=$$===MARKETING CONCEPTS=====$$

[bonddonraj]

Lesson – 25
Lesson overview and learning objectives:
In last Lesson we discussed the price its definition, focused on the problem of setting prices and
considered the factors marketers must consider when setting prices today we will look at general
pricing approaches, we will also examine pricing strategies for new-product pricing, product mix
pricing.
PRICE THE 2ND P OF MARKETING MIX.
A. Setting Pricing Policy
Pricing policy setting starts with setting the pricing objective that can be: Profit Oriented
(concerned with increase in profit), Sales Oriented (basically concerned with increase in sales) and
Status Quo Oriented. Whereas costs set the lower limit of prices, the market and demand set the
upper limit. Both
consumer and industrial
buyers balance the price
of a product or service
against the benefits of
owning it. Thus, before
setting prices, the
marketer must
understand the
relationship between
price and demand for its
product. In this section,
we explain how the
price–demand
relationship varies for different types of markets and how buyer perceptions of price affect the
pricing decision. Costs set the floor for the price that the company can charge for its product. The
company wants to charge a price that both covers all its costs for producing, distributing, and
selling the product and delivers a fair rate of return for its effort and risk. A company's costs may
be an important element in its pricing strategy. Companies with lower costs can set lower prices
that result in greater sales and profits. Company’s pricing decisions are also affected by
competitors’ costs and prices and possible competitor reactions to the company's own pricing
moves there fore while setting the prices theses facts should also kept in mind. Final step is setting
the final price by using different methods.
B. General Pricing Approaches
The price the company charges will be somewhere between one that is too low to produce a profit
and one that is too high to produce any demand. Figure summarizes the major considerations in
setting price. Product costs set a floor to the price; consumer perceptions of the product's value set
the ceiling. The company must consider competitors' prices and other external and internal factors
to find the best price between these two extremes. Companies set prices by selecting a general
1 . S e le c t in g th e p r ic in g o b je c tiv e
2 . D e te rm in in g d em a n d
3 . E s t im a t in g c o s ts
4 . A n a ly z in g c om p e tito rs ’
c o s ts , p r ic e s , a n d o f fe rs
6 . S e le c t in g f in a l p r ic e
5 . S e le c tin g a p ric in g m e th o d
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Rupees (in thousands) Rupees (in thousands)
1200 1200
1000 1000
800 800
600 600
400 400
200 200
0
Total cost Total cost
Fixed cost Fixed cost
Target Target profit profit
Total revenue Total revenue
10 10 20 20 30 30 40 40 50 50
Sales volume in units (thousands) Sales volume in units (thousands)
Break Break-even point even point
pricing approach that includes one or more of three sets of factors. We examine these approaches:
the cost-based approach (cost-plus pricing, break-even analysis, and target profit pricing); the buyerbased
approach (value-based pricing); and the competition-based approach (going-rate and sealed-bid
pricing).
a) Cost-Based Pricing
�� Cost-Plus Pricing
The simplest pricing method is cost-plus pricing—adding a standard markup to the cost of the
product. Construction companies, for example, submit job bids by estimating the total project cost
and adding a standard markup for profit. Lawyers, accountants, and other professionals typically
price by adding a standard markup to their costs. Some sellers tell their customers they will charge
cost plus a specified markup; for example, aerospace companies price this way to the government.
To illustrate markup pricing, suppose any manufacturer had the following costs and expected sales:
Then the manufacturer's cost per toaster is given by:
Unit Cost = variable Cost + Fixed Cost
---------------
Price - Variable Cost
The manufacturer's markup price is given by:
Markup Price = Unit Cost
---------------
(1-desired return on sale)
Do using standard markups to set prices make sense? Generally, no. Any pricing method that
ignores demand and competitor prices is not likely to lead to the best price. Markup pricing works
only if that price actually brings in the expected level of sales. Still, markup pricing remains popular
for many reasons. First, sellers are more certain about costs than about demand. By tying the price
to cost, sellers simplify pricing—they do not have to make frequent adjustments as demand
changes. Second, when all firms in the industry use this pricing method, prices tend to be similar
and price competition is thus minimized. Third, many people feel that cost-plus pricing is fairer to
both buyers and sellers. Sellers earn a fair return on their investment but do not take advantage of
buyers when buyers' demand becomes great.
�� Break-even Analysis and Target Profit Pricing
Another cost-oriented pricing approach is break-even pricing(or a variation called target profit
pricing he firm tries to determine the price at which it will break even or make the target profit it is
seeking. This pricing method is also used by public utilities, which are constrained to make a fair
return on their investment.
Target pricing uses the concept
of a break-even chart, which
shows the total cost and total
revenue expected at different
sales volume levels. Figure
shows a break-even point.
Fixed costs are same regardless
of sales volume. Variable costs
are added to fixed costs to
form total costs, which rise
with volume. The total revenue
curve starts at zero and rises
with each unit sold.
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Fixed Cost
Break-even Volume =
---------------
Price - Variable Cost
The manufacturer should consider different prices and estimate break-even volumes, probable
demand, and profits for each.
b) Value-Based Pricing
An increasing number of companies are basing their prices on the product's perceived value.
Value-based pricing uses buyers' perceptions of value, not the seller's cost, as the key to pricing.
Value-based pricing means that the marketer cannot design a product and marketing program and
then set the price. Price is considered along with the other marketing mix variables before the
marketing program is set.
Figure compares cost-based pricing with value-based pricing. Cost-based pricing is product driven.
The company designs what it considers to be a good product, totals the costs of making the
product, and sets a price that covers costs plus a target profit. Marketing must then convince
buyers that the product's value at that price justifies its purchase. If the price turns out to be too
high, the company must settle for lower markups or lower sales, both resulting in disappointing
profits.
Cost-based versus value-based pricing
Value-based pricing reverses this process. The company sets its target price based on customer
perceptions of the product value. The targeted value and price then drive decisions about product
design and what costs can be incurred. As a result, pricing begins with analyzing consumer needs
and value perceptions, and price is set to match consumers' perceived value.
A company using value-based pricing must find out what value buyers assign to different
competitive offers. However, measuring perceived value could be difficult. Sometimes, consumers
are asked how much they would pay for a basic product and for each benefit added to the offer.
Or a company might conduct experiments to test the perceived value of different product offers.
If the seller charges more than the buyers' perceived value, the company's sales will suffer. Many
companies overprice their products, and their products sell poorly. Other companies under price.
Under priced products sell very well, but they produce less revenue than they would have if price
were raised to the perceived-value level.
During the past decade, marketers have noted a fundamental shift in consumer attitudes toward
price and quality. Many companies have changed their pricing approaches to bring them into line
with changing economic conditions and consumer price perceptions. The best way to hold your
customers is to constantly figure out how to give them more for less."
Thus, more and more, marketers have adopted value pricing strategies—offering just the right
combination of quality and good service at a fair price. In many cases, this has involved the
introduction of less expensive versions of established, brand-name products. In many business-tobusiness
marketing situations, the pricing challenge is to find ways to maintain the company's
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pricing power—its power to maintain or even raise prices without losing market share. To retain
pricing power—to escape price competition and to justify higher prices and margins—a firm must
retain or build the value of its marketing offer. This is especially true for suppliers of commodity
products, which are characterized by little differentiation and intense price competition. In such
cases, many companies adopt value-added strategies. Rather than cutting prices to match
competitors, they attach value-added services to differentiate their offers and thus support higher
margins.
c) Competition-Based Pricing
Consumers will base their judgments of a product's value on the prices that competitors charge for
similar products. One form of competition-based pricing is going-rate pricing, in which a firm bases
its price largely on competitors' prices, with less attention paid to its own costs or to demand. The
firm might charge the same, more, or less than its major competitors. In oligopolistic industries
that sell a commodity such as steel, paper, or fertilizer, firms normally charge the same price. The
smaller firms follow the leader: They change their prices when the market leader's prices change,
rather than when their own demand or costs change. Some firms may charge a bit more or less,
but they hold the amount of difference constant. Thus, minor gasoline retailers usually charge a
few cents less than the major oil companies, without letting the difference increase or decrease.
Going-rate pricing is quite popular. When demand elasticity is hard to measure, firms feel that the
going price represents the collective wisdom of the industry concerning the price that will yield a
fair return. They also feel that holding to the going price will prevent harmful price wars.
Competition-based pricing is also used when firms bid for jobs. Using sealed-bid pricing, a firm bases
its price on how it thinks competitors will price rather than on its own costs or on the demand.
The firm wants to win a contract, and winning the contract requires pricing less than other firms.
Yet the firm cannot set its price below a certain level. It cannot price below cost without harming
its position. In contrast, the higher the company sets its price above its costs, the lower its chance
of getting the contract.
Pricing decisions are subject to an incredibly complex array of environmental and competitive
forces. A company sets not a single price, but rather a pricing structure that covers different items in
its line. This pricing structure changes over time as products move through their life cycles. The
company adjusts product prices to reflect changes in costs and demand and to account for
variations in buyers and situations. As the competitive environment changes, the company
considers when to initiate price changes and when to respond to them.
C. New-Product Pricing Strategies
Pricing strategies usually change as the product passes through its life cycle. The introductory stage
is especially challenging. Companies bringing out a new product face the challenge of setting prices
for the first time. They can choose between two broad strategies: market-skimming pricing and marketpenetration
pricing.
a) Market-Skimming Pricing
Many companies that invent new products initially set high prices to "skim" revenues layer by layer
from the market. Intel is a prime user of this strategy, called market-skimming pricing. Market
skimming makes sense only under certain conditions. First, the product's quality and image must
support its higher price, and enough buyers must want the product at that price. Second, the costs
of producing a smaller volume cannot be so high that they cancel the advantage of charging more.
Finally, competitors should not be able to enter the market easily and undercut the high price.
b) Market-Penetration Pricing
Rather than setting a high initial price to skim off small but profitable market segments, some
companies use market-penetration pricing. They set a low initial price in order to penetrate the
market quickly and deeply—to attract a large number of buyers quickly and win a large market
share. The high sales volume results in falling costs, allowing the company to cut its price even
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further. Several conditions must be met for this low-price strategy to work. First, the market must
be highly price sensitive so that a low price produces more market growth. Second, production and
distribution costs must fall as sales volume increases. Finally, the low price must help keep out the
competition, and the penetration pricer must maintain its low-price position—otherwise, the price
advantage may be only temporary.
D. Product Mix Pricing Strategies
The strategy for setting a product's price often has to be changed when the product is part of a
product mix. In this case, the firm looks for a set of prices that maximizes the profits on the total
product mix. Pricing is difficult because the various products have related demand and costs and
face different degrees of competition. We now take a closer look at the five product mix pricing
situations
a) Product Line Pricing
Companies usually develop product lines rather than single products. In product line pricing,
management must decide on the price steps to set between the various products in a line.
The price steps should take into account cost differences between the products in the line,
customer evaluations of their different features, and competitors' prices. In many industries, sellers
use well-established price points for the products in their line. The seller's task is to establish
perceived quality differences that support the price differences.
b) Optional-Product Pricing
Many companies use optional-product pricing—offering to sell optional or accessory products
along with their main product. For example, a car buyer may choose to order power windows,
cruise control, and a CD changer. Pricing these options is a sticky problem. Automobile companies
have to decide which items to include in the base price and which to offer as options. Until recent
years, The economy model was stripped of so many comforts and conveniences that most buyers
rejected it.
c) Captive-Product Pricing
Companies that make products that must be used along with a main product are using captiveproduct
pricing. Examples of captive products are razor blades, camera film, video games, and
computer software. Producers of the main products (razors, cameras, video game consoles, and
computers) often price them low and set high markups on the supplies. Thus, camera
manufactures price its cameras low because they make its money on the film it sells. In the case of
services, this strategy is called two-part pricing. The price of the service is broken into a fixed fee plus a
variable usage rate. Thus, a telephone company charges a monthly rate—the fixed fee—plus charges
for calls beyond some minimum number—the variable usage rate. Amusement parks charge
admission plus fees for food, midway attractions, and rides over a minimum. The service firm must
decide how much to charge for the basic service and how much for the variable usage. The fixed
amount should be low enough to induce usage of the service; profit can be made on the variable
fees.
d) By-Product Pricing
In producing processed meats, petroleum products, chemicals, and other products, there are often
by-products. If the by-products have no value and if getting rid of them is costly, this will affect
the pricing of the main product. Using by-product pricing, the manufacturer will seek a market for
these by-products and should accept any price that covers more than the cost of storing and
delivering them. This practice allows the seller to reduce the main product's price to make it more
competitive. By-products can even turn out to be profitable. For example, many lumber mills have
begun to sell bark chips and sawdust profitably as decorative mulch for home and commercial
landscaping.
Sometimes, companies don't realize how valuable their by-products are.
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e) Product Bundle Pricing
Using product bundle pricing, sellers often combine several of their products and offer the bundle
at a reduced price. Thus, theaters and sports teams sell season tickets at less than the cost of single
tickets; hotels sell specially priced packages that include room, meals, and entertainment; computer
makers include attractive software packages with their personal computers. Price bundling can
promote the sales of products consumers might not otherwise buy, but the combined price must
be low enough to get them to buy the bundle.
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[bonddonraj]

Lesson – 26
Lesson overview and learning objectives:
We have already discussed the different factors affecting pricing decisions and approaches that can
be used to price the product/services, today we will discuss price-adjustment strategies. Priceadjustment
strategies account for customer differences and start changing situations, and strategies
for initiating and responding to price changes
PRICE THE 2ND P OF MARKETING MIX.
A. Price-Adjustment Strategies
Companies usually adjust their basic prices to account for various customer differences and
changing situations. Fig summarizes six price-adjustment strategies: discount and allowance
pricing, segmented pricing,
psychological pricing,
promotional pricing,
geographical pricing, and
international pricing.
a. Discount and
Allowance Pricing
Most companies adjust their
basic price to reward
customers for certain
responses, such as early
payment of bills, volume purchases, and off-season buying. These price adjustments—called
discounts and allowances—can take many forms.
A cash discount is a price reduction to buyers who pay their bills promptly. A typical example is
"2/10, net 30," which means that although payment is due within 30 days, the buyer can deduct 2
percent if the bill is paid within 10 days. The discount must be granted to all buyers meeting these
terms. Such discounts are customary in many industries and help to improve the sellers' cash
situation and
reduce bad debts
and creditcollection
costs.
A quantity
discount is a price
reduction to buyers
who buy large
volumes. A typical
example might be
"Rs10 per unit for
less than 100 units,
Rs9 per unit for
100 or more units."
By law, quantity
discounts must be
offered equally to
Cash Discount Seasonal Discount
Quantity Discount Trade-In Allowance
Functional Discount Promotional Allowance
Adjusting Basic Price to Reward Customers
For Certain Responses
�� D is c o u n t a n d A llo w a n c e
P r ic in g
�� S eg m e n te d P r ic in g
�� P s y c h o lo g ic a l P r ic in g
�� P ro m o tio n a l P r ic in g
�� G e o g r a p h ic a l P r ic in g
�� In te rn a t io n a l P r ic in g
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all customers and must not exceed the seller's cost savings associated with selling large quantities.
These savings include lower selling, inventory, and transportation expenses. Discounts provide an
incentive to the customer to buy more from one given seller, rather than from many different
sources.
