (engineering), the lesser the players in the
market and lesser the competition.

• Basic product: If we talk about restaurants, there are various types of restaurants. Some are 3 star, some 4
star, some 5 star and even 7 stars are found in this world. However, the basic level of a restaurant is the one found
in your locality, offering basic food. If a hotel, wanted to turn its core product (rest and food) into a basic product,
then the building of the hotel, the type of bed, the type of food, all together form the basic product.

• Expected product: Continuing the above example, if a person is going to a 5 star hotel, one expects a bed,
and normal food? No. The expectation is built on the fact that the hotel is a 5 star hotel. As the brand grows in
reputation, it has to take care of the expectations of the consumer. Daikin, which is a world renowned air
conditioning brand, is expected to have world class service for its air conditioners. If it does not deliver on this
expected product,then it will affect the basic product (air conditioner) as well.

• Augmented product: These products saw beyond the expectations of the customers and went on to provide
“Exceeds customer satisfaction”. This basically means that where you expected normal seats, these seats had
warmers installed. A BMW or a Mercedes is an augmented product. When people were bored of normal cars and
passenger cars offered by the likes of Volkswagen, General electric or others

• Potential product: Each and every company explores the potential of the products they already have in the
market. A best example of Potential product is the rivalry between Facebook and Google for virtual reality. Where
Facebook has Occulus rift for gaming, Google has google glass for day to day usage. Each of them is progressing
forward to dominate in the potential product – Virtual reality.

PRODUCT MIX
• The Product Mix also called as Product Assortment, refers to the complete range of products that is offered
for sale by the company. In other words, the number of product lines that a company has for its customers is
called as product mix.
• The Product Line refers to the list of all the related products manufactured or marketed by a single firm.
The product mix has four dimensions: Breadth, Length, Depth, and Consistency.

 The Breadth of a product mix shows the different kinds of product lines that firm carries. Simply, it shows
the number of items in the product line. This dimension of the product mix represents the extent to which the
activities of the firm are diversified. In the example below, there are 4 product lines that show the width of the
ITC.

 The Length of a Product mix refers to the number of items in the product mix. In the example below the
length is 11. As in the foods line, the number of items is 3, in cigarettes is 3 and so on.. On adding all the items,
we get the length of a product.
 The Depth of a product mix refers to the variants of each product in the product line. For example, in the
example below, curry, pastes, biryanis, conserves, etc. shows the depth of the foods product line.

 The Consistency of a product mix shows the extent to which the product lines are closely related to each
other in terms of their end-use, distribution requirements, production requirements, price ranges, advertising
media, etc. In the above example, it is clear that ITC’s product lines are less consistent as these perform different
functions for the buyers.
Product Life Cycle
The Product Life Cycle means the sequence of stages that every product progresses through until it reaches
the stage where it is finally abandoned or discontinued from the market.

1.Introduction Stage: The firm seeks to build product awareness and develop market for the
product.

• Product: Branding and quality level is established and intellectual property protection such as patents
and trademarks are obtained.

• Pricing: May be low penetration pricing to build market share rapidly, or high skimming to recover
development cost.

• Distribution: is selective until consumers show acceptance of the product.

• Promotion: is aimed at innovators and early adopters. Marketing communications seeks to build
product awareness and to educate potential consumers about the product.

2.Growth Stage: In the growth stage, the firm seeks to build brand preferences and increase market share.
• Product: quality is maintained and additional features and support services may be added.

• Pricing is maintained as the firm enjoys increasing demand with the competition.
• Distribution channels are added as demand increases and customers accept the product.
• Promotion is aimed at a broader audience.
• Maturity Stage: At maturity, the strong growth in sales diminishes. Competition may appear with similar
products. The primary objective at this point is to defend market share while maximising profit.
• Product features maybe enhanced to differentiate the product from that of competitors.
• Pricing may be lower because of the new competition
• Distribution becomes more intensive and incentives may be offered to encourage preference over
competing prices.
• Promotion emphasizes product differentiation.

3.Decline Stage: As sales decline, the firm has several options

• Maintain the product, possibly rejuvenating it by adding new features and finding new uses.
• Harvest the product- reduce costs and continue to offer it, possibly to a loyal niche segment.
• Discontinue the product, liquidating remaining inventory or selling it to another firm that is willing to
continue the product.
The marketing mix decisions in the decline phase depends upon the selected strategy.

• Product- the number of products in the product line may be reduced. Rejuvenate surviving products to
make them look new again.
• Price- prices may be lowered to liquidate inventory or discontinue the products. Prices may be
maintained to continue products for niche markets.
• Distribution- more selective, channels that are no longer profitable are phased out.
• Promotion- expenditures are lowered and aimed at reinforcing the brand image for continued products.