A functional discount (also called a trade discount) is offered by the seller to trade channel
members who perform certain functions, such as selling, storing, and record keeping.
Manufacturers may offer different functional discounts to different trade channels because of the
varying services they perform, but manufacturers must offer the same functional discounts within
each trade channel.
A seasonal discount is a price reduction to buyers who buy merchandise or services out of
season. For example, lawn and garden equipment manufacturers offer seasonal discounts to
retailers during the fall and winter months to encourage early ordering in anticipation of the heavy
spring and summer selling seasons. Hotels, motels, and airlines will offer seasonal discounts in
their slower selling periods. Seasonal discounts allow the seller to keep production steady during an
entire year.
Allowances are another type of reduction from the list price. For example, trade-in allowances are
price reductions given for turning in an old item when buying a new one. Trade-in allowances are
most common in the automobile industry but are also given for other durable goods. Promotional
allowances are payments or price reductions to reward dealers for participating in advertising and
sales support programs.
b. Segmented Pricing
Companies will often adjust their basic prices to allow for differences in customers, products, and
locations. In segmented pricing, the company sells a product or service at two or more prices, even
though the difference in prices is not based on differences in costs.
Segmented pricing takes several forms. Under customer-segment pricing, different customers pay
different prices for the same product or service. Museums, for example, will charge a lower
admission for students and senior citizens. Under product-form pricing, different versions of the
product are priced differently but not according to differences in their costs. Using location
pricing, a company charges different prices for different locations, even though the cost of offering
at each location is the same. For instance, theaters vary their seat prices because of audience
preferences for certain locations. Finally, using time pricing, a firm varies its price by the season,
the month, the day, and even the hour. Public utilities vary their prices to commercial users by time
of day and weekend versus weekday. The telephone company offers lower off-peak charges, and
resorts give seasonal discounts.
For segmented pricing to be an effective strategy, certain conditions must exist. The market must
be segmentable, and the segments must show different degrees of demand. Members of the
segment paying the lower
price should not be able to
turn around and resell the
product to the segment
paying the higher price.
Competitors should not be
able to undersell the firm in
the segment being charged
the higher price. Nor should
the costs of segmenting and
watching the market exceed
the extra revenue obtained
from the price difference. Of
course, the segmented
Customer - Segment Location Pricing
Product - Form Time Pricing
Selling Products At Different Prices Even
Though There is No Difference in Cost
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pricing must also be legal. Most importantly, segmented prices should reflect real differences in
customers' perceived value. Otherwise, in the long run, the practice will lead to customer
resentment and ill will.
c. Psychological Pricing
Price says something about the product. For example, many consumers use price to judge quality.
An Rs1000 bottle of perfume may contain only Rs300 worth of scent, but some people are willing
to pay the Rs 1000 because this price indicates something special.
In using psychological pricing, sellers consider the psychology of prices and not simply the
economics. For example, one study of the relationship between price and quality perceptions of
cars found that consumers perceive higher-priced cars as having higher quality. By the same token,
higher-quality cars are perceived to be even higher priced than they actually are. When consumers
can judge the quality of a product by examining it or by calling on past experience with it, they use
price less to judge quality. When consumers cannot judge quality because they lack the information
or skill, price becomes an important quality signal:
Another aspect of psychological pricing is reference pricing—prices that buyers carry in their
minds and refer to when looking at a given product. The reference price might be formed by
noting current prices, remembering past prices, or assessing the buying situation. Sellers can
influence or use these consumers' reference prices when setting price. For example, a company
could display its product next to more expensive ones in order to imply that it belongs in the same
class. Department stores often sell women's clothing in separate departments differentiated by
price: Clothing found in the more expensive department is assumed to be of better quality.
Companies can also influence consumers' reference prices by stating high manufacturer's suggested
prices, by indicating that the product was originally priced much higher, or by pointing to a
competitor's higher price.
d. Promotional pricing,
Companies will temporarily price their products below list price and sometimes even below cost.
Promotional pricing takes several forms. Supermarkets and department stores will price a few
products as loss leaders to attract customers to the store in the hope that they will buy other items
at normal markups. Sellers will also use special-event pricing in certain seasons to draw more
customers. Manufacturers will sometimes offer cash rebates to consumers who buy the product
from dealers within a specified time; the manufacturer sends the rebate directly to the customer.
Rebates have been popular with automakers and producers of durable goods and small appliances,
but they are also used with consumer-packaged goods. Some manufacturers offer low-interest
financing, longer warranties, or free maintenance to reduce the consumer's "price." This practice
has recently become a favorite of the auto industry. Or, the seller may simply offer discounts from
normal prices to increase sales and reduce inventories.
Promotional pricing, however, can have adverse effects. Used too frequently and copied by
competitors, price promotions can create "deal-prone" customers who wait until brands go on sale
before buying them. Or, constantly reduced prices can erode a brand's value in the eyes of
customers. Marketers sometimes use price promotions as a quick fix instead of sweating through
the difficult process of developing effective longer-term strategies for building their brands. In fact,
one observer notes that price promotions can be downright addicting to both the company and the
customer. The point is that promotional pricing can be an effective means of generating sales in
certain circumstances but can be damaging if taken as a steady diet.
e. Geographical Pricing
A company also must decide how to price its products for customers located in different parts of
the country or world. Should the company take risk of losing the business of more distant
customers by charging them higher prices to cover the higher shipping costs? Or should the
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company charge all customers the same prices regardless of location? Because each customer picks
up its own cost, supporters of FOB pricing feel that this is the fairest way to assess freight charges.
The disadvantage, however, is that Peerless will be a high-cost firm to distant customers?
Uniform-delivered pricing is the opposite of FOB pricing. Here, the company charges the same
price plus freight to all customers, regardless of their location. The freight charge is set at the
average freight cost. Other advantages of uniform-delivered pricing are that it is fairly easy to
administer and it lets the firm advertise its price nationally.
Zone pricing falls between FOB-origin pricing and uniform-delivered pricing. The company sets
up two or more zones. All customers within a given zone pay a single total price; the more distant
the zone, the higher the price. Using base point pricing, the seller selects a given city as a "basing
point" and charges all customers the freight cost from that city to the customer location, regardless
of the city from which the goods are actually shipped. If all sellers used the same basing-point city,
delivered prices would be the same for all customers and price competition would be eliminated.
Industries such as sugar, cement, steel, and automobiles used basing-point pricing for years, but
this method has become less popular today. Some companies set up multiple basing points to
create more flexibility: They quote freight charges from the basing-point city nearest to the
customer.
Finally, the seller who is anxious to do business with a certain customer or geographical area might
use freight-absorption pricing. Using this strategy, the seller absorbs all or part of the actual freight
charges in order to get the desired business. The seller might reason that if it can get more
business, its average costs will fall and more than compensate for its extra freight cost. Freightabsorption
pricing is used for market penetration and to hold on to increasingly competitive
markets.
f. International Pricing
Companies that market their products internationally must decide what prices to charge in the
different countries in which they operate. In some cases, a company can set a uniform worldwide
price. The price that a company should charge in a specific country depends on many factors,
including economic conditions, competitive situations, laws and regulations, and development of
the wholesaling and retailing system. Consumer perceptions and preferences also may vary from
country to country, calling for different prices. Or the company may have different marketing
objectives in various world markets, which require changes in pricing strategy. Costs play an
important role in setting international prices. Travelers abroad are often surprised to find that
goods that are relatively inexpensive at home may carry outrageously higher price tags in other
countries. In some cases, such price escalation may result from differences in selling strategies or
market conditions. In most instances, however, it is simply a result of the higher costs of selling in
foreign markets—the additional costs of modifying the product, higher shipping and insurance
costs, import tariffs and taxes, costs associated with exchange-rate fluctuations, and higher channel
and physical distribution costs.
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[bonddonraj]

Lesson – 27
Lesson overview and learning objectives:
In last Lesson we discussed the different price adjustment strategies. Today we will have discussion
on different price changes that can tale place and customers and companies responses towards
these changes. We will have review of concepts discussed in Lessons regarding Price as well
PRICE THE 2ND P OF MARKETING MIX.
B. Price Changes
After developing their pricing structures and strategies, companies often face situations in which
they must initiate price changes or respond to price changes by competitors.
a. Initiating Price Changes
In some cases, the company may find it desirable to initiate either a price cut or a price increase. In
both cases, it must anticipate possible buyer and competitor reactions.
i. Initiating Price Cuts
Several situations may lead a firm to consider cutting its price. One of the such circumstance is
excess capacity. In this case, the firm needs more business and cannot get it through increased
sales effort, product improvement, or other measures. It may drop its "follow-the-leader
pricing"—charging about the same price as its leading competitor—and aggressively cut prices to
boost sales. But as the airline, construction equipment, fast-food, and other industries have learned
in recent years, cutting prices in an industry loaded with excess capacity may lead to price wars as
competitors try to hold on to market share.
Another situation leading to price changes is falling market share in the face of strong price
competition. Either the company starts with lower costs than its competitors or it cuts prices in the
hope of gaining market share that will further cut costs through larger volume.
ii. Initiating Price Increases
A successful price increase can greatly increase profits. For example, if the company's profit margin
is 3 percent of sales, a 1 percent price increase will increase profits by 33 percent if sales volume is
unaffected. A major factor in price increases is cost inflation. Rising costs squeeze profit margins
and lead companies to pass cost increases on to the customers. Another factor leading to price
increases is excess demand: When a company cannot supply all its customers' needs, it can raise its
prices, ration products to customers, or both.
Companies can increase their prices in a number of ways to keep up with rising costs. Prices can be
raised almost invisibly by dropping discounts and adding higher-priced units to the line. Or prices
can be pushed up openly. In passing price increases on to customers, the company must avoid
being perceived as a price gouger. Companies also need to think of who will bear the brunt of
increased prices
There are some techniques for avoiding this problem. One is to maintain a sense of fairness
surrounding any price increase. Price increases should be supported with a company
communication program telling customers why prices are being increased and customers should be
given advance notice so they can do forward buying or shop around. Making low-visibility price
moves first is also a good technique: Eliminating discounts, increasing minimum order sizes,
curtailing production of low-margin products are some examples. Contracts or bids for long-term
projects should contain escalator clauses based on such factors as increases in recognized national
price indexes. The company sales force should help business customers find ways to economize.
Wherever possible, the company should consider ways to meet higher costs or demand without
raising prices. For example, it can consider more cost-effective ways to produce or distribute its
products. It can shrink the product instead of raising the price, as candy bar manufacturers often
do. It can substitute less expensive ingredients or remove certain product features, packaging, or
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services. Or it can "unbundle" its products and services, removing and separately pricing elements
that were formerly part of the offer.
b. Buyer Reactions to Price Changes
Whether the price is raised or lowered, the action will affect buyers, competitors, distributors, and
suppliers and may interest government as well. Customers do not always interpret prices in a
straightforward way. They may view a price cut in several ways. For example, what would you
think if any company suddenly cuts its VCR prices in half? You might think that these VCRs are
about to be replaced by newer models or that they have some fault and are not selling well. You
might think that company is abandoning the VCR business and may not stay in this business long
enough to supply future parts. You might believe that quality has been reduced. Or you might
think that the price will come down even further and that it will pay to wait and see.
Similarly, a price increase, which would normally lower sales, may have some positive meanings for
buyers. What would you think if company mentioned above raised the price of its latest VCR
model? On the one hand, you might think that the item is very "hot" and may be unobtainable
unless you buy it soon. Or you might think that the VCR is an unusually good value.
c. Competitor Reactions to Price Changes
A firm considering a price change has to worry about the reactions of its competitors as well as its
customers. Competitors are most likely to react when the number of firms involved is small, when
the product is uniform, and when the buyers are well informed.
How can the firm anticipate the likely reactions of its competitors? If the firm faces one large
competitor, and if the competitor tends to react in a set way to price changes, that reaction can be
easily anticipated. But if the competitor treats each price change as a fresh challenge and reacts
according to its self-interest, the company will have to figure out just what makes up the
competitor's self-interest at the time.
The problem is complex because, like the customer, the competitor can interpret a company price
cut in many ways. It might think the company is trying to grab a larger market share, that the
company is doing poorly and trying to boost its sales, or that the company wants the whole
industry to cut prices to increase total demand.
When there are several competitors, the company must guess each competitor's likely reaction. If
all competitors behave alike, this amounts to analyzing only a typical competitor. In contrast, if the
competitors do not behave alike—perhaps because of differences in size, market shares, or
policies—then separate analyses are necessary. However, if some competitors will match the price
change, there is good reason to expect that the rest will also match it.
d. Responding to Price Changes
Here we reverse the question and ask how a firm should respond to a price change by a
competitor. The firm needs to consider several issues: Why did the competitor change the price?
Was it to take more market share, to use excess capacity, to meet changing cost conditions, or to
lead an industry wide price change? Is the price change temporary or permanent? What will happen
to the company's market share and profits, if it does not respond? Are other companies going to
respond? What are the competitor's and other firms' responses to each possible reaction likely to
be?
Besides these issues, the company must make a broader analysis. It has to consider its own
product's stage in the life cycle, the product's importance in the company's product mix, the
intentions and resources of the competitor, and the possible consumer reactions to price changes.
The company cannot always make an extended analysis of its alternatives at the time of a price
change, however. The competitor may have spent much time preparing this decision, but the
company may have to react within hours or days. About the only way to cut down reaction time is
to plan ahead for both possible competitor's price changes and possible responses.
There are several ways a company might assess and respond to a competitor's price cut. Once the
company has determined that the competitor has cut its price and that this price reduction is likely
to harm company sales and profits, it might simply decide to hold its current price and profit
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margin. The company might believe that it will not lose too much market share, or that it would
lose too much profit if it reduced its own price. It might decide that it should wait and respond
when it has more information on the effects of the competitor's price change. For now, it might be
willing to hold on to good customers, while giving up the poorer ones to the competitor. The
argument against this holding strategy, however, is that the competitor may get stronger and more
confident as its sales increase and that the company might wait too long to act.
If the company decides that effective action can and should be taken, it might make any of four
responses. First, it could reduce its price to match the competitor's price. It may decide that the
market is price sensitive and that it would lose too much market share to the lower-priced
competitor. Or it might worry that recapturing lost market share later would be too hard. Cutting
the price will reduce the company's profits in the short run. Some companies might also reduce
their product quality, services, and marketing communications to retain profit margins, but this
will ultimately hurt long-run market share. The company should try to maintain its quality as it cuts
prices.
Alternatively, the company might maintain its price but raise the perceived quality of its offer. It
could improve its communications, stressing the relative quality of its product over that of the
lower-price competitor. The firm may find it cheaper to maintain price and spend money to
improve its perceived value than to cut price and operate at a lower margin.
Or, the company might improve quality and increase price, moving its brand into a higher-price
position. The higher quality justifies the higher price, which in turn preserves the company's higher
margins. Or the company can hold price on the current product and introduce a new brand at a
higher-price position.
Finally, the company might launch a low-price "fighting brand." Often, one of the best
responses is to add lower-price items to the line or to create a separate lower-price brand. This is
necessary if the particular market segment being lost is price sensitive and will not respond to
arguments of higher quality.