New Product Development

New product development is a task taken by the company to introduce newer products in the market. Regularly
there will arise a need in the business for new product development.
Stages for New Product Development

PRICE
• Amount to be paid in return for a bundle of utilities.
• The price is the sum of all the values that a customer gives up to gain the benefits of having or using a
product or service. Thus, customers exchange a certain value for having or using the product – a value
we call price.
As we know the marketing mix (made up of product, price, place and promotion) is the perfect combination of
elements you need to get right for effective marketing.
Pricing is one of the most important elements of the marketing mix, as it is the only element of the marketing
mix, which generates a turnover for the organisation. Pricing Factors
Pricing should take the following factors into account:

1. Fixed and variable costs

2. Competition
3. Company objectives
4. Proposed positioning strategies
5. Target group and willingness to pay

An organisation can adopt a number of pricing strategies, the pricing strategy will usually be based on corporate
objectives.
PRICING TACTICS and Types
 Penetration Pricing- Here the organisation sets a low price to increase sales and market share. Once
market share has been captured the firm may well then increase their price.
EXAMPLE:A television satellite company sets a low price to get subscribers then increases the price as their
customer base increases.

 Skimming Pricing- The organisation sets an initial high price and then slowly lowers the price to make
the product available to a wider market. The objective is to skim profits of the market layer by layer.
EXAMPLE:A games console company reduces the price of their console over 5 years, charging a premium at
launch and lowest price near the end of its life cycle.

 Competition Pricing- Setting a price in comparison with competitors. In reality a firm has three options
and these are to price lower, price the same or price higher than competitors.
EXAMPLE: Some firms offer a price matching service to match what their competitors are offering. Others will
go further and refund back to the customer more money than the difference between their price and the
competitor's price.

 Premium Pricing- The price is set high to indicate that the product is "exclusive"
Examples of products and services using this strategy include Harrods, first class airline services, and Porsche.

 Psychological Pricing- The seller here will consider the psychology of price and the positioning of price
within the market place.
EXAMPLE: The seller will charge 999 instead RS1000 or 199 instead of RS200. The reason why this methods
work, is because buyers will still say they purchased their product under RS200, even thought it was a rupee
away.

 Complementary Pricing- Complementary pricing is a collective term used to describe `captive-market'

pricing tactics. It refers to a method in which one of two or more complementary products (a desk jet
printer, for example) is priced to maximise sales volume, while the complementary product (printer ink
cartridges) are priced at a much higher level in order to cover any shortfall sustained by the first product.

 Product Line Pricing- Pricing different products within the same product range at different price points.
An example would be a DVD manufacturer offering different DVD recorders with different features at different
prices e.g. A HD and non HD version.. The greater the features and the benefit obtained the greater the
consumer will pay.

 Bundle Pricing- The organisation bundles a group of products at a reduced price. Common methods
are buy one and get one free promotions.
For example most of restaurant menus are in fact a bundle of appetizer, main course and dessert. The famous
MacDonald’s “Best of” Menu is the canonic example of bundle pricing.

The Promotional Pricing is a sales promotion technique, wherein the firm reduces the price of a product
drastically, but for a short period.
1. Special-Event Pricing: Companies offer discounts and rebates on festivals, during the off-seasons with the
intention to pull as many customers as possible.Cash Rebates: The consumer goods companies’ viz. Automobile
sector, electronics industry, cellular industry, etc.
offers the cash rebates on their items if purchased in a particular time period.

2. Loss-Leader Pricing: Often the big retailers or supermarkets reduce the price of a wellknown brand with
the intention to have an additional store traffic.Through this strategy, the retailers try to compensate their margin
loss from the additional sales achieved from additional customers.Generally, this type of strategy is opposed by
the manufacturer because this can dilute the image of his brand; that is being sold at the list price by the retailer.
3. Low-interest financing: Nowadays, especially the cellular companies are offering an easy EMI scheme with
less rate of interest, so as to boost the sale of their mobile sets.
4. Warranties and service contracts: The companies offer the extended warranties and free services of the
product to the customers.
5. Psychological Discounting: This type of promotional pricing is very much visible these days. Under this
strategy, the companies artificially set the high price of the product and then offer it at substantial savings, such
as an item was of RS 359, but now it is available at just Rs 259.

The pricing methods can be broadly classified into two parts:

1. Cost Oriented Pricing Method

2. Market Oriented Pricing Method

Cost-Oriented Pricing Method: Many firms consider the Cost of Production as a base for calculating the price
of the finished goods. Cost-oriented pricing method covers the following ways of pricing:
• Cost-Plus Pricing: It is one of the simplest pricing method wherein the manufacturer calculates the cost of
production incurred and add a certain percentage of mark up to it to realize the selling price. The mark up is the
percentage of profit calculated on total cost i.e. fixed and variable cost.

E.g. If the Cost of Production of product-A is Rs 500 with a mark up of 25% on total cost, the selling price will be
calculated as Selling Price= cost of production + Cost of Production x Mark up Percentage/100
Selling Price=500+500 x 0.25= 625

Thus, a firm earns a profit of Rs 125 (Profit=Selling price- Cost price)

• Mark up pricing- This pricing method is the variation of cost plus pricing wherein the percentage of mark
up is calculated on the selling price.E.g. If the unit cost of a chocolate is Rs 16 and producer wants to earn the
mar kup of 20% on sales then mark up price will be:

Mark up Price= Unit Cost/ 1-desired return on sales

Mark up Price= 16/1-0.20 = 20

Thus, the producer will charge Rs 20 for one chocolate and will earn a profit of Rs 4 per unit.

• Target-Return pricing– In this kind of pricing method the firm set the price to yield a required Rate of Return
on Investment (ROI) from the sale of goods and services.E.g. If soap manufacturer invested Rs 1,00,000 in the
business and expects 20% ROI i.e. Rs 20,000, the target return price is given by:

Target return price= Unit Cost + (Desired Return x capital invested)/ unit sales Target Return Price=16 + (0.20 x
100000)/5000Target Return Price= Rs 20
Thus, Manufacturer will earn 20% ROI provided that unit cost and sale unit is accurate. In case the sales do not
reach 50,000 units then the manufacturer should prepare the break-even chart wherein different ROI’s can be
calculated at different sales unit.

• Market-Oriented Pricing Method: Under this method price is calculated on the basis of market conditions.
Following are the methods under this group:

• Perceived-Value Pricing: In this pricing method, the manufacturer decides the price on the basis of
customer’s perception of the goods and services taking into consideration all the elements such as advertising,
promotional tools, additional benefits, product quality, the channel of distribution, etc. that influence the
customer’s perception.

E.g. Customer buy Sony products despite less price products available in the market, this is because Sony company
follows the perceived pricing policy wherein the customer is willing to pay extra for better quality and durability
of the product.

• Value Pricing: Under this pricing method companies design the low priced products and maintain the high-
quality offering. Here the prices are not kept low, but the product is reengineered to reduce the cost of production
and maintain the quality simultaneously.

E.g. Tata Nano is the best example of value pricing, despite several Tata cars, the company designed a car with
necessary features at a low price and lived up to its quality.
• Going-Rate Pricing- In this pricing method, the firms consider the competitor’s price as a base in
determining the price of its own offerings. Generally, the prices are more or less same as that of the competitor
and the price war gets over among the firms.

E.g. In Oligopolistic Industry such as steel, paper, fertilizer, etc. the price charged is same.

• Auction Type pricing: This type of pricing method is growing popular with the more usage of internet.
Several online sites such as eBay, Quikr, OLX, etc. provides a platform to customers where they buy or sell the
commodities. There are three types of auctions:
1. English Auctions-There is one seller and many buyers. The seller puts the item on sites such as Yahoo
and bidders raise the price until the top best price is reached.

2. Dutch Auctions– There may be one seller and many buyers or one buyer and many sellers. In the
first case, the top best price is announced and then slowly it comes down that suit the bidder whereas
in the second kind buyer announces the product he wants to buy then potential sellers competes by
offering the lowest price.
3. Sealed-Bid Auctions: This kind of method is very common in the case of Government or industrial
purchases, wherein tenders are floated in the market, and potential suppliers submit their bids in a
closed envelope, not disclosing the bid to anyone.

• Differential Pricing: This pricing method is adopted when different prices have to be charged from the
different group of customers. The prices can also vary with respect to time, area, and product form.
E.g. The best example of differential pricing is Mineral Water. The price of Mineral Water varies in hotels, railway
stations, retail stores.

PLACE
Place is also known as channel, distribution or intermediary. It is the mechanism through which goods and/or
services are moved from the manufacturer/ service provider to the user or consumer.
(A marketing channel is) . . . a set ofinterdependent organisations that help make a product or service available
for use or consumption by the consumer or business user. Kotler et al (2010)
• Distribution management involves a diverse range of activities and disciplines including: detailed logistics,
transportation, warehousing, storage, inventory management as well as channel management including selection
of channel members and rewarding distributors.

DISTRIBUTION STRATEGIES:

• A Company can achieve competitive advantage by targeting customers far and wide. To reach far and wide
the distribution strategies should be in place.
• Distribution strategy is mainly decided by keeping the top management in loop because it affects overall
operations.

On a macro level, there are two types of distribution.

1) Indirect distribution
Indirect distribution is when the product reaches the end customer through numerous channels in between.
For example – The product goes from manufacturer to C&F, then to the distributor, then to the retailer and
finally to the customer. Thus the chain is long.
2) Direct distribution
Direct distribution is when the company either directly sends the product to end customer or when the channel
length is very less. A company selling on an e commerce portal or selling through modern retail is the form of
Direct distribution.

Furthermore, distribution strategies are also decided based on the level of penetration that the company
wants to achieve. However, based on the level of penetration, the distribution strategies vary as follows.

When the company is having a mass marketing product, then it uses intensive distribution. Intensive
distribution tries to cover as much of the market as it can. Typical FMCG and consumer durable products are
best example of intensive distribution strategy.