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Lesson – 28
Lesson overview and learning objectives:
Channel design begins with assessing customer channel-service needs and company channel
objectives and constraints. The company then identifies the major channel alternatives in terms of
the types of intermediaries, the number of intermediaries, and the channel responsibilities of each.
No system, no matter how well it has been planned, is without conflict. Managing distribution
conflict is a necessity if quality service and low cost is to be delivered. Since distribution
relationships tend to be long-term in nature, the choice of channel partners is very important and
should be taken very seriously these are the all concepts that should be clear after today’s Lesson.
PLACE- THE 3RD P OF MARKETING MIX.
Marketing channel decisions are among the most important facing marketing managers. A
company’s channel decisions are linked with every other marketing decision. Companies often
pay too little attention to their distribution channels. This can be very damaging. Distribution
channel decisions often involve long-term commitments to other firms. There are four major
issues or questions that concern distribution channels:
1). What is the nature of distribution channels?
2). How do channel firms interact and organize to do the work of the
channel?
3). What problems do companies face in designing and managing their
channels?
4). what role does physical distribution play in attracting and satisfying
customers?
A. Marketing Channel
A set of interdependent organizations involved in the process of making a product or service
available for use or consumption by the consumer or business user. Figure summarizes the simple
marketing system that consists of customer, producers that are having some thing valuable for
making transactions. These transaction are made in exchange process and creation availability of
products for customers. This availability is created by using networks of distribution channels.
Every product and service,
whether an automobile, a
watch, a personal computer,
or office furniture, must
somehow be made available
to billions of people.
Products must also be made
available to millions of
industrial firms, businesses,
government institutions, and
other organizations
worldwide. Firms try to
realize this goal through the
creation of distribution channels.
Channel structure has three basic dimensions: the length of the channel, the intensity at various
levels, and the types of intermediaries involved. Channel intensity ranges from intensive to
selective to exclusive. Intensive means that there are many intermediaries. Selective means that
there are a smaller number of intermediaries. Exclusive refers to only one.
Simple Marketing Simple Marketing
System System
Producer/Seller Consumer
Communication
Product/Service
Money
Feedback
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B. Why Are Marketing Intermediaries Used?
Why do producers give some of the selling job to intermediaries? After all, doing so means giving
up some control over how and to whom the products are sold. The use of intermediaries results
from their greater efficiency in making goods available to target markets. Through their contacts,
experience, specialization, and scale of operation, intermediaries usually offer the firm more than it
can achieve on its own.
Figure shows how using intermediaries can provide economies. Figure A shows three
manufacturers, each using direct marketing to reach three customers. This system requires nine
different contacts. Figure B shows the three manufacturers working through one distributor, who
contacts the three customers. This system requires only six contacts. In this way, intermediaries
reduce the amount of work that must be done by both producers and consumers.
From the economic system's point of view, the role of marketing intermediaries is to transform the
assortments of products made by producers into the assortments wanted by consumers. Producers
make narrow assortments of products in large quantities, but consumers want broad assortments
of products in small quantities. In the distribution channels, intermediaries buy large quantities
from many producers and break them down into the smaller quantities and broader assortments
wanted by consumers. Thus, intermediaries play an important role in matching supply and
demand.
The concept of distribution channels is not limited to the distribution of tangible products.
Producers of services and ideas also face the problem of making their output available to target
markets. In the private sector, retail stores, hotels, banks, and other service providers take great
care to make their services conveniently available to target customers. In the public sector, service
organizations and agencies develop "educational distribution systems" and "health care delivery
systems" for reaching sometimes widely dispersed populations. Hospitals must be located to serve
various patient populations, and schools must be located close to the children who need to be
taught. Communities must locate their fire stations to provide rapid response to fires and polling
stations must be placed where people can vote conveniently.
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C. Distribution Channel Functions
The distribution channel moves goods and services from producers to consumers. It overcomes
the major time, place, and possession gaps that separate goods and services from those who would
use them. Members of the marketing channel perform many key functions:
• Information: gathering and distributing marketing research and intelligence information
about actors and forces in the marketing environment needed for planning and aiding
exchange.
• Promotion: developing and spreading persuasive communications about an offer.
• Contact: finding and communicating with prospective buyers.
• Matching: shaping and fitting the offer to the buyer's needs, including activities such as
manufacturing, grading, assembling, and packaging.
• Negotiation: reaching an agreement on price and other terms of the offer so that ownership
or possession can be transferred.
Others help to fulfill the completed transactions:
• Physical distribution: transporting and storing goods.
• Financing: acquiring and using funds to cover the costs of the channel work.
• Risk taking: assuming the risks of carrying out the channel work.
The question is not whether these functions need to be performed—they must be—but rather who
will perform them. To the extent that the manufacturer performs these functions, its costs go up
and its prices have to be higher. At the same time, when some of these functions are shifted to
intermediaries, the producer's costs and prices may be lower, but the intermediaries must charge
more to cover the costs of their work. In dividing the work of the channel, the various functions
should be assigned to the channel members who can perform them most efficiently and effectively
to provide satisfactory assortments of goods to target consumers.
D. Number of Channel Levels
Distribution channels can be described by the number of channel levels involved. Each layer of
marketing intermediaries that performs some work in bringing the product and its ownership
closer to the final buyer is a channel level. Because
the producer and the final consumer both perform some work, they are part of every channel. We
use the number of intermediary levels to indicate the length of a channel. Figure A shows several
consumer distribution channels of different lengths.
Channel 1, called a direct marketing channel, has no intermediary levels. It consists of a company
selling directly to consumers. The remaining channels in Figure A are indirect marketing channels.
Channel 2 contains one intermediary level. In consumer markets, this level is typically a retailer.
Producer Agent/
Broker Wholesaler Retailer Consumer
Producer Wholesaler Retailer Consumer
Producer Retailer Consumer
Producer Consumer
Producer Agent/
Broker Wholesaler Business
User
Producer Wholesaler Business
User
Producer Business
User
Producer Business
User
Agent/
Broker
Figure A Figure B
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For example, the makers of televisions, cameras, tires, furniture, major appliances, and many other
products sell their goods directly to large retailers which then sell the goods to final consumers.
Channel 3 contains two intermediary levels, a wholesaler and a retailer. This channel is often used
by small manufacturers of food, drugs, hardware, and other products. Channel 4 contains three
intermediary levels. In the meatpacking industry, for example, jobbers buy from wholesalers and
sell to smaller retailers who generally are not served by larger wholesalers. Distribution channels
with even more levels are sometimes found, but less often. From the producer's point of view, a
greater number of levels means less control and greater channel complexity.
Figure B shows some common business distribution channels. The business marketer can use its
own sales force to sell directly to business customers. It can also sell to industrial distributors, who
in turn sell to business customers. It can sell through manufacturer's representatives or its own
sales branches to business customers, or it can use these representatives and branches to sell
through industrial distributors. Thus, business markets commonly include multilevel distribution
channels.
All of the institutions in the channel are connected by several types of flows. These include the
physical flow of products, the flow of ownership, the payment flow, the information flow, and the
promotion flow. These flows can make even channels with only one or a few levels very complex.
E. Channel Behavior and Organization
Distribution channels are more than simple collections of firms tied together by various flows.
They are complex behavioral systems in which people and companies interact to accomplish
individual, company, and channel goals. Some channel systems consist only of informal
interactions among loosely organized firms; others consist of formal interactions guided by strong
organizational structures. Moreover, channel systems do not stand still—new types of
intermediaries emerge and whole new channel systems evolve. Here we look at channel behavior
and at how members organize to do the work of the channel.
Channel Behavior
A distribution channel consists of firms that have banded together for their common good. Each
channel member is dependent on the others. Each channel member plays a role in the channel and
specializes in performing one or more functions. The channel will be most effective when each
member is assigned the tasks it can do best.
Ideally, because the success of individual channel members depends on overall channel success, all
channel firms should work together smoothly. They should understand and accept their roles,
coordinate their goals and activities, and cooperate to attain overall channel goals. By cooperating,
they can more effectively sense, serve, and satisfy the target market.
However, individual channel members rarely take such a broad view. They are usually more
concerned with their own short-run goals and their dealings with those firms closest to them in the
channel. Cooperating to achieve overall channel goals sometimes means giving up individual
company goals. Although channel members are dependent on one another, they often act alone in
their own short-run best interests. They often disagree on the roles each should play—on who
should do what and for what rewards. Such disagreements over goals and roles generate channel
conflict.
Horizontal conflict occurs among firms at the same level of the channel. Vertical conflict, conflicts
between different levels of the same channel, is even more common. Some conflict in the channel
takes the form of healthy competition. Such competition can be good for the channel—without it,
the channel could become passive and non innovative. But sometimes conflict can damage the
channel. For the channel as a whole to perform well, each channel member's role must be specified
and channel conflict must be managed. Cooperation, role assignment, and conflict management in
the channel are attained through strong channel leadership. The channel will perform better if it
includes a firm, agency, or mechanism that has the power to assign roles and manage conflict.
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F. Vertical Marketing Systems
Historically, distribution channels have been loose collections of independent companies, each
showing little concern for overall channel performance. These conventional distribution channels
have lacked strong leadership and have been troubled by damaging conflict and poor performance.
One of the biggest recent channel developments has been the vertical marketing systems that have
emerged to challenge conventional marketing channels. Figure contrasts the two types of channel
arrangements. A conventional distribution channel consists of one or more independent
producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own
profits, even at the expense of
profits for the system as a whole.
No channel member has much
control over the other members,
and no formal means exists for
assigning roles and resolving
channel conflict. In contrast, a
Vertical Marketing System (VMS)
consists of producers, wholesalers,
and retailers acting as a unified
system. One channel member owns
the others, has contracts with them,
or wields so much power that they
must all cooperate. The VMS can be
dominated by the producer,
wholesaler, or retailer. Vertical
marketing systems came into being to control channel behavior and manage channel conflict.
We look now at three major types of VMSs: corporate, contractual, and administered. Each uses a
different means for setting up leadership and power in the channel. We now take a closer look at
each type of VMS.
a. Corporate VMS
A corporate VMS combines successive stages of production and distribution under single
ownership. Coordination and conflict management are attained through regular organizational
channels.
b. Contractual VMS
A contractual VMS consists of independent firms at different levels of production and distribution
who joins together through contracts to obtain more economies or sales impact than each could
achieve alone. Coordination and conflict management are attained through contractual agreements
among channel members. There are three types of contractual VMSs: wholesaler-sponsored
voluntary chains, retailer cooperatives, and franchise organizations.
In wholesaler-sponsored voluntary chains, wholesalers organize voluntary chains of independent retailers
to help them compete with large chain organizations. The wholesaler develops a program in which
independent retailers standardize their selling practices and achieve buying economies that let the
group compete effectively with chain organizations. In retailer cooperatives, retailers organize a new,
jointly owned business to carry on wholesaling and possibly production. Members buy most of
their goods through the retailer co-op and plan their advertising jointly. Profits are passed back to
members in proportion to their purchases. In franchise organizations, a channel member called a
franchiser links several stages in the production-distribution process. There are three forms of
franchises. The first form is the manufacturer-sponsored retailer franchise system, as found in the
automobile industry. The second type of franchise is the manufacturer-sponsored wholesaler franchise
system, as found in the soft drink industry.. The third franchise form is the service-firm-sponsored retailer
franchise system, in which a service firm licenses a system of retailers to bring its service to
consumers. The fact that most consumers cannot tell the difference between contractual and
Vertical Vertical
Marketing Marketing
Channel Channel
Manufacturer
Retailer
Conventional Conventional
Marketing Marketing
Channel Channel
Consumer
Manufacturer
Consumer
Retailer
Wholesaler
Wholesaler
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corporate VMSs shows how successfully the contractual organizations compete with corporate
chains.
c. Administered VMS
An administered VMS coordinates successive stages of production and distribution, not through
common ownership or contractual ties but through the size and power of one of the parties. In an
administered VMS, leadership is assumed by one or a few dominant channel members.
Manufacturers of a top brand can obtain strong trade cooperation and support from resellers.
G. Horizontal Marketing Systems
Another channel development is the horizontal marketing system, in which two or more
companies at one level join together to follow a new marketing opportunity. By working together,
companies can combine their capital, production capabilities, or marketing resources to accomplish
more than any one company could alone. Companies might join forces with competitors or noncompetitors.
They might work with each other on a temporary or permanent basis, or they may
create a separate company. Such channel arrangements also work well globally.
H. Hybrid Marketing Systems
In the past, many companies used a single channel to sell to a single market or market segment.
Today, with the proliferation of customer segments and channel possibilities, more and more
companies have adopted multichannel distribution systems—often called hybrid marketing channels.
Such multichannel marketing occurs when a single firm sets up two or more marketing channels to
reach one or more customer segments. The use of hybrid channel systems has increased greatly in
recent years.
Figure shows a hybrid channel. In the figure, the producer sells directly to consumer segment 1
using direct-mail catalogs 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 sales force.
Hybrid Marketing Channel
Hybrid channels offer many advantages to companies facing large and complex markets. With each
new channel, the company expands its sales and market coverage and gains opportunities to tailor
its products and services to the specific needs of diverse customer segments. But such hybrid
channel systems are harder to control, and they generate conflict as more channels compete for
customers and sales
I. Channel Design Decisions
We now look at several channel decisions manufacturers face. In designing marketing channels,
manufacturers struggle between what is ideal and what is practical. A new firm with limited capital
usually starts by selling in a limited market area. Deciding on the best channels might not be a
problem: The problem might simply be how to convince one or a few good intermediaries to
handle the line.
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If successful, the new firm might branch out to new markets through the existing intermediaries.
In smaller markets, the firm might sell directly to retailers; in larger markets, it might sell through
distributors. In one part of the country, it might grant exclusive franchises; in another, it might sell
through all available outlets. In this way, channel systems often evolve to meet market
opportunities and conditions. However, for maximum effectiveness, channel analysis and decision
making should be more purposeful. Designing a channel system calls for analyzing consumer
service needs, setting channel objectives and constraints, identifying major channel alternatives,
and evaluating them.
a. Analyzing Consumer Service Needs
As noted previously, marketing channels can be thought of as customer value delivery systems in which
each channel member adds value for the customer. Thus, designing the distribution channel starts
with finding out what targeted consumers want from the channel. Do consumers want to buy from
nearby locations or are they willing to travel to more distant centralized locations? Would they
rather buy in person, over the phone, through the mail, or via the Internet? Do they value breadth
of assortment or do they prefer specialization? Do consumers want many add-on services
(delivery, credit, repairs, installation) or will they obtain these elsewhere? The faster the delivery,
the greater the assortment provided, and the more add-on services supplied, the greater the
channel's service level.
But providing the fastest delivery, greatest assortment, and most services may not be possible or
practical. The company and its channel members may not have the resources or skills needed to
provide all the desired services. Also, providing higher levels of service results in higher costs for
the channel and higher prices for consumers. The company must balance consumer service needs
not only against the feasibility and costs of meeting these needs but also against customer price
preferences. The success of off-price and discount retailing shows that consumers are often willing
to accept lower service levels if this means lower prices.
b. Setting Channel Objectives and Constraints
Channel objectives should be stated in terms of the desired service level of target consumers.