3. Selective Distribution

A company like Armani, Zara or any other such branded company will have selective distribution. These
companies are likely to have only limited outlets. For example – In an urban city, Armani might have 2-3 outlets
at the maximum whereas Zara might have 4-5. Watches of Titan are also selectively distributed because besides
being sold in “World of Titan” they are also sold in selected outlets.
4. Exclusive distribution

In an exclusive distribution approach, a manufacturer chooses to deal with one intermediary or one type of
intermediary. The advantage of an exclusive approach is that the manufacturer retains greater control over the
distribution process. In exclusive arrangements, the distributor is expected to work closely with the
manufacturer and add value to the product through service level, after sales care or client support services. For
Example Rolex, Lamborghini, Mercedes, BMW.

Push vs pull strategy supply chain Strategy

1. Push Supply Chain Strategies

A push-model supply chain is one where projected demand determines what enters the process. For example,
warm jackets get pushed to clothing retailers as summer ends and the fall and winter seasons start. Under a
push system, companies have predictability in their supply chains since they know what will come when – long
before it actually arrives. This also allows them to plan production to meet their needs and gives them time to
prepare a place to store the stock they receive.
2. Pull Supply Chain Strategies
A pull strategy is related to the just-in-time school of inventory management that minimizes stock on hand,
focusing on last-second deliveries. Under these strategies, products enter the supply chain when customer
demand justifies it. One example of an industry that operates under this strategy is a direct computer seller that
waits until it receives an order to actually build a custom computer for the consumer.
With a pull strategy, companies avoid the cost of carrying inventory that may not sell. The risk is that they might
not have enough inventory to meet demand if they cannot ramp up production quickly enough.

Channels and intermediaries

• A marketing channel is the people, organizations, and activities necessary to transfer the ownership of
goods from the point of production to the point of consumption.
• It is the way products get to the end-user, the consumer.
• This is mostly accomplished through merchant retailers or wholesalers or, in the international context,
by importers.
• In certain specialist markets, agents or brokers may become involved in the marketing channel.

Types of Marketing Channels

Manufacturer Directly to Customer: Manufacturer makes the goods and sells them to the
consumer directly with no intermediary, such as a wholesaler, agent or retailer. Goods come from the
manufacturer to the user without an intermediary or middleman.

• Manufacturer to Retailer to Consumer: Purchases are made by the retailer from the manufacturer
and then the retailer sells the merchandise to the consumer. This channel is used by manufacturers that
specialize in producing shopping goods.

• Manufacturer to Wholesaler to Customer: Consumer’s can buy directly from the wholesaler. The
wholesaler breaks down bulk packages for resale to the consumer. The wholesaler reduces some of the
cost to the consumer such as service cost or sales force cost, which makes the purchase price cheaper
for the consumer.

• Manufacturer to Agent to Wholesaler to Retailer to Customer: Distribution that involves more than
one intermediary involves an agent called in to be the middleman and assist with the sale of the goods.
An agent receives a commission from the producer. Agents are useful when goods need to move quickly
into the market soon after the order is placed.

Typical intermediaries involved in distribution include:

• Wholesaler: A merchant intermediary who sells chiefly to retailers, other merchants, or industrial,
institutional, and commercial users mainly for resale or business use. Wholesalers typically sell in large
quantities.
• Retailer: A merchant intermediary who sells direct to the public. There are many different types of retail
outlet - from hypermarts and supermarkets to small, independent stores.
• Agent: An intermediary who is authorised to act for a principal in order to facilitate exchange. Unlike
merchant wholesalers and retailers, agents do not take title to goods, but simply put buyers and sellers
together. Agents are typically paid via commissions by the principal. For example, travel agents are paid
a commission of around 15% for each booking made with an airline or hotel operator.
• Jobber: A special type of wholesaler, typically one who operates on a small scale and sells only to
retailers or institutions. For example, rack jobbers are small independent wholesalers who operate from
a truck, supplying convenience stores with snack foods and drinks on a regular basis.

Promotion Mix
The Promotion Mix refers to the blend of several promotional tools used by the business to create, maintain
and increase the demand for goods and services.
The fourth element of the 4 P’s of Marketing Mix is the promotion; that focuses on creating the awareness and
persuading the customers to initiate the purchase.
1. Advertising: The advertising is any paid form of non-personal presentation and promotion of goods and
services by the identified sponsor in the exchange of a fee. Through advertising, the marketer tries to build a pull
strategy; wherein the customer is instigated to try the product at least once.The complete information along with
the attractive graphics of the product or service can be shown to the customers that grab their attention and
influences the purchase decision.
2. Personal Selling: This is one of the traditional forms of promotional tool wherein the salesman interacts
with the customer directly by visiting them. It is a face to face interaction between the company representative
and the customer with the objective to influence the customer to purchase the product or services.
3. Sales Promotion: The sales promotion is the short term incentives given to the customers to have an
increased sale for a given period. Generally, the sales promotion schemes are floated in the market at the time of
festivals or the end of the season. Discounts, Coupons, Payback offers, Freebies, etc. are some of the sales
promotion schemes. With the sales promotion, the company focuses on the increased short-term profits, by
attracting both the existing and the new customers.
4. Public Relations: The marketers try to build a favourable image in the market by creating relations with the
general public. The companies carry out several public relations campaigns with the objective to have a support
of all the people associated with it either directly or indirectly. The public comprises of the customers, employees,
suppliers, distributors, shareholders, government and the society as a whole. The publicity is one of the form of
public relations that the company may use with the intention to bring newsworthy information to the public.
5. Direct Marketing: With the intent of technology, companies reach customers directly without any
intermediaries or any paid medium. The e-mails, text messages, Fax, are some of the tools of direct marketing.
The companies can send emails and messages to the customers if they need to be informed about the new
offerings or the sales promotion schemes.

The management must consider the following factors in determining the promotion mix, these are:

1. Nature of Product

2. Nature of Market
3. Stage of Product’s life

4. Availability of Funds 5. Nature of Technique

6. Promotional Strategy

7. Readiness of Buyer. Kinds of Promotion

1. Informative Promotion: The primary objective of every promotional activity is to disseminate information
about the product, product line, brand, and the company. The informative promotion is prevalent at every stage
of product life cycle and is an essential ingredient for creating the primary demand. The marketers adopt this
promotion strategy to convince customers to try a product at least once. It is based on the notion that the
customer will purchase the product only if he has the adequate information about it.
2. Persuasive Promotion: The persuasive promotion is prevalent at the growth stage of a product where the
primary objective of the management is to persuade people to buy. The basic purpose of this promotion strategy
is to stimulate purchase and create a positive image of the product in the minds of customers in order to influence
their long-term behaviors. Many firms do not adopt this kind of promotion as it involves high-pressure selling.
3. Reminder Promotion: The reminder promotion is often adopted at the stage when a product reaches its
maturity. The purpose of such promotion is to keep the product alive in the minds of the customers. Here, the
firm emphasizes on the product’s utility, features, brand names with the intent to make customers remind the
product. This promotion strategy acts as a “memory jogger” that enables the customers to remember the
product and influences their longterm buying behaviour.
4. Buyer behaviour Modifications: The effect of promotional strategies could be accessed through the
modifications in the consumer behaviour. The constant personal selling and repeated advertisements could be
used to measure the effectiveness of such promotional schemes.

ADVERTISING
Littlefield defines it as “Advertising is mass communication of information intended to persuade buyers as to
maximize profits.”

American Marketing Association defines advertising as any paid form of non-personal presentation and
promotion of ideas, goods, or services by an identified sponsor”.
THE 5 M’S OF ADVERTISING

Types of Advertising:
The following are the important types of advertising:

1. Brand Advertising:
This type of advertisements are done to build brands and develop unique brand identity for the firm. This is the
most popular form of advertising in all possible media including TV: for examples, Pepsi, Coke etc.

2. National Advertising:
These advertisements are uniform across the nation and are released through national media covering the
nation.

3. Local Advertising:
These advertisements are carried out in local and vernacular media to promote the product in a local region.

4. Retail Advertising:
These advertisements are brought to promote retail outlets and dealer points.
5. Political Advertising:
These are done for political parties, politicians and individual candidates during elections.

6. Social Advertising:
These advertisements are brought out for a social cause like against AIDS, child-labour, women trafficking.

7. Directory Advertising:
These are the advertisements done in directories and yellow pages and followed by people while collecting a
telephone number or a home address.

8. Business-to-Business Advertising:
These kinds of advertisements are carried out targeting business and organizational marketers.
These messages are directed towards retailers, wholesalers and distributors.

9. Institutional Advertising:
Institutions like colleges, universities, missionary of charities and large corporates bring out these
advertisements. The purpose of such advertising is to create a positive goodwill, which will ultimately
contribute towards achieving to overall marketing and brand building goal of the organization.

10. In Film Advertising:

These are new forms of advertising in which brands are placed inside the film and actors are shown using these
products during the movie for increasing the usage among the audience.

11. Electronic Advertising:

These forms of advertising use electronic media like, TV, radio, video, audio-cassettes, etc.

12. Interactive Advertising:

These are typical internet based advertisements, which are delivered to individual consumers who have access
to the World Wide Web.

Kinds of Advertising:
The important classifications of advertising are: Product and Institutional.

1. Product Advertising:
It aims at selling a particular product: This is the common way. A particular product with its brand is promoted
through advertising. For example, Horlicks, Hamam, Bournvita, Viva etc.

This type is again divided into primary and selective.

(a) Primary Advertising (pioneer):

This is a type of advertising used at the stage of introducing a new product to the market with the aim to inform
the public as to its birth and other details. For example, pressure cookers, bicycles, scooters etc.