Usually, a company can identify several segments wanting different levels of channel service. The
company should decide which segments to serve and the best channels to use in each case. In each
segment, the company wants to minimize the total channel cost of meeting customer service
requirements.
The company's channel objectives are also influenced by the nature of the company, its products,
marketing intermediaries, competitors, and the environment. For example, the company's size and
financial situation determine which marketing functions it can handle itself and which it must give
to intermediaries. Companies selling perishable products may require more direct marketing to
avoid delays and too much handling. In some cases, a company may want to compete in or near
the same outlets that carry competitors' products. In other cases, producers may avoid the
channels used by competitors. Finally, environmental factors such as economic conditions and
legal constraints may affect channel objectives and design. For example, in a depressed economy,
producers want to distribute their goods in the most economical way, using shorter channels and
dropping unneeded services that add to the final price of the goods.
c. Identifying Major Alternatives
When the company has defined its channel objectives, it should next identify its major channel
alternatives in terms of types of intermediaries, the number of intermediaries, and the responsibilities of
each channel member.
d. Types of Intermediaries
A firm should identify the types of channel members available to carry out its channel work. For
example, suppose a manufacturer of test equipment has developed an audio device that detects
poor mechanical connections in machines with moving parts. Company executives think this
product would have a market in all industries in which electric, combustion, or steam engines are
made or used. The company's current sales force is small, and the problem is how best to reach
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these different industries. The following channel alternatives might emerge from management
discussion:
Company sales force: Expand the company's direct sales force. Assign outside salespeople to
territories and have them contact all prospects in the area or develop separate company sales forces
for different industries. Or, add an inside telesales operation in which telephone salespeople
handles small or midsize companies.
Manufacturer's agency: Hire manufacturer's agents—independent firms whose sales forces handle
related products from many companies—in different regions or industries to sell the new test
equipment.
Industrial distributors: Find distributors in the different regions or industries who will buy and
carry the new line. Give them exclusive distribution, good margins, product training, and
promotional support.
e. Number of Marketing Intermediaries
Companies must also determine the number of channel members to use at each level. Three
strategies are available: intensive distribution, exclusive distribution, and selective distribution.
Producers of convenience products and common raw materials typically seek intensive
distribution—a strategy in which they stock their products in as many outlets as possible. These
goods must be available where and when consumers want them. For example, toothpaste, candy,
and other similar items are sold in millions of outlets to provide maximum brand exposure and
consumer convenience. By contrast, some producers purposely limit the number of intermediaries
handling their products. The extreme form of this practice is exclusive distribution, in which the
producer gives only a limited number of dealers the exclusive right to distribute its products in
their territories. Exclusive distribution is often found in the distribution of new automobiles and
prestige women's clothing. Exclusive distribution also enhances the car's image and allows for
higher markups.
Between intensive and exclusive distribution lies selective distribution—the use of more than one,
but fewer than all, of the intermediaries who are willing to carry a company's products. Most
television, furniture, and small-appliance brands are distributed in this manner. They can develop
good working relationships with selected channel members and expect a better-than-average selling
effort. Selective distribution gives producers good market coverage with more control and less cost
than does intensive distribution.
J. Channel Management Decisions
Once the company has reviewed its channel alternatives and decided on the best channel design, it
must implement and manage the chosen channel. Channel management calls for selecting and
motivating individual channel members and evaluating their performance over time.
a. Selecting Channel Members
Producers vary in their ability to attract qualified marketing intermediaries. Some producers have
no trouble signing up channel members. In some cases, the promise of exclusive or selective
distribution for a desirable product will draw plenty of applicants.
At the other extreme are producers who have to work hard to line up enough qualified
intermediaries..
When selecting intermediaries, the company should determine what characteristics distinguish the
better ones. It will want to evaluate each channel member's years in business, other lines carried,
growth and profit record, cooperativeness, and reputation. If the intermediaries are sales agents,
the company will want to evaluate the number and character of other lines carried and the size and
quality of the sales force. If the intermediary is a retail store that wants exclusive or selective
distribution, the company will want to evaluate the store's customers, location, and future growth
potential.
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b. Motivating Channel Members
Once selected, channel members must be motivated continuously to do their best. The company
must sell not only through the intermediaries but to them. Most companies see their intermediaries
as first-line customers. Some use the carrot-and-stick approach: At times they offer positive
motivators such as higher margins, special deals, premiums, cooperative advertising allowances,
display allowances, and sales contests. At other times they use negative motivators, such as
threatening to reduce margins, to slow down delivery, or to end the relationship altogether. A
producer using this approach usually has not done a good job of studying the needs, problems,
strengths, and weaknesses of its distributors.
More advanced companies try to forge long-term partnerships with their distributors to create a
marketing system that meets the needs of both the manufacturer and the distributors. In managing
its channels, a company must convince distributors that they can make their money by being part
of an advanced marketing system.
c. Evaluating Channel Members
The producer must regularly check the channel member's performance against standards such as
sales quotas, average inventory levels, customer delivery time, and treatment of damaged and lost
goods, cooperation in company promotion and training programs, and services to the customer.
The company should recognize and reward intermediaries who are performing well. Those who
are performing poorly should be assisted or, as a last resort, replaced. A company may periodically
"requalify" its intermediaries and prune the weaker ones.
Finally, manufacturers need to be sensitive to their dealers. Those who treat their dealers lightly
risk not only losing their support but also causing some legal problems.
Changing Channel Organization
Changes in technology and the explosive growth of direct and online marketing are having a
profound impact on the nature and design of marketing channels. One major trend is toward
disintermediation—a big term with a clear message and important consequences.
Disintermediation means that more and more, product and service producers are bypassing
intermediaries and going directly to final buyers, or that radically new types of channel
intermediaries are emerging to displace traditional ones.
Thus, in many industries, traditional intermediaries are dropping by the wayside. Disintermediation
presents problems and opportunities for both producers and intermediaries. To avoid being swept
aside, traditional intermediaries must find new ways to add value in the supply chain. To remain
competitive, product and service producers must develop new channel opportunities, such as
Internet and other direct channels. However, developing these new channels often brings them
into direct competition with their established channels, resulting in conflict. To ease this problem,
companies often look for ways to make going direct a plus for both the company and its channel
partners:
However, although this compromise system reduces conflicts, it also creates inefficiencies.
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[bonddonraj]

Lesson – 29
Lesson overview and learning objectives:
In today’s global marketplace, selling a product is sometimes easier than getting it to customers.
Therefore, physical distribution and logistics management are receiving increased attention from
strategic planners. The task of physical distribution systems is to minimize the total cost of
providing a desired level of customer services while bringing those services to the customer with
the maximum amount of speed. Major logistics functions of order processing, warehousing,
inventory management, and transportation are discussed and explored in today’s Lesson.
LOGISTIC MANAGEMENT
A. Push Versus Pull Strategy:
A promotion strategy that calls for using the sales force and trade promotion to push the product
through the channel is called push strategy. The producer promotes the product to wholesalers, the
wholesalers promote to retailers and the retailers promote to consumers. While the pull strategy is
the promotional strategy that
calls for spending a lot on
advertising and consumer
promotion to build up
consumer demand; if successful,
consumer will ask their retailers
for the product, the retailer will
ask the wholesalers and
wholesalers will ask the
producers. So these are two
strategies through which
availability of products can be
created in the market for final
consumers.
B. Physical Distribution and Logistics Management
Companies must decide on the best way to store, handle, and move their products and services so
that they are available to customers in the right assortments, at the right time, and in the right
place. Logistics effectiveness has a major impact on both customer satisfaction and company costs.
Here we consider the nature and importance of marketing logistics, goals of the logistics system, major logistics
functions, and the need for integrated logistics management.
a. Nature and Importance of Physical Distribution and Marketing Logistics
To some managers, physical distribution means only trucks and warehouses. But modern logistics
is much more than this. Physical distribution—or marketing logistics—involves planning,
implementing, and controlling the physical flow of materials, final goods, and related information
from points of origin to points of consumption to meet customer requirements at a profit. In
short, it involves getting the right product to the right customer in the right place at the right time.
Traditional physical distribution typically started with products at the plant and then tried to find
low-cost solutions to get them to customers. However, today's marketers prefer market logistics
thinking, which starts with the marketplace and works backward to the factory. Logistics addresses
not only the problem of outbound distribution (moving products from the factory to customers)
but also the problem of inbound distribution (moving products and materials from suppliers to the
factory).
Producer
End users
End users
Intermediaries
Intermediaries
Producer
Marketing
activities Demand
Demand Demand
Push Strategy
Pull Strategy
Marketing activities
Demand
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It involves the management of entire supply chains, value-added flows from suppliers to final users,
as shown in Figure . Thus, the logistics manager's task is to coordinate activities of suppliers,
purchasing agents, marketers, channel members, and customers. These activities include
forecasting, information systems, purchasing, production planning, order processing, inventory,
warehousing, and transportation planning.
Companies today are placing greater emphasis on logistics for several reasons. First, customer
service and satisfaction have become the cornerstones of marketing strategy, and distribution is an
important customer service element. More and more, companies are finding that they can attract
and keep customers by giving better service or lower prices through better physical distribution.
Second, logistics is a major cost element for most companies. According to one study, in a recent
year American companies "spent $670 billion—a gaping 10.5 percent of gross domestic product—
to wrap, bundle, load, unload, sort, reload, and transport goods." About 15 percent of an average
product's price is
accounted for by
shipping and
transport alone.
Poor physical
distribution
decisions result in
high costs.
Improvements in
physical
distribution
efficiency can yield
tremendous cost
savings for both
the company and
its customers.
Third, the
explosion in
product variety has
created a need for
improved logistics
management. Finally, improvements in information technology have created opportunities for
major gains in distribution efficiency. The increased use of computers, point-of-sale scanners,
uniform product codes, satellite tracking, electronic data interchange (EDI), and electronic funds
transfer (EFT) has allowed companies to create advanced systems for order processing, inventory
control and handling, and transportation routing and scheduling.
b. Goals of the Logistics System
Some companies state their logistics objective as providing maximum customer service at the least
cost. Unfortunately, no logistics system can both maximize customer service and minimize
distribution costs. Maximum customer service implies rapid delivery, large inventories, flexible
assortments, liberal returns policies, and other services—all of which raise distribution costs. In
contrast, minimum distribution costs imply slower delivery, smaller inventories, and larger shipping
lots—which represent a lower level of overall customer service.
The goal of the marketing logistics system should be to provide a targeted level of customer
service at the least cost. A company must first research the importance of various distribution
services to its customers and then set desired service levels for each segment. The company
normally will want to offer at least the same level of service as its competitors do. But the objective
is to maximize profits, not sales. Therefore, the company must weigh the benefits of providing
higher levels of service against the costs. Some companies offer less service than their competitors
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and charge a lower price. Other companies offer more service and charge higher prices to cover
higher costs.
c. Major Logistics Functions
Given a set of logistics objectives, the company is ready to design a logistics system that will
minimize the cost of attaining these objectives. The major logistics functions include order processing,
warehousing, inventory management, and transportation.
i. Order Processing
Orders can be submitted in many ways—by mail or telephone, through salespeople, or via
computer and EDI. In some cases, the suppliers might actually generate orders for their customers:
Once received, orders must be processed quickly and accurately. Both the company and its
customers benefit when order processing is carried out efficiently. Most companies now use
computerized order-processing systems that speed up the order–shipping–billing cycle. For
example, General Electric operates a computer-based system that, on receipt of a customer's order,
checks the customer's credit standing as well as whether and where the items are in stock. The
computer then issues an order to ship, bills the customer, updates the inventory records, sends a
production order for new stock, and relays the message back to the salesperson that the customer's
order is on its way—all in less than 15 seconds.
ii. Warehousing
Every company must store its goods while they wait to be sold. A storage function is needed
because production and consumption cycles rarely match. A company must decide on how many
and what types of warehouses it needs and where they will be located. The company might use either
storage warehouses or distribution centers. Storage warehouses store goods for moderate to long periods.
Distribution centers are designed to move goods rather than just store them. They are large and
highly automated warehouses designed to receive goods from various plants and suppliers, take
orders, fill them efficiently, and deliver goods to customers as quickly as possible.
Warehousing facilities and equipment technology have improved greatly in recent years. Older,
multistoried warehouses with outdated materials-handling methods are facing competition from
newer, single-storied automated warehouses with advanced materials-handling systems under the
control of a central computer. In these warehouses, only a few employees are necessary.
Computers read orders and direct lift trucks, electric hoists, or robots to gather goods, move them
to loading docks, and issue invoices. These warehouses have reduced worker injuries, labor costs,
theft, and breakage and have improved inventory control.
iii. Inventory
Inventory levels also affect customer satisfaction. The major problem is to maintain the delicate
balance between carrying too much inventory and carrying too little. Carrying too much inventory
results in higher-than-necessary inventory-carrying costs and stock obsolescence. Carrying too little
may result in stock outs, costly emergency shipments or production, and customer dissatisfaction.
In making inventory decisions, management must balance the costs of carrying larger inventories
against resulting sales and profits.
During the past decade, many companies have greatly reduced their inventories and related costs
through just-in-time logistics systems. Through such systems, producers and retailers carry only
small inventories of parts or merchandise, often only enough for a few days of operations. New
stock arrives exactly when needed, rather than being stored in inventory until being used. Just-intime
systems require accurate forecasting along with fast, frequent, and flexible delivery so that
new supplies will be available when needed. However, these systems result in substantial savings in
inventory-carrying and handling costs.
iv. Transportation
Marketers need to take an interest in their company's transportation decisions. The choice of
transportation carriers affects the pricing of products, delivery performance, and condition of the
goods when they arrive—all of which will affect customer satisfaction. In shipping goods to its
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warehouses, dealers, and customers, the company can choose among five transportation modes:
rail, truck, water, pipeline, and air.
Railroads are the nation's largest carrier, accounting for 26 percent of total cargo ton-miles moved.
They are one of the most cost-effective modes for shipping large amounts of bulk products—coal,
sand, minerals, farm and forest products—over long distances. In recent years, railroads have
increased their customer services by designing new equipment to handle special categories of
goods, providing flatcars for carrying truck trailers by rail (piggyback), and providing in-transit
services such as the diversion of shipped goods to other destinations en route and the processing
of goods en route. Thus, after decades of losing out to truckers, railroads appear ready for a
comeback.
Trucks have increased their share of transportation steadily and now account for 24 percent of total
cargo ton-miles (over 52 percent of actual tonnage). They account for the largest portion of
transportation within cities as opposed to between cities. Trucks are highly flexible in their routing
and time schedules, and they can usually offer faster service than railroads. They are efficient for
short hauls of high-value merchandise. Trucking firms have added many services in recent years.
Pipelines are a specialized means of shipping petroleum, natural gas, and chemicals from sources to
markets. Most pipelines are used by their owners to ship their own products.
Although air carriers transport less than 1 percent of the nation's goods, they are becoming more
important as a transportation mode. Air freight rates are much higher than rail or truck rates, but
air freight is ideal when speed is needed or distant markets have to be reached. Among the most
frequently air-freighted products are perishables (fresh fish, cut flowers) and high-value, low-bulk
items (technical instruments, jewelry). Companies find that air freight also reduces inventory levels,
packaging costs, and the number of warehouses needed.