(b) Selective Advertising:

This type of advertising is used when the market is loaded with similar products. There will be stiff competition
among the producers. This generally happens in the growing stage of a product’s life cycle. Since competition is
there, the advertisers aim to capture the market by influencing the demand for a specific product, probably
supported by promotion activities. This type is also known as competitive advertising. For example, prestige
pressure cookers, HMT watches, rallie cycle, Rajdoot bike etc.

2. Institutional Advertising:
This type of advertisement is displayed to create a goodwill for the firm rather than to sell its products. Its aim is
to make people, members of the advertiser’s firm. It gives importance to the firm and wants to create a good
impression about a particular manufacturer or a shopkeeper. For example, Parry and Co; Godrej, etc.

This may further be divided into three:

(a) In Patronage:
In it, consumers are informed about the firm, its product and policies.

(b) Public Relations:

It tries to create a favourable image about the firm, during strike periods etc.

(c) Public Service:

Here, the advertiser tries to create an image on public support, social services etc.

3. Commercial Advertising:
Commercial advertising or business advertising is concerned with selling products or ideas to increase the sales
volume. They may be:
Trade advertising – relating to trade

Industrial advertising – relating to Industrial goods

Professional advertising – relating to professions (Doctor, Accountant etc.)

Farm advertising – relating to farm products

4. Non-Commercial Advertising:
Non-profit organisations adopt this type of advertisement; for instance, inviting donations, financial aid etc.

5. Rational and Emotional Advertising:

If the advertising explains the specialty of a product, such as use the B.K. Soap, Kumari powder etc., it is a case
of rational type. When publicity is made to effect a lady look like a cinema star, associated with a charming
beauty, it is a case of emotional type.

6. National and Local Advertising:

When advertising is sponsored by manufacturers or producers, it is a case of national (general) advertising.
When the advertising is done by retailers, it is a case of local (retail) advertising.

Sales Promotion

 Sales promotion is a type of Pull marketing technique.

 If a firm introduces a product which is new in the market or which is not receiving a lot of attention, then
it promote this product to customers via sales promotions.

 When a brand wants to increase the sales of its products, it uses Sales promotion. The brand can increase
the sales by attracting new customers to their products or by retaining the old customers by various means.

 The company can also motivate the dealers and distributors of their channel to perform better for their

brand, and to get their stock moving. There are two types of Sales promotions

a) Consumer sales promotions

Any sales promotion activity that you do keeping the end consumer in mind is known as consumer sales
promotions. Example – if an E-commerce website gives 10% discount on its products, then it wants the
consumers to make the best of this deal. This is a consumer focused promotional activity and hence can be
called as consumer sales promotions.

b) Trade Sales promotions

If promotional activities are focused on Dealers, distributors or agents, then it is known as trade promotions.
There is a lot of competition in any field. And in channel sales, to get the products moving and to motivate the
dealer to perform better, trade discounts are given.

Example – You are a dealer for Televisions. Now Sony comes and tells you, you will be given 5% discount if you
cross a sale of 100 televisions. Naturally, you will be very motivated because

5% in television sales is huge. Plus selling Sony TV’s is easy because it is already a brand. Thus, you divert all
potential customers to Sony Televisions so that you can achieve the target.

Types of Sales promotions – Sales promotion techniques.

1. Discounts – Trade / consumer -Is the most common type of sales promotions is consumer discounts or trade
discounts.. Be it E-commerce stores, retail stores or anything else.

If there is a 10% discount on the product for the consumer, then it is known as consumer discount. However, if
there is a 10% discount to the dealer when he is purchasing from the company, it is known as trade discount.

2. Gifting-One of the most common ways to promote stores during festival time or when there is a huge walk
in expected is Gifting. It is also a way to increase the sales of the products because customers have an anticipation
that they might win a gift from the store.
3. Coupons-Quite commonly used to motivate people to purchase when they think the price is high or it can
be incentive to buy your product above the competitors. Domino’s, Pizza hut and McDonalds very prominently
use coupons in their marketing. If you have their coupon in hand, you get a discount of X amount on the purchase.

4. Financing-Financing is ingenious amongst the various types of sales promotions. It is a combination of

various factors. Companies which have huge resources generally act as Financers. They allow customers to
purchase a product on EMI or on different financing options. All this happens for a minor processing fee and less
interest.

5. Sampling- It is predominantly used in the FMCG industry for perfumes, deodorants, soaps or even eatables.
Sampling is an excellent way to introduce your product in the market and at the same time to increase the
awareness of the product.
6. Bundling- is when you put a combination of products on sale for the same price. So, for example, normally
1000 Rs might buy you just a shirt. However, with product bundling, 1000 Rs might buy you a set of shirt and
pants. As a result, the consumer is much more likely to buy this bundled offer as compared to a single offer.We
see bundling strongly in retail where a shampoo might be bundled with a soap or we can see a bundled
combinations of many different items.

7. Contests- Contests can be as simple as winning a gift through a scratch card, or it can be an in house game
in a retail showroom or it can be an online contest for which users have to enter their information. Due to the
phenomenal rise of the internet, online contests have become very easy and important. They also penetrate
faster and reach a lot of customers.

8. Refunds & Rebates- As the name suggests, refunds are a marketing tactic when you get a partial amount
refunded to you based on an action you have taken. For example – if you bring the parking ticket to the showroom,
your parking amount will be refunded by the store. Such refunds make the customer excited to visit a store.

Similarly, rebate is a type of partial refund which is most popular in the United states, though not much popular
in other countries. In rebates, you fill forms while checking out of stores. And if you have won the rebate, you
will have to mail your details to the company and the company will refund you the rebate amount in your bank
or via a paypal account.
9. Exchange offers-Exchange offers are quite commonly used all across the world and used strongly in festive
season when sales will be more and people are in a purchasing mood. In exchange offer, you can exchange an old
product for a new product.

10. Free trial- Chances are, you have come across several software’s or online programs which offer a free trial
to you before you purchase the product. Shareware programs are also a kind of free trial programs where you
can use the product for some time but later on have to purchase the product to use it completely.

11. Email Marketing-Email marketing was, is and is touted to always be one of the best ways to promote your
business. It is one of the most commonly used types of sales promotions across the world because of its ease of
implementation and because of its penetration. Each and every one of us has an email account which we access
regularly. Thus, an Email is personal to us when received in our phone and we are bound to check it out.

12. Exhibitions-More commonly used in Food, Jewellery, Clothing, Chemicals and similar such industries where
sellers want to showcase the products they have to their buyers. These buyers might be consumers or they may
be industrial buyers. An exhibition generally consists of one player who is exhibiting his goods. However, it can
also be a combination of players who are all there to showcase their wares.
13. Trade Shows-While exhibitions are targeted towards individual buyers, Trade shows are targeted towards
resellers, dealers, distributors and bulk buyers. A trade show is typically a display point for all top companies
within an industry. These companies are there to compete and grab the maximum eyeballs of retailers, dealers
and distributors.

14. Quantity Discount-The more quantity of the product you buy, the more is the discount. So for example, a
single soap may cost $1 but a combined package of 5 units of soap might cost you $4, giving you a 20% discount
on the purchase. Such type of quantity discount is common for customers.

PUSH AND PULL MARKETING

What is Push Marketing?

• Push marketing is a promotional strategy where businesses attempt to take their products to the customers.

• The term push stems from the idea that marketers are attempting to push their products at consumers.

• Common sales tactics include trying to sell merchandise directly to customers via company showrooms and
negotiating with retailers to sell their products for them, or set up point-of-sale displays.

• Often, these retailers will receive special sales incentives in exchange for this increased visibility.

• Businesses often use push marketing when launching a new product, or when trying to stand out in a niche
or crowded market.

Example of Push Marketing

One common example of push marketing can be seen in department stores that sell fragrance lines. The
manufacturing brand of the fragrance will often offer sales incentives to the department stores for pushing its
products onto customers.
What is Pull Marketing?

• The goal of pull marketing is to get the customers to come to you, hence the term pull, where marketers are
attempting to pull customers in.
• Common sales tactics used for pull marketing include mass media promotions, word-ofmouth referrals and
advertised sales promotions.
• From a business perspective, pull marketing attempts to create brand loyalty and keep customers coming
back, whereas push marketing is more concerned with short-term sales.
• Pull marketing starts at the product design phase as you survey your target market to learn the features they
want and then create a product geared toward meeting their needs.

Distribution channels
Direct Channels
When the producers sell their goods directly to the consumers, it is called a direct channel. No middleman
is present between the producer and the consumer.
For direct selling, the first option involves supplying the product to the customer using your own salesmen
and arranging your own deliveries. The second option is using the medium of post office. You obtain orders
from your customers who respond by mail or telephone to your advertisements or to letters mailed directly
to their houses. You deliver your products to them through mail or through some other carrier. The next
alternative is to establish your own retail stores. Bata Ltd. , for example, has established its own retail
stores throughout the country. This practice has also been adopted on a smaller scale by a numbe! of
textile mills which have their own retail shops like Calico Mills, Raymonds, etc. DCM has franchised a
number of retailers to sell their products to the consumers.
Direct channel is also called zero-level channel as there is no middleman in between producer and
consumer. ne three major ways of direct selling are shown in Figure
11.1.

Producer
Travelling Salesman Consumer

Retail
Consumer
shop/showroom
Producer Mail ordernelephone Consumer

Figure 11.1: Direct Channels of Distribution

An example 01 un ect selling is provided by Eureka Forbes Ltd. (EFL), a Bombay based company which
markets vacuum cleaners and water purifying equipment. It believes that if the market is in the customer's
house, the best way to get there is to knock at the door. -me company has clearly demonstrated that door-
to-door selling can be effective in Indian conditions. Its salesforce of over 500 people spread out over nearly
40 branch offices in 29 towns make it the country's largest commercial direct sales organisation.
Between 1982-83 and 1985-86, their sales of vacuum cleaners, water purifiers, etc. , have gone up from
Rs. 13.3 to Rs. 11 crore. They took the cue from Electrolux, the world's leading manufacturer of vacuum
cleaners, and a firm believer in door-to-door selling.
Indirect Channels
In the case of other products it is not possible for the manufacturer to supply goods directly to the
Consumers. So middlemen like wholesaler. retailer•and mercantile agents may be engaged in the channel
of distribution. When the middlemen.are engaged
in the distribution channel, it is called an indirect channel. As shown in Figure 11.2 there Channels of
Distribaåon 1 could be four indirect channels.