Shippers increasingly are using intermodal transportation—combining two or more modes of
transportation. Piggyback describes the use of rail and trucks; fishyback, water and trucks; trainship,
water and rail; and airtruck, air and trucks. Combining modes provides advantages that no single
mode can deliver. Each combination offers advantages to the shipper. For example, not only is
piggyback cheaper than trucking alone but it also provides flexibility and convenience.
In choosing a transportation mode for a product, shippers must balance many considerations:
speed, dependability, availability, cost, and others. Thus, if a shipper needs speed, air and truck are
the prime choices. If the goal is low cost, then water or pipeline might be best. Shipping costs are
often a significant portion of the marketing costs of a product. It is often difficult for businesses to
pass on these higher costs to customers when there are active competitors. One option is to reduce
dependence on the unreliable transportation. However, that may not be possible for some
businesses. As the case you just read suggests, a company's physical distribution and transportation
flexibility is an important part of its marketing decisions, a factor that could make or break its
ability to serve its customers.
d. Integrated Logistics Management
Today, more and more companies are adopting the concept of integrated logistics management.
This concept recognizes that providing better customer service and trimming distribution costs
requires teamwork, both inside the company and among all the marketing channel organizations.
Inside, the company's various functional departments must work closely together to maximize the
company's own logistics performance. Outside, the company must integrate its logistics system
with those of its suppliers and customers to maximize the performance of the entire distribution
system.
Cross-Functional Teamwork Inside the Company
In most companies, responsibility for various logistics activities is assigned to many different
functional units—marketing, sales, finance, manufacturing, purchasing. Too often, each function
tries to optimize its own logistics performance without regard for the activities of the other
functions. However, transportation, inventory, warehousing, and order-processing activities
interact, often in an inverse way. For example, lower inventory levels reduce inventory-carrying
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costs. But they may also reduce customer service and increase costs from stock outs, back orders,
special production runs, and costly fast-freight shipments. Because distribution activities involve
strong trade-offs, decisions by different functions must be coordinated to achieve superior overall
logistics performance.
The goal of integrated logistics management is to harmonize all of the company's distribution
decisions. Close working relationships among functions can be achieved in several ways. Some
companies have created permanent logistics committees made up of managers responsible for
different physical distribution activities. Companies can also create management positions that link
the logistics activities of functional areas. Many companies have a vice president of logistics with
cross-functional authority. The important thing is that the company coordinate its logistics and
marketing activities to create high market satisfaction at a reasonable cost.
e. Building Channel Partnerships
The members of a distribution channel are linked closely in delivering customer satisfaction and
value. One company's distribution system is another company's supply system. The success of each
channel member depends on the performance of the entire supply chain. Companies must do
more than improve their own logistics. They must also work with other channel members to
improve whole-channel distribution. Today, smart companies are coordinating their logistics
strategies and building strong partnerships with suppliers and customers to improve customer
service and reduce channel costs.
These channel partnerships can take many forms. Many companies have created cross-functional,
cross-company teams.
Other companies partner through shared projects. For example, many larger retailers are working
closely with suppliers on in-store programs. Channel partnerships may also take the form of
information sharing and continuous inventory replenishment systems. Companies manage their supply
chains through information. Suppliers link up with customers to share information and coordinate
their logistics decisions. Here are just two examples:
Today, as a result of such partnerships, many companies have switched from anticipatory-based
distribution systems to response-based distribution systems. In anticipatory distribution, the company
produces the amount of goods called for by a sales forecast. It builds and holds stock at various
supply points, such as the plant, distribution centers, and retail outlets. A response-based
distribution system, in contrast, is customer triggered. The producer continuously builds and replaces
stock as orders arrive. It produces what is currently selling.
f. Third-Party Logistics
Companies may use third-party logistics providers for several reasons. First, because getting the
product to market is their main focus, these providers can often do it more efficiently and at lower
cost than clients whose strengths lie elsewhere. According to one study, outsourcing warehousing
alone typically results in 10 percent to 15 percent cost savings. Another expert estimates that
companies can save 15 percent to 25 percent in their total logistics costs by outsourcing. Second,
outsourcing logistics frees a company to focus more intensely on its core business. Finally,
integrated logistics companies understand increasingly complex logistics environments. This can be
especially helpful to companies attempting to expand their global market coverage.
KEY TERMS (Lesson # 28-29)
distribution channel
A set of interdependent organizations involved in the process of making a product or service
available for use or consumption by the consumer or business user.
Channel level
A layer of intermediaries that performs some work in bringing the product and its ownership
closer to the final buyer.
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Direct marketing channel
A marketing channel that has no intermediary levels.
Indirect marketing channel
Channel containing one or more intermediary levels.
Channel conflict
Disagreement among marketing channel members on goals and roles—who should do what and
for what rewards.
Conventional distribution channel
A channel consisting of one or more independent producers, wholesalers, and retailers, each a
separate business seeking to maximize its own profits even at the expense of profits for the system
as a whole.
Vertical Marketing System (VMS)
A distribution channel structure in which producers, wholesales, and retailers act as a unified
system. One channel member owns the others, has contracts with them, or has so much power
that they all cooperate
Corporate VMS
A vertical marketing system that combines successive stages of production and distribution under
single ownership—channel leadership is established through common ownership.
Contractual VMS
A vertical marketing system in which independent firms at different levels of production and
distribution join together through contracts to obtain more economies or sales impact than they
could achieve alone.
Franchise organization
A contractual vertical marketing system in which a channel member, called a franchiser, links
several stages in the production-distribution process.
Administered VMS
A vertical marketing system that coordinates successive stages of production and distribution, not
through common ownership or contractual ties but through the size and power of one of the
parties.
Horizontal marketing system
A channel arrangement in which two or more companies at one level join together to follow a new
marketing opportunity.
Hybrid marketing channel
Multi channel distribution system in which a single firm sets up two or more marketing channels to
reach one or more customer segments.
Intensive distribution
Stocking the product in as many outlets as possible.
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Exclusive distribution
Giving a limited number of dealers the exclusive right to distribute the company's products in their
territories.
Selective distribution
The use of more than one, but fewer than all, of the intermediaries who are willing to carry the
company's products.
Physical distribution (or marketing logistics)
The tasks involved in planning, implementing, and controlling the physical flow of materials, final
goods, and related information from points of origin to points of consumption to meet customer
requirements at a profit.
Distribution center
A large, highly automated warehouse designed to receive goods from various plants and suppliers,
take orders, fill them efficiently, and deliver goods to customers as quickly as possible.
Integrated logistics management
The logistics concept that emphasizes teamwork, both inside the company and among all the
marketing channel organizations, to maximize the performance of the entire distribution system.
Third-party logistics provider
An independent logistics provider that performs any or all of the functions required to get their
clients' product to market.
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[bonddonraj]

Lesson – 30
Lesson overview and learning objectives:
Today’s Lesson will cover the roles of retailers and wholesalers in the distribution channel, the
major types of retailers, Identify the major types of wholesalers and the marketing decisions facing
retailers and wholesalers.
RETAILING AND WHOLESALING.
A. Retailing
What is retailing? Retailing includes all the activities involved in selling goods or services directly to
final consumers for their personal, nonbusiness use. Many institutions—manufacturers,
wholesalers, and retailers—do retailing. But most retailing is done by retailers: businesses whose
sales come primarily from retailing.
Although most retailing is done in retail stores, in recent years nonstarter retailing has been growing
much faster than has store retailing. Nonstore retailing includes selling to final consumers through
direct mail, catalogs, telephone, home TV shopping shows, home and office parties, door-to-door
contact, vending machines, online services and the Internet, and other direct retailing approaches.
a. Types of Retailers:
Retail stores come in all shapes and sizes, and new retail types keep emerging. The most important
types of retail stores are described in Table 13.1 and discussed in the following sections. They can
be classified in terms of several characteristics, including the amount of service they offer, the breadth
and depth of their product lines, the relative prices they charge, and how they are organized.
Amount of Service
Different products require different amounts of service, and customer service preferences vary.
Retailers may offer one of three levels of service—self-service, limited service, and full service.
Self-service retailers serve customers who are willing to perform their own "locate-compare-select"
process to save money. Self-service is the basis of all discount operations and is typically used by
sellers of convenience goods (such as supermarkets) and nationally branded, fast-moving shopping
goods (such as Best Buy or Service Merchandise).
Limited-service retailers provide more sales assistance because they carry more shopping goods about
which customers need information. Their increased operating costs result in higher prices. In fullservice
retailers, such as specialty stores and first-class department stores, salespeople assist customers
in every phase of the shopping process. Full-service stores usually carry more specialty goods for
which customers like to be "waited on." They provide more services resulting in much higher
operating costs, which are passed along to customers as higher prices.
Customer Service: Why is it Becoming Scarce
Increasingly, customers complain about the poor state of retail customer service. What we expect
from retail stores is to get the products we want when we want them, where we want them, and to
have them delivered in a pleasingly professional manner at a reasonable price. This ideal may be
slipping further from our reach.
Unfortunately, as the economy improved, retailers found customers balking at paying higher prices
for improved service.
Experts have pointed to a host of other reasons for the drop in retail service levels. Some argue
that such problems begin at the top. They argue that top executives responsible for fostering a
culture of customer service often do not understand their business or their customers, nor do they
have proper ordering procedures or effective employee training programs.
Product Line
Retailers also can be classified by the length and breadth of their product assortments. Some
retailers, such as specialty stores, carry narrow product lines with deep assortments within those
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lines. Today, specialty stores are flourishing. The increasing use of market segmentation, market
targeting, and product specialization has resulted in a greater need for stores that focus on specific
products and segments.
In contrast, department stores carry a wide variety of product lines. In recent years, department
stores have been squeezed between more focused and flexible specialty stores on the one hand,
and more efficient, lower-priced discounters on the other. In response, many have added "bargain
basements" and promotional events to meet the discount threat. Others have set up store brand
programs, "boutiques" and "designer shops" within department stores), and other store formats
that compete with specialty stores. Still others are trying mail-order, telephone, and Web site
selling. Service remains the key differentiating factor.
Supermarkets are the most frequently shopped type of retail store. Today, however, they are
facing slow sales growth because of slower population growth and an increase in competition from
convenience stores, discount food stores, and superstores. Supermarkets also have been hit hard
by the rapid growth of out-of-home eating. Thus, most supermarkets are making improvements to
attract more customers. In the battle for "share of stomachs," most large supermarkets have
moved upscale, providing from-scratch bakeries, gourmet deli counters, and fresh seafood
departments. Others are cutting costs, establishing more efficient operations, and lowering prices
in order to compete more effectively with food discounters.
Convenience stores are small stores that carry a limited line of high-turnover convenience goods.
In the 1990s, the convenience store industry suffered from overcapacity as its primary market of
young, blue-collar men shrunk. As a result, many chains have redesigned their stores with female
customers in mind. They are dropping the image of a "truck stop" where men go to buy beer,
cigarettes, and magazines, and instead offer fresh, prepared foods and cleaner, safer environments.
Many convenience chains also are experimenting with micromarketing—tailoring each store's
merchandise to the specific needs of its surrounding neighborhood. Superstores are much larger
than regular supermarkets and offer a large assortment of routinely purchased food products,
nonfood items, and services. Stores, the so-called category killers. They feature stores the size of
airplane hangers that carry a very deep assortment of a particular line with a knowledgeable staff.
Category killers are prevalent in a wide range of categories, including books, baby gear, toys,
electronics, home improvement products, linens and towels, party goods, sporting goods, even pet
supplies. Another superstore variation, hypermarkets, are huge superstores, perhaps as large as six
football fields. Finally, for some retailers, the product line is actually a service. Service retailers
include hotels and motels, banks, airlines, colleges, hospitals, movie theaters, tennis clubs, bowling
alleys, restaurants, repair services, hair care shops, and dry cleaners.
Relative Prices
Retailers can also be classified according to the prices they charge. Most retailers charge regular
prices and offer normal-quality goods and customer service. Others offer higher-quality goods and
service at higher prices. The retailers that feature low prices are discount stores, "off-price"
retailers, and catalog showrooms:
Discount Stores:
A discount store sells standard merchandise at lower prices by accepting lower margins and
selling higher volume. The early discount stores cut expenses by offering few services and
operating in warehouse like facilities in low-rent, heavily traveled districts. In recent years, facing
intense competition from other discounters and department stores, many discount retailers have
"traded up." They have improved decor, added new lines and services, and opened suburban
branches, which have led to higher costs and prices.
Off-Price Retailers
When the major discount stores traded up, a new wave of off-price retailers moved in to fill the
low-price, high-volume gap. Ordinary discounters buy at regular wholesale prices and accept lower
margins to keep prices down. In contrast, off-price retailers buy at less-than-regular wholesale
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prices and charge consumers less than retail. Off-price retailers can be found in all areas, from
food, clothing, and electronics to no-frills banking and discount brokerages.
The three main types of off-price retailers are independents, factory outlets, and warehouse clubs.
Independent off-price retailers are either owned and run by entrepreneurs or are divisions of
larger retail corporations. Although many off-price operations are run by smaller independents,
most large off-price retailer operations are owned by bigger retail chains. Factory outlets—
sometimes group together in factory outlet malls and value-retail centers, where dozens of outlet stores
offer prices as low as 50 percent below retail on a wide range of items. Whereas outlet malls
consist primarily of manufacturers' outlets, value-retail centers combine manufacturers' outlets with
off-price retail stores and department store clearance outlets. Factory outlet malls have become one
of the hottest growth areas in retailing.
The malls now are moving upscale, narrowing the gap between factory outlets and more traditional
forms of retailers. As the gap narrows, the discounts offered by outlets are getting smaller.
Manufacturers counter that they send last year's merchandise and seconds to the factory outlet
malls, not the new merchandise that they supply to the department stores. The malls are also
located far from urban areas, making travel to them more difficult. Still, the department stores are
concerned about the growing number of shoppers willing to make weekend trips to stock up on
branded merchandise at substantial savings.
Warehouse clubs (or wholesale clubs, or membership warehouses), operate in huge, drafty, warehouse
like facilities and offer few frills. Customers themselves must wrestle furniture, heavy appliances,
and other large items to the checkout line. Such clubs make no home deliveries and accept no
credit cards, but they do offer rock-bottom prices.
b. Retailer Marketing Decisions
Retailers are searching for new marketing strategies to attract and hold customers. In the past,
retailers attracted customers with unique products, more or better services than their competitors
offered, or credit cards. Today, national-brand manufacturers, in their drive for volume, have
placed their branded goods everywhere. Thus, stores offer more similar assortments—national
brands are found not only in department stores but also in mass-merchandise and off-price
discount stores. As a result, stores are looking more and more alike.
Service differentiation among retailers has also eroded. Many department stores have trimmed
their services, whereas discounters have increased theirs. Customers have become smarter and
more price sensitive. They see no reason to pay more for identical brands, especially when service
differences are
shrinking. For all
these reasons, many
retailers today are
rethinking their
marketing strategies.
As shown in Figure,
retailers face major
marketing decisions
about their target
markets and
positioning, product
assortment and services,
price, promotion, and
place.
Retailer Marketing
Mix
Retailer Marketing
Mix Retailer Strategy Retailer Strategy
Target Market
Retail Store
Positioning
Product
and Service
Assortment
Prices
Promotion
Place
(Location)
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i. Target Market and Positioning Decision
Retailers first must define their target markets and then decide how they will position themselves in
these markets. Should the store focus on upscale, miscalled, or downscale shoppers? Do target
shoppers want variety, depth of assortment, convenience, or low prices? Until they define and
profile their markets, retailers cannot make consistent decisions about product assortment,
services, pricing, advertising, store decor, or any of the other decisions that must support their
positions.
Too many retailers fail to define their target markets and positions clearly. They try to have
"something for everyone" and end up satisfying no market well. In contrast, successful retailers
define their target markets well and position themselves strongly.
ii. Product Assortment and Services Decision
Retailers must decide on three major product variables: product assortment, services mix, and store
atmosphere.
The retailer's product assortment should match target shoppers' expectations. In its quest to
differentiate itself from competitors, a retailer can use any of several product-differentiation
strategies. For one, it can offer merchandise that no other competitor carries—its own private
brands or national brands on which it holds exclusives. Retailers also must decide on a services mix
to offer customers. The old mom-and-pop grocery stores offered home delivery, credit, and
conversation—services that today's supermarkets ignore. The services mix is one of the key tools
of nonprime competition for setting one store apart from another.
The store's atmosphere is another element in its product arsenal. Every store has a physical layout that
makes moving around in it either hard or easy. Each store has a "feel"; one store is cluttered,
another charming, a third plush, a fourth somber. The store must have a planned atmosphere that
suits the target market and moves customers to buy.
Increasingly, retailers are turning their stores into theaters that transport customers into unusual,
exciting shopping environments. All of this confirms that retail stores are much more than simply
assortments of goods. They are environments to be experienced by the people who shop in them.
Store atmospheres offer a powerful tool by which retailers can differentiate their stores from those
of competitors.
iii. Price Decision
A retailer's price policy is a crucial positioning factor and must be decided in relation to its target
market, its product and service assortment, and its competition. All retailers would like to charge
high markups and achieve high volume, but the two seldom go together. Most retailers seek either
high markups on lower volume (most specialty stores) or low markups on higher volume (mass
merchandisers and discount stores).
iv. Promotion Decision
Retailers use the normal promotion tools—advertising, personal selling, sales promotion, public
relations, and direct marketing—to reach consumers. They advertise in newspapers, magazines,
radio, and television. Advertising may be supported by newspaper inserts and direct-mail pieces.
Personal selling requires careful training of salespeople in how to greet customers, meet their
needs, and handle their complaints. Sales promotions may include in-store demonstrations,
displays, contests, and visiting celebrities. Public relations activities, such as press conferences and
speeches, store openings, special events, newsletters, magazines, and public service activities, are
always available to retailers. Many retailers have also set up Web sites, offering customers
information and other features and sometimes selling merchandise directly.
v. Place Decision
Retailers often cite three critical factors in retailing success: location, location, and location! A retailer's
location is key to its ability to attract customers. The costs of building or leasing facilities have a
major impact on the retailer's profits. Thus, site-location decisions are among the most important
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the retailer makes. Small retailers may have to settle for whatever locations they can find or afford.
Large retailers usually employ specialists who select locations using advanced methods.
vi. Site Selection for Retail Location
Site selection is an important decision for retailers planning to open new stores. Not only do they
have to decide whether they want to locate in a mall or as a standalone store, they also have to
assess the site's potential in terms of likely sales and profitability.
Most stores today cluster together to increase their customer pulling power and to give consumers
the convenience of one-stop shopping. A shopping center is a group of retail businesses planned,
developed, owned, and managed as a unit. It normally contains a branch of a department store or
variety store, a supermarket, specialty stores, professional offices, and sometimes a bank. Most
shopping centers are neighborhood shopping centers or strip malls that generally contain between 5 and
15 stores. They are close and convenient for consumers. They usually contain a supermarket,
perhaps a discount store, and several service stores—dry cleaner, self-service laundry, drugstore,
video-rental outlet, barber or beauty shop, hardware store, or other stores.
c. The Future of Retailing
Retailers operate in a harsh and fast-changing environment, which offers threats as well as
opportunities. Consumer demographics, lifestyles, and shopping patterns are changing rapidly, as
are retailing technologies. To be successful, then, retailers will have to choose target segments
carefully and position themselves strongly. They will have to take the following retailing
developments into account as they plan and execute their competitive strategies.
New Retail Forms and Shortening Retail Life Cycles
New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle
of new retail forms is getting shorter. Department stores took about 100 years to reach the mature
stage of the life cycle; more recent forms, such as warehouse stores, reached maturity in about 10
years. To remain successful, they must keep adapting.
Many retailing innovations are partially explained by the wheel of retailing concept According to
this concept; many new types of retailing forms begin as low-margin, low-price, low-status
operations. They challenge established retailers that have become "fat" by letting their costs and
margins increase. The new retailers' success leads them to upgrade their facilities and offer more
services. In turn, their costs increase, forcing them to increase their prices. Eventually, the new
retailers become like the conventional retailers they replaced. The cycle begins again when still
newer types of retailers evolve with lower costs and prices. The wheel of retailing concept seems to
explain the initial success and later troubles of department stores, supermarkets, and discount
stores, and the recent success of off-price retailers.
• Growth of Nonstore Retailing
Although most retailing still takes place the old-fashioned way across countertops in stores,
consumers now have an array of alternatives, including mail order, television, phone, and online
shopping. "
• Increasing Intertype Competition
Today's retailers increasingly face competition from many different forms of retailers. For example,
a consumer can buy CDs at specialty music stores, discount music stores, electronics superstores,
general merchandise discount stores, video-rental outlets, and through dozens of Web sites. They
can buy books at stores ranging from independent local bookstores to discount stores The
competition between chain superstores and smaller, independently owned stores has become
particularly heated. Because of their bulk buying power and high sales volume, chains can buy at
lower costs and thrive on smaller margins. The arrival of a superstore can quickly force nearby
independents out of business.
• The Rise of Mega retailers
The rise of huge mass merchandisers and specialty superstores, the formation of vertical marketing
systems and buying alliances, and a rash of retail mergers and acquisitions have created a core of
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superpower mega retailers. Through their superior information systems and buying power, these
giant retailers are able to offer better merchandise selections, good service, and strong price savings
to consumers. As a result, they grow even larger by squeezing out their smaller, weaker
competitors. The mega retailers also are shifting the balance of power between retailers and
producers. A relative handful of retailers now control access to enormous numbers of consumers,
giving them the upper hand in their dealings with manufacturers.
• Growing Importance of Retail Technology
Retail technologies are becoming critically important as competitive tools. Progressive retailers are
using computers to produce better forecasts, control inventory costs, order electronically from
suppliers, send e-mail between stores, and even sell to customers within stores. They are adopting
checkout scanning systems, online transaction processing, electronic funds transfer, electronic data
interchange, in-store television, and improved merchandise-handling systems.
One innovative scanning system now in use is the shopper scanner, a radar like system that counts
store traffic. Perhaps the most startling advances in retailing technology concern the ways in which
today's retailers are connecting with customers:
B. Wholesaling
Wholesaling includes all activities involved in selling goods and services to those buying for resale
or business use. We call wholesalers those firms engaged primarily in wholesaling activity.
Wholesalers buy mostly from producers and sell mostly to retailers, industrial consumers, and
other wholesalers. But why are wholesalers used at all? For example, why would a producer use
wholesalers rather than selling directly to retailers or consumers? Quite simply, wholesalers are
often better at performing one or more of the following channel functions:
• Selling and promoting: Wholesalers' sales forces help manufacturers reach many small
customers at a low cost. The wholesaler has more contacts and is often more trusted by the
buyer than the distant manufacturer.
• Buying and assortment building: Wholesalers can select items and build assortments needed by
their customers, thereby saving the consumers much work.
• Bulk-breaking: Wholesalers save their customers money by buying in carload lots and
breaking bulk (breaking large lots into small quantities).
• Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and risks of
suppliers and customers.
• Transportation: Wholesalers can provide quicker delivery to buyers because they are closer
than the producers.
• Financing: Wholesalers finance their customers by giving credit, and they finance their
suppliers by ordering early and paying bills on time.
• Risk bearing: Wholesalers absorb risk by taking title and bearing the cost of theft, damage,
spoilage, and obsolescence.
• Market information: Wholesalers give information to suppliers and customers about
competitors, new products, and price developments.
• Management services and advice: Wholesalers often help retailers train their salesclerks, improve
store layouts and displays, and set up accounting and inventory control systems.
a. Types of Wholesalers
Wholesalers fall into three major groups : merchant wholesalers, brokers and agents, and manufacturers'
sales branches and offices. Merchant wholesalers are the largest single group of wholesalers, accounting
for roughly 50 percent of all wholesaling. Merchant wholesalers include two broad types: fullservice
wholesalers and limited-service wholesalers. Full-service wholesalers provide a full set of
services, whereas the various limited-service wholesalers offer fewer services to their suppliers and
customers. The several different types of limited-service wholesalers perform varied specialized
functions in the distribution channel.
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i. Merchant wholesalers
Independently owned businesses that take title to the merchandise they handle. In different trades
they are called jobbers, distributors, or mill supply houses. Include full-service wholesalers and limitedservice
wholesalers:
• Full-service wholesalers
Provide a full line of services: carrying stock, maintaining a sales force, offering credit, making
deliveries, and providing management assistance. There are two types:
Wholesale merchants: Sell primarily to retailers and provide a full range of services. Generalmerchandise
wholesalers carry several merchandise lines, whereas general-line wholesalers carry one or two
lines in greater depth. Specialty wholesalers specialize in carrying only part of a line. (Examples: health
food wholesalers, seafood wholesalers.)
Industrial distributors: Sell to manufacturers rather than to retailers. Provide several services,
such as carrying stock, offering credit, and providing delivery. May carry a broad range of
merchandise, a general line, or a specialty line.
• Limited-service wholesalers:
Offer fewer services than full-service wholesalers. Limited-service wholesalers are of several types:
Cash-and-carry wholesalers: Carry a limited line of fast-moving goods and sell to small retailers
for cash. Normally do not deliver. Example: A small fish store retailer may drive to a cash-andcarry
fish wholesaler, buy fish for cash, and bring the merchandise back to the store.
Truck wholesalers (or truck jobbers): Perform primarily a selling and delivery function. Carry a
limited line of semi perishable merchandise (such as milk, bread, snack foods), which they sell for
cash as they make their rounds to supermarkets, small groceries, hospitals, restaurants, factory
cafeterias, and hotels.
Drop shippers: Do not carry inventory or handle the product. On receiving an order, they select a
manufacturer, who ships the merchandise directly to the customer. The drop shipper assumes title
and risk from the time the order is accepted to its delivery to the customer. They operate in bulk
industries, such as coal, lumber, and heavy equipment.
Rack jobbers: Serve grocery and drug retailers, mostly in nonfood items. They send delivery
trucks to stores, where the delivery people set up toys, paperbacks, hardware items, health and
beauty aids, or other items. They price the goods, keep them fresh, set up point-of-purchase
displays, and keep inventory records. Rack jobbers retain title to the goods and bill the retailers
only for the goods sold to consumers.
Producers' cooperatives :Owned by farmer members and assemble farm produce to sell in local
markets. The co-op's profits are distributed to members at the end of the year. They often attempt
to improve product quality and promote a co-op brand name, such as Sun Maid raisins, Sunkist
oranges, or Diamond walnuts.
Mail-order wholesalers: Send catalogs to retail, industrial, and institutional customers featuring
jewelry, cosmetics, specialty foods, and other small items. Maintain no outside sales force. Main
customers are businesses in small outlying areas. Orders are filled and sent by mail, truck, or other
transportation.
ii. Brokers and agents
Do not take title to goods. Main function is to facilitate buying and selling, for which they earn a
commission on the selling price. Generally, specialize by product line or customer types.
• Brokers:
Chief function is bringing buyers and sellers together and assisting in negotiation. They are paid by
the party who hired them, and do not carry inventory, get involved in financing, or assume risk.
Examples: food brokers, real estate brokers, insurance brokers, and security brokers.
• Agents:
Represent either buyers or sellers on a more permanent basis than brokers do. There are several
types:
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Manufacturers' agents: Represent two or more manufacturers of complementary lines. A formal
written agreement with each manufacturer covers pricing, territories, order handling, delivery
service and warranties, and commission rates. Often used in such lines as apparel, furniture, and
electrical goods. Most manufacturers' agents are small businesses, with only a few skilled
salespeople as employees. They are hired by small manufacturers who cannot afford their own field
sales forces, and by large manufacturers who use agents to open new territories or to cover
territories that cannot support full-time salespeople.
Selling agents: Have contractual authority to sell a manufacturer's entire output. The
manufacturer either is not interested in the selling function or feels unqualified. The selling agent
serves as a sales department and has significant influence over prices, terms, and conditions of sale.
Found in product areas such as textiles, industrial machinery and equipment, coal and coke,
chemicals, and metals.
Purchasing agents :Generally have a long-term relationship with buyers and make purchases for
them, often receiving, inspecting, warehousing, and shipping the merchandise to the buyers. They
provide helpful market information to clients and help them obtain the best goods and prices
available.
Commission merchants: Take physical possession of products and negotiate sales. Normally,
they are not employed on a long-term basis. Used most often in agricultural marketing by farmers
who do not want to sell their own output and do not belong to producers' cooperatives. The
commission merchant takes a truckload of commodities to a central market, sells it for the best
price, deducts a commission and expenses, and remits the balance to the producer.
iii. Manufacturers' and retailers' branches and offices
Wholesaling operations conducted by sellers or buyers themselves rather than through
independent wholesalers. Separate branches and offices can be dedicated to either sales or
purchasing.
Sales branches and offices: Set up by manufacturers to improve inventory control, selling, and
promotion. Sales branches carry inventory and are found in industries such as lumber and
automotive equipment and parts. Sales offices do not carry inventory and are most prominent in
dry-goods and notions industries.
Purchasing offices: Perform a role similar to that of brokers or agents but are part of the buyer's
organization. Many retailers set up purchasing offices in major market centers
Brokers and agents differ from merchant wholesalers in two ways: They do not take title to goods,
and they perform only a few functions. Like merchant wholesalers, they generally specialize by
product line or customer type. A broker brings buyers and sellers together and assists in
negotiation. Agents represent buyers or sellers on a more permanent basis. Manufacturers' agents
(also called manufacturers' representatives) are the most common type of agent wholesaler. The
third major type of wholesaling is that done in manufacturers' sales branches and offices by sellers
or buyers themselves rather than through independent wholesalers.
b. Wholesaler Marketing Decisions
Wholesalers have experienced mounting competitive pressures in recent years. They have faced
new sources of competition, more demanding customers, new technologies, and more directbuying
programs on the part of
large industrial, institutional, and
retail buyers. As a result, they
have had to improve their
strategic decisions on target
markets and positioning, and on
the marketing mix—product
assortments and services, price,
promotion, and place (see Figure).