Producer Retailer Consumer

Producer Wholesaler
Consumer

Producer Wholesaler Consumer

Retailer
wholesaler Consumer
Producer Agents Retailer

Figure 11.2 Indirect Channels of Distibution

The manufacturer may supply goods directly to reatil traders. In this case the producer ascertains the
requirements of retailers at periodical intervals and goods are supplied accordingly. Aé and when required,
the retailer may also procure goods from the producer's godown located in that region. In the same way,
the producer can supply goods to the consumers by using the services of the wholesale trader. Since
there is only one middleman, (either retailer or wholesaler) in these two channels, this is referred to

as one level channel. Alternatively, the producer can use the services of the wholesaler s well as the retailer.
In this case the manufacturer may supply his products in bulk to Rholesalers. The retailer may buy
periodically from the•wholesaler and sell the same to the consumers located in his locality. As there are
two middlemen (both wholesaler and retailer) in this channel, it is referred to as two level channel. Another
alternative channel of distribution consists of mercantile agent, wholesaler and retailer. In this case, the
manufacturer deals with a mercantile agent. Then the wholesalers buy the goods from the agents and sell
th'e same to retailers. In turn the retailer sells it to the ultimate consumers. This type of channel is referred
to as three level channel as there are three types of middlemen involved in the distribution.

We have understood that there are a number of channels of distribution prevalent. From the producer's
point of view, more the number of middlemen used, lesser is the control he can have over the distribution.
Let us now examine how these channels of distribution vary from one type of product to another. Basically
we can classify the goods into two categories: 1) consumer goods, and 2) industrial goods. Let us now
discuss briefly about the channels of distribution used for these two categories of products.
11.4, 1 Channels of Distribution Used for Consumer Goods

As you know, the goods which are consumed by the household consumers are called consumer goods.
Under this category you can find a very wide range of items such as food items, stationery, cars, clothing,
shoes, household electrical appliances, TV sets, transistors, etc. The channel of distribution used for
different products is not thesame. Channels are different from one type of product to the other.
Look at Figure 11.3 carefully. It gives the idea about the channels ofdistribution for some of the customer
goods.
As shown in the figure, consumers sometimes go directly to the factory and buy the goods or order the
goods from theÅcatalogue. Durable consumer goods like cars, clothing, fur.niture, textbooks, shoes, etc. ,
are generally distribuföd through retailers. In many cases showrooms are established by the manufacturer
himself which undertake the retail trade. For example, Bata Shoe Company sells shoes through its
showrooms. Consumer goods like auto spare parts, stereos, video recorder, etc., are distributed
Distribution through wholesalers and retailers. Consumer goods Of daily need like foodgrains, sugar, salt,
edible oil, soap, paper, pencils, ete•. ; are generally distri buted through agent or broker, wholesaler and
retailer.

Producer Producer Producer Producer

AgenUBroker

Wholesaler Wholesaler

Retailer RetBiter Retailer

Consumer Consumer Consumer Consumer •

Catalogue shopping Cars Stereos Food items
Direct factory buying Clothing Video recorders
Furniture,Textbooks Auto parts
11,4.2 Channels of Distribution Used for Industrial Goods
As you know , the goods which are consumed for further production of goods are called industrial goods.
Under this category there are a variety of products such as machinery , equipment, industrial raw materials
(e.g. , sugarcane, cotton, coffee, oilseeds, iron ore, etc.), electrical and electronic components, etc. The
channels of distribution are not similar for all the products under this category. Look at Figure 11.4
carefully. It presents the major channels of distribution for some of the industrial goods.
High value industrial goods like mainframe computers, aircraft, heavy machinery , etc. , are supplied
directly to the buyers. In these cases manufacturers procure orders by mail on the basis of catalogues and
price lists. Sometimes salesmen are also used to contact the buyers. Relatively less expensive items like
trucks, conveyor systems, etc., are supplied through distributors. You know industries consume many
agricultural products. For instance, tea leaves are processed to prepare tea powder which we use for
preparing tea. Agricultural products like corn , coffee, soyabeans,. etc. , are procured by the industrial
buyers through agent middlemen. When electrical components are imported from foreign markets, they
are procured through an agent and industrial distributor.
Chano& of Diüib'doa
products (corn, coffee,
soybeans, etc.)
Figure 11.4 Channels of
Distribution for Industrial
Goods

computers Aircraft Trucks from foreign markets

Heavy Machinery