Wholesaler Marketing
Mix
Wholesaler Marketing
Mix Wholesaler Strategy Wholesaler Strategy
Target Market
Retail Store
Positioning
Product and
Service
Assortment
Prices
Promotion
Place
(Location)
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i. Target Market and Positioning Decision
Like retailers, wholesalers must define their target markets and position themselves effectively—
they cannot serve everyone. They can choose a target group by size of customer (only large
retailers), type of customer (convenience food stores only), need for service (customers who need
credit), or other factors. Within the target group, they can identify the more profitable customers,
design stronger offers, and build better relationships with them. They can propose automatic
reordering systems, set up management-training and advising systems, or even sponsor a voluntary
chain. They can discourage less profitable customers by requiring larger orders or adding service
charges to smaller ones.
ii. Marketing Mix Decisions
Like retailers, wholesalers must decide on product assortment and services, prices, promotion, and
place. The wholesaler's "product" is the assortment of products and services that it offers. Wholesalers
are under great pressure to carry a full line and to stock enough for immediate delivery. But this
practice can damage profits. Wholesalers today are cutting down on the number of lines they carry,
choosing to carry only the more profitable ones. Wholesalers are also rethinking which services
count most in building strong customer relationships and which should be dropped or charged for.
The key is to find the mix of services most valued by their target customers.
Price is also an important wholesaler decision. Wholesalers usually mark up the cost of goods by a
standard percentage—say, 20 percent. Expenses may run 17 percent of the gross margin, leaving a
profit margin of 3 percent. In grocery wholesaling, the average profit margin is often less than 2
percent. Wholesalers are trying new pricing approaches. They may cut their margin on some lines
in order to win important new customers. They may ask suppliers for special price break when
they can turn them into an increase in the supplier's sales.
Although promotion can be critical to wholesaler success, most wholesalers are not promotion
minded. Their use of trade advertising, sales promotion, personal selling, and public relations is
largely scattered and unplanned. Many are behind the times in personal selling—they still see
selling as a single salesperson talking to a single customer instead of as a team effort to sell, build,
and service major accounts. Wholesalers also need to adopt some of the nonpersonal promotion
techniques used by retailers. They need to develop an overall promotion strategy and to make
greater use of supplier promotion materials and programs.
Finally, place is important—wholesalers must choose their locations and facilities carefully.
Wholesalers typically locate in low-rent, low-tax areas and tend to invest little money in their
buildings, equipment, and systems. As a result, their materials-handling and order-processing
systems are often outdated. In recent years, however, large and progressive wholesalers are reacting
to rising costs by investing in automated warehouses and online ordering systems. Orders are fed
from the retailer's system directly into the wholesaler's computer, and the items are picked up by
mechanical devices and automatically taken to a shipping platform where they are assembled. Most
large wholesalers use computers to carry out accounting, billing, inventory control, and forecasting.
Modern wholesalers are adapting their services to the needs of target customers and finding costreducing
methods of doing business.
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[bonddonraj]

Lesson – 31
KEY TERMS
Distribution channel A set of interdependent organizations involved in
the process of making a product or service available
for use or consumption by the consumer or
business user.
Channel level A layer of intermediaries that performs some work
in bringing the product and its ownership closer to
the final buyer.
Direct marketing channel A marketing channel that has no intermediary levels.
Indirect marketing channel Containing one or more intermediary levels.
Channel conflict Disagreement among marketing channel members
on goals and roles—who should do what and for
what rewards.
Conventional distribution channel A channel consisting of one or more independent
producers, wholesalers, and retailers, each a separate
business seeking to maximize its own profits even at
the expense of profits for the system as a whole.
Vertical marketing system (VMS) A distribution channel structure in which producers,
wholesales, and retailers act as a unified system. One
channel member owns the others, has contracts
with them, or has so much power that they all
cooperate
Corporate VMS A vertical marketing system that combines
successive stages of production and distribution
under single ownership—channel leadership is
established through common ownership.
Contractual VMS A vertical marketing system in which independent
firms at different levels of production and
distribution join together through contracts to
obtain more economies or sales impact than they
could achieve alone.
Franchise organization A contractual vertical marketing system in which a
channel member, called a franchiser, links several
stages in the production-distribution process.
Administered VMS A vertical marketing system that coordinates
successive stages of production and distribution, not
through common ownership or contractual ties but
through the size and power of one of the parties.
Horizontal marketing system A channel arrangement in which two or more
companies at one level join together to follow a new
marketing opportunity.
hybrid marketing channel Multi-channel distribution system in which a single
firm sets up two or more marketing channels to
reach one or more customer segments.
Intensive distribution Stocking the product in as many outlets as possible.
exclusive distribution Giving a limited number of dealers the exclusive
right to distribute the company's products in their
territories.
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Selective distribution The use of more than one, but fewer than all, of the
intermediaries who are willing to carry the
company's products.
Physical distribution/marketing logistics The tasks involved in planning, implementing, and
controlling the physical flow of materials, final
goods, and related information from points of origin
to points of consumption to meet customer
requirements at a profit.
Distribution center A large, highly automated warehouse designed to
receive goods from various plants and suppliers,
take orders, fill them efficiently, and deliver goods
to customers as quickly as possible.
Integrated logistics management The logistics concept that emphasizes teamwork,
both inside the company and among all the
marketing channel organizations, to maximize the
performance of the entire distribution system.
Third-party logistics provider An independent logistics provider that performs any
or all of the functions required to get their clients'
product to market.
Retailing Retailing includes all the activities involved in selling
goods or services directly to final consumers for
their personal, no business use. Many institutions—
manufacturers, wholesalers, and retailers—do
retailing. But most retailing is done by retailers:
businesses whose sales come primarily from retailing.
Wholesaling Wholesaling includes all activities involved in selling
goods and services to those buying for resale or
business use. We call wholesalers those firms
engaged primarily in wholesaling activity.
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[bonddonraj]

Lesson – 32
Lesson overview and learning objectives:
This Lesson is about integrating the firm’s marketing communication in order to generate synergies
between the various elements of communications package. It gives an overview of integrated
marketing communication, communication process, different methods to set promotional budget
and various promotional tools.
PROMOTION THE 4TH P OF MARKETING MIX
A. The Marketing Communications
Modern marketing calls for more than just developing a good product, pricing it attractively, and
making it available to target
customers. Companies must also
communicate with current and
prospective customers, and what
they communicate should not be
left to chance. For most
companies, the question is not
whether to communicate, but
how much to spend and in what
ways. All of their
communications efforts must be
blended into a consistent and
coordinated communications
program. As shown in the fig, completion of marketing process requires something of value with
both producer and customer that should be communicated with each other for performing the
exchange process.
B. The Marketing Communications Mix.
A company's total marketing communications mix—also called its promotion mix consists of the
specific blend of advertising, personal selling, sales promotion, public relations, and directmarketing
tools that the company uses to pursue its advertising and marketing objectives.
Definitions of the five major promotion tools follow:
Advertising: Any paid form of nonpersonal presentation and promotion of ideas, goods, or
services by an identified sponsor.
Personal selling: Personal presentation by the firm's sales force for the purpose of making sales and
building customer relationships.
Sales promotion: Short-term incentives to encourage the purchase or sale of a product or service.
Public relations: Building good relations with the company's various publics by obtaining favorable
publicity, building up a good corporate image, and handling or heading off unfavorable rumors,
stories, and events.
Direct marketing: Direct connections with carefully targeted individual consumers to both obtain
an immediate response and cultivate lasting customer relationships—the use of telephone, mail,
fax, e-mail, the Internet, and other tools to communicate directly with specific consumers.
Each category involves specific tools. For example, advertising includes print, broadcast, outdoor,
and other forms. Personal selling includes sales presentations, trade shows, and incentive
programs. Sales promotion includes point-of-purchase displays, premiums, discounts, coupons,
S im p le M a rk e tin g S im p le M a r k e t in g
S y s te m S y s te m
P ro d u c e r/S e lle r C o n s um e r
C om m un ic a tio n
P ro d u c t/S e rv ic e
M o n e y
F e e d b a c k
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specialty advertising, and demonstrations. Direct marketing includes catalogs, telemarketing, fax,
kiosks, the Internet, and more. Thanks to technological breakthroughs, people can now
communicate through traditional media (newspapers, radio, telephone, television), as well as
through newer media forms (fax machines, cellular phones, pagers, and computers). The new
technologies have encouraged more companies to move from mass communication to more
targeted communication and one-to-one dialogue.
C. Integrated Marketing Communications
During the past several decades, companies around the world have perfected the art of mass
marketing—selling highly standardized products to masses of customers. In the process, they have
developed effective mass-media advertising techniques to support their mass-marketing strategies.
These companies routinely invest immense amount of money in the mass media, reaching tens of
millions of customers with a single ad. However, as we move into the twenty-first century,
marketing managers face some new marketing communications realities.
D. The Changing Communications Environment
Two major factors are changing the face of today's marketing communications. First, as mass
markets have fragmented, marketers are shifting away from mass marketing. More and more, they
are developing focused marketing programs designed to build closer relationships with customers
in more narrowly defined micro markets. Second, vast improvements in information technology
are speeding the movement toward segmented marketing. Today's information technology helps
marketers to keep closer track of customer needs—more information about consumers at the
individual and household levels is available than ever before. New technologies also provide new
communications avenues for reaching smaller customer segments with more tailored messages.
The shift from mass marketing to segmented marketing has had a dramatic impact on marketing
communications. Just as mass marketing gave rise to a new generation of mass-media
communications, the shift toward one-to-one marketing is spawning a new generation of more
specialized and highly targeted communications efforts.
Given this new communications environment, marketers must rethink the roles of various media
and promotion mix tools. Mass-media advertising has long dominated the promotion mixes of
consumer product companies. However, although television, magazines, and other mass media
remain very important, their dominance is now declining. Market fragmentation has resulted in
media fragmentation—in an explosion of more focused media that better match today's targeting
strategies. More generally, advertising appears to be giving way to other elements of the promotion
mix. In the glory days of mass marketing, consumer product companies spent the lion's share of
their promotion budgets on mass-media advertising. Today, media advertising captures only about
26 percent of total promotion spending. The rest goes to various sales promotion activities, which
can be focused more effectively on individual consumer and trade segments. They are using a
richer variety of focused communication tools in an effort to reach their diverse target markets. In
all, companies are doing less broadcasting and more narrowcasting.
E. The Need for Integrated Marketing Communications
The shift from mass marketing to targeted marketing, and the corresponding use of a richer
mixture of communication channels and promotion tools, poses a problem for marketers.
Consumers are being exposed to a greater variety of marketing communications from and about
the company from a broader array of sources. However, customers don't distinguish between
message sources the way marketers do. In the consumer's mind, advertising messages from
different media such as television, magazines, or online sources blur into one. Messages delivered
via different promotional approaches—such as advertising, personal selling, sales promotion,
public relations, or direct marketing—all become part of a single message about the company.
Conflicting messages from these different sources can result in confused company images and
brand positions.
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All too often, companies fail to integrate their various communications channels. The result is a
hodgepodge of communications to consumers. Mass advertisements say one thing, a price
promotion sends a different signal, a product label creates still another message, company sales
literature says something altogether different, and the company's Web site seems out of sync with
everything else.
The problem is that these communications often come from different company sources.
Advertising messages are planned and implemented by the advertising department or advertising
agency. Sales management develops personal selling communications. Other functional specialists
are responsible for public relations, sales promotion, direct marketing, online sites, and other forms
of marketing communications. Recently, such functional separation has been a major problem for
many companies and their Internet communications activities, which are often split off into
separate organizational units. In the past, no one person was responsible for thinking through the
communication roles of the various promotion tools and coordinating the promotion mix. Today,
however, more companies are adopting the concept of integrated marketing communications
(IMC).
The IMC solution calls for recognizing all contact points where the customer may encounter the
company, its products, and its brands. Each brand contact will deliver a message, whether good,
bad, or indifferent. The company must strive to deliver a consistent and positive message at all
contact points.
Integrated marketing communications produces better communications consistency and greater
sales impact. It places the responsibility in someone's hands—where none existed before—to unify
the company's image as it is shaped by thousands of company activities. It leads to a total
marketing communication strategy aimed at showing how the company and its products can help
customers solve their problems.
F. A View of the Communication Process
Integrated marketing communications involves identifying the target audience and shaping a wellcoordinated
promotional program to elicit the desired audience response. Too often, marketing
communications focus on overcoming immediate awareness, image, or preference problems in the
target market. But this approach to communication has limitations: It is too short term and too
costly, and most messages of this type fall on deaf ears. Today, marketers are moving toward
viewing communications as managing the customer relationship over time, during pre-selling,
selling, consuming, and post consumption stages. Because customers differ, communications
programs need to be developed for specific segments, niches, and even individuals. Given the new
interactive communications technologies, companies must ask not only "How can we reach our
customers?" but also "How can we find ways to let our customers reach us?"
Thus, the communications process should start with an audit of all the potential contacts target
customers may have with the company and its brands. For example, someone purchasing a new
computer may talk to others, see television ads, read articles and ads in newspapers and magazines,
visit various Web sites, and try out computers in one or more stores. The marketer needs to assess
the influence that each of these communications experiences will have at different stages of the
buying process.
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To communicate effectively,
marketers need to understand
how communication works.
Communication involves the
nine elements shown in Figure.
Two of these elements are the
major parties in a
communication—the sender and
the receiver. Another two are the
major communication tools—
the message and the media. Four
more are major communication
functions—encoding, decoding,
response, and feedback. The last
element is noise in the system.
• Sender: The party
sending the message to
another party.
• Encoding: The process
of putting thought into
symbolic form.
• Message: The set of symbols that the sender transmits
• Media: The communication channels through which the message moves from sender to
receiver
• Decoding: The process by which the receiver assigns meaning to the symbols encoded by
the sender.
• Receiver: The party receiving the message sent by another party
• Response: The reactions of the receiver after being exposed to the message—any of
hundreds of possible responses
• Feedback: The part of the receiver's response communicated back to the sender
• Noise: The unplanned static or distortion during the communication process, which results
in the receiver's getting a different message than the one the sender sent.
For a message to be effective, the sender's encoding process must mesh with the receiver's
decoding process. Thus, the best messages consist of words and other symbols that are familiar to
the receiver. The more the sender's field of experience overlaps with that of the receiver, the more
effective the message is likely to be. Marketing communicators may not always share their
consumer's field of experience. For example, an advertising copywriter from one social stratum
might create ads for consumers from another stratum—say, blue-collar workers or wealthy
business owners. However, to communicate effectively, the marketing communicator must
understand the consumer's field of experience.
This model points out several key factors in good communication. Senders need to know what
audiences they wish to reach and what responses they want. They must be good at encoding
messages that take into account how the target audience decodes them. They must send messages
through media that reach target audiences, and they must develop feedback channels so that they
can assess the audience's response to the message.
G. Steps in Developing Effective Communication
We now examine the steps in developing an effective integrated communications and promotion
program. The marketing communicator must do the following: Identify the target audience;
determine the communication objectives; design a message; choose the media through which to
send the message; select the message source; and collect feedback.
Source Encoding Message
Channel Decoding Receiver
Feedback Noise
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e. Identifying the Target Audience
A marketing communicator starts with a clear target audience in mind. The audience may be
potential buyers or current users, those who make the buying decision or those who influence it.
The audience may be individuals, groups, special publics, or the general public. The target audience
will heavily affect the communicator's decisions on what will be said, how it will be said, when it
will be said, where it will be said, and who will say it.
f. Determining the Communication Objectives
Once the target audience has been defined, the marketing communicator must decide what
response is sought. Of course, in many cases, the final response is purchase. But purchase is the
result of a long process of consumer decision making. The marketing communicator needs to
know where the target audience now stands and to what stage it needs to be moved. The target
audience may be in any of six buyer-readiness stages, the stages consumers normally pass through
on their way to making a purchase. These stages include awareness, knowledge, liking, preference,
conviction, and purchase (see Figure ).
The marketing communicator's target market may be totally unaware of the product, know only its
name, or know one or a few things about it. The communicator must first build awareness and
knowledge. Of course, marketing communications alone cannot create positive feelings and
purchases for productar itself must provide superior value for the customer. In fact, outstanding
marketing communications can actually speed the demise of a poor product. The more quickly
potential buyers learn about the poor product, the more quickly they become aware of its faults.
Thus, good marketing communication calls for "good deeds followed by good words."
g. Designing a Message
Having defined the desired audience response, the communicator turns to developing an effective
message. Ideally, the message should get Attention, hold Interest, arouse Desire, and obtain Action
(a framework known as the AIDA model). In practice, few messages take the consumer all the way
from awareness to purchase, but the AIDA framework suggests the desirable qualities of a good
message. In putting the message together, the marketing communicator must decide what to say
(message content) and how to say it (message structure and format).
h. Message Content
The communicator has to figure out an appeal or theme that will produce the desired response.
There are three types of appeals: rational, emotional, and moral. Rational appeals relate to the
audience's self-interest. They show that the product will produce the desired benefits. Examples
are messages showing a product's quality, economy, value, or performance. Emotional appeals
attempt to stir up either negative or positive emotions that can motivate purchase. Communicators
may use positive emotional appeals such as love, pride, joy, and humor.
i. Message Structure
The communicator must also decide how to handle three message structure issues. The first is
whether to draw a conclusion or leave it to the audience. Early research showed that drawing a
conclusion was usually more effective. More recent research, however, suggests that in many cases
the advertiser is better off asking questions and letting buyers come to their own conclusions. The
second message structure issue is whether to present a one-sided argument (mentioning only the
product's strengths) or a two-sided argument (touting the product's strengths while also admitting
its shortcomings). Usually, a one-sided argument is more effective in sales presentations—except
when audiences are highly educated or likely to hear opposing claims, or when the communicator
has a negative association to overcome.
j. Message Format
The marketing communicator also needs a strong format for the message. In a print ad, the
communicator has to decide on the headline, copy, illustration, and color. To attract attention,
advertisers can use novelty and contrast; eye-catching pictures and headlines; distinctive formats;
message size and position; and color, shape, and movement. If the message is to be carried over
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the radio, the communicator has to choose words, sounds, and voices. The "sound" of an
announcer promoting banking services should be different from one promoting quality furniture.
If the message is to be carried on television or in person, then all these elements plus body
language have to be planned. Presenters plan their facial expressions, gestures, dress, posture, and
hairstyle. If the message is carried on the product or its package, the communicator has to watch
texture, scent, color, size, and shape.
k. Choosing Media
The communicator now must select channels of communication. There are two broad types of
communication channels—personal and nonpersonal.
�� Personal Communication Channels
In personal communication channels, two or more people communicate directly with each other.
They might communicate face to face, over the telephone, through the mail, or even through an
Internet "chat." Personal communication channels are effective because they allow for personal
addressing and feedback.
Some personal communication channels are controlled directly by the company. For example,
company salespeople contact buyers in the target market. But other personal communications
about the product may reach buyers through channels not directly controlled by the company.
These might include independent experts—consumer advocates, consumer buying guides, and
others—making statements to target buyers. Or they might be neighbors, friends, family members,
and associates talking to target buyers. This last channel, known as word-of-mouth influence, has
considerable effect in many product areas.
Personal influence carries great weight for products that are expensive, risky, or highly visible. For
example, buyers of automobiles and major appliances often go beyond mass-media sources to seek
the opinions of knowledgeable people.
Companies can take steps to put personal communication channels to work for them. For
example, they can create opinion leaders—people whose opinions are sought by others—by
supplying certain people with the product on attractive terms. For instance, they can work through
community members such as local radio personalities, class presidents, and heads of local
organizations. They can use influential people in their advertisements or develop advertising that
has high "conversation value."
�� Nonpersonal Communication Channels
Nonpersonal communication channels are media that carry messages without personal contact or
feedback. They include major media, atmospheres, and events. Major media include print media
(newspapers, magazines, direct mail), broadcast media (radio, television), display media (billboards,
signs, posters), and online media (online services, Web sites). Atmospheres are designed
environments that create or reinforce the buyer's leanings toward buying a product. Thus, lawyers'
offices and banks are designed to communicate confidence and other qualities that might be valued
by their clients. Events are staged occurrences that communicate messages to target audiences. For
example, public relations departments arrange press conferences, grand openings, shows and
exhibits, public tours, and other events.
Nonpersonal communication affects buyers directly. In addition, using mass media often affects
buyers indirectly by causing more personal communication. Communications first flow from
television, magazines, and other mass media to opinion leaders and then from these opinion
leaders to others. Thus, opinion leaders step between the mass media and their audiences and carry
messages to people who are less exposed to media. This suggests that mass communicators should
aim their messages directly at opinion leaders, letting them carry the message to others.
l. Selecting the Message Source
In either personal or nonpersonal communication, the message's impact on the target audience is
also affected by how the audience views the communicator. Messages delivered by highly credible
sources are more persuasive. Thus, marketers hire celebrity endorsers—well-known athletes,
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actors, and even cartoon characters—to deliver their messages. Many food companies promote to
doctors, dentists, and other health care providers to motivate these professionals to recommend
their products to patients.
m. Collecting Feedback
After sending the message, the communicator must research its effect on the target audience. This
involves asking the target audience members whether they remember the message, how many
times they saw it, what points they recall, how they felt about the message, and their past and
present attitudes toward the product and company. The communicator would also like to measure
behavior resulting from the message—how many people bought a product, talked to others about
it, or visited the store.
Feedback on marketing communications may suggest changes in the promotion program or in the
product offer itself.
H. Setting the Total Promotion Budget
One of the hardest marketing decisions facing a company is how much to spend on promotion.
How does a company decide on its promotion budget? We look at four common methods used to
set the total budget for advertising: the affordable method, the percentage-of-sales method, the competitiveparity
method, and the objective-and-task method.
a. Affordable Method
Some companies use the affordable method: They set the promotion budget at the level they
think the company can afford. Small businesses often use this method, reasoning that the company
cannot spend more on advertising than it has. They start with total revenues, deduct operating
expenses and capital outlays, and then devote some portion of the remaining funds to advertising.
Unfortunately, this method of setting budgets completely ignores the effects of promotion on
sales. It tends to place advertising last among spending priorities, even in situations in which
advertising is critical to the firm's success. It leads to an uncertain annual promotion budget, which
makes long-range market planning difficult. Although the affordable method can result in
overspending on advertising, it more often results in under spending.
b. Percentage-of-Sales Method
Other companies use the percentage-of-sales method, setting their promotion budget at a
certain percentage of current or forecasted sales. Or they budget a percentage of the unit sales
price. The percentage-of-sales method has advantages. It is simple to use and helps management
think about the relationships between promotion spending, selling price, and profit per unit.
Despite these claimed advantages, however, the percentage-of-sales method has little to justify it. It
wrongly views sales as the cause of promotion rather than as the result. "A study in this area found
good correlation between investments in advertising and the strength of the brands concerned—
but it turned out to be effect and cause, not cause and effect. . . . The strongest brands had the
highest sales and could afford the biggest investments in advertising!" Thus, the percentage-ofsales
budget is based on availability of funds rather than on opportunities. It may prevent the
increased spending sometimes needed to turn around falling sales. Because the budget varies with
year-to-year sales, long-range planning is difficult. Finally, the method does not provide any basis
for choosing a specific percentage, except what has been done in the past or what competitors are
doing.
c. Competitive-Parity Method
Still other companies use the competitive-parity method, setting their promotion budgets to
match competitors' outlays. They monitor competitors' advertising or get industry promotion
spending estimates from publications or trade associations, and then set their budgets based on the
industry average.
Two arguments support this method. First, competitors' budgets represent the collective wisdom
of the industry. Second, spending what competitors spend helps prevent promotion wars.
Unfortunately, neither argument is valid. There are no grounds for believing that the competition
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has a better idea of what a company should be spending on promotion than does the company
itself. Companies differ greatly, and each has its own special promotion needs. Finally, there is no
evidence that budgets based on competitive parity prevent promotion wars.
d. Objective-and-Task Method
The most logical budget-setting method is the objective-and-task method, whereby the company
sets its promotion budget based on what it wants to accomplish with promotion. This budgeting
method entails (1) defining specific promotion objectives, (2) determining the tasks needed to
achieve these objectives, and (3) estimating the costs of performing these tasks. The sum of these
costs is the proposed promotion budget.
The objective-and-task method forces management to spell out its assumptions about the
relationship between amount spent and promotion results. But it is also the most difficult method
to use. Often, it is hard to figure out which specific tasks will achieve specific objectives. What
specific advertising messages and media schedules should be used to attain this objective? How
much would these messages and media schedules cost?
I. Setting the Overall Promotion Mix
The company now must divide the total promotion budget among the major promotion tools—
advertising, personal selling, sales promotion, public relations, and direct marketing. The concept
of integrated marketing communications suggests that it must blend the promotion tools carefully
into a coordinated promotion mix. But how does the company determine what mix of promotion
tools it will use? Companies within the same industry differ greatly in the design of their promotion
mixes. We now look at factors that influence the marketer's choice of promotion tools.
a. The Nature of Each Promotion Tool
Each promotion tool has unique characteristics and costs. Marketers must understand these
characteristics in selecting their tools.
Advertising
Advertising can reach masses of geographically dispersed buyers at a low cost per exposure, and it
enables the seller to repeat a message many times. For example, television advertising can reach
huge audiences. Beyond its reach, large-scale advertising says something positive about the seller's
size, popularity, and success. Because of advertising's public nature, consumers tend to view
advertised products as more legitimate. Advertising is also very expressive—it allows the company
to dramatize its products through the artful use of visuals, print, sound, and color. Advertising also
has some shortcomings. Although it reaches many people quickly, advertising is impersonal and
cannot be as directly persuasive as company salespeople. For the most part, advertising can carry
on only a one-way communication with the audience, and the audience does not feel that it has to
pay attention or respond. In addition, advertising can be very costly. Although some advertising
forms, such as newspaper and radio advertising, can be done on smaller budgets, other forms, such
as network TV advertising, require very large budgets.
Personal Selling
Personal selling is the most effective tool at certain stages of the buying process, particularly in
building up buyers' preferences, convictions, and actions. It involves personal interaction between
two or more people, so each person can observe the other's needs and characteristics and make
quick adjustments. Personal selling also allows all kinds of relationships to spring up, ranging from
a matter-of-fact selling relationship to personal friendship. The effective salesperson keeps the
customer's interests at heart in order to build a long-term relationship. Finally, with personal selling
the buyer usually feels a greater need to listen and respond, even if the response is a polite "no
thank you."
These unique qualities come at a cost, however. A sales force requires a longer-term commitment
than does advertising—advertising can be turned on and off, but sales force size is harder to
change.
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Sales Promotion
Sales promotion includes a wide assortment of tools—coupons, contests, cents-off deals,
premiums, and others—all of which have many unique qualities. They attract consumer attention,
offer strong incentives to purchase, and can be used to dramatize product offers and to boost
sagging sales. Sales promotions invite and reward quick response—whereas advertising says, "Buy
our product," sales promotion says, "Buy it now." Sales promotion effects are often short lived,
however, and often are not as effective as advertising or personal selling in building long-run brand
preference.
Public Relations
Public relations are very believable—news stories, features, and events seem more real and
believable to readers than ads do. Public relations can also reach many prospects who avoid
salespeople and advertisements—the message gets to the buyers as "news" rather than as a salesdirected
communication. As with advertising, public relations can dramatize a company or product.
Marketers tend to under use public relations or to use it as an afterthought. Yet a well-thought-out
public relations campaign used with other promotion mix elements can be very effective and
economical.
Direct Marketing
Although there are many forms of direct marketing— telemarketing, direct mail, electronic
marketing, online marketing, and others—they all share four distinctive characteristics. Direct
marketing is nonpublic: The message is normally addressed to a specific person. Direct marketing
also is immediate and customized: Messages can be prepared very quickly, and they can be tailored to
appeal to specific consumers. Finally, direct marketing is interactive: It allows a dialogue between the
marketing and the consumer, and messages can be altered depending on the consumer's response.
Thus, direct marketing is well suited to highly targeted marketing efforts and to building one-toone
customer relationships.
b. Promotion Mix Strategies
Marketers can choose from two basic promotion mix strategies—push promotion or pull
promotion. Figure 14.4 contrasts the two strategies. The relative emphasis on the specific
promotion tools differs for push and pulls strategies. A push strategy involves "pushing" the
product through distribution channels to final consumers. The producer directs its marketing
activities (primarily personal selling and trade promotion) toward channel members to induce them
to carry the product and to promote it to final consumers. Using a pull strategy, the producer
directs its marketing activities (primarily advertising and consumer promotion) toward final
consumers to induce them to buy the product. If the pull strategy is effective, consumers will then
demand the product from channel members, who will in turn demand it from producers. Thus,
under a pull strategy, consumer demand "pulls" the product through the channels.
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Some small industrial goods companies use only push strategies; some direct-marketing companies
use only pull. However, most large companies use some combination of both. Companies consider
many factors when developing their promotion mix strategies, including type of product–market and
the product life-cycle stage. For example, the importance of different promotion tools varies between
consumer and business markets. Consumer goods companies usually "pull" more, putting more of
their funds into advertising, followed by sales promotion, personal selling, and then public
relations. In contrast, business-to-business marketers tend to "push" more, putting more of their
funds into personal selling, followed by sales promotion, advertising, and public relations. In
general, personal selling is used more heavily with expensive and risky goods and in markets with
fewer and larger sellers.
The effects of different promotion tools also vary with stages of the product life cycle. In the
introduction stage, advertising and public relations are good for producing high awareness, and
sales promotion is useful in promoting early trial. Personal selling must be used to get the trade to
carry the product. In the growth stage, advertising and public relations continue to be powerful
influences, whereas sales promotion can be reduced because fewer incentives are needed. In the
mature stage, sales promotion again becomes important relative to advertising. Buyers know the
brands, and advertising is needed only to remind them of the product. In the decline stage,
advertising is kept at a reminder level, public relations is dropped, and salespeople give the product
only a little attention. Sales promotion, however, might continue strong.
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[bonddonraj]

Lesson – 33
Lesson overview and learning objectives:
Advertising—the use of paid media by a seller to inform, persuade, and remind about its products
or organization—is a strong promotion tool.
Advertising decision-making is a five-step
process consisting of decisions about the
objectives, the budget, the message, the
media, and, finally, the evaluation of results.
Advertisers should set clear objectives as to
whether the advertising is supposed to
inform, persuade, or remind buyers. The
advertising budget can be based on what is
affordable, on a percentage of sales, on
competitors' spending, or on the objectives
and tasks. The message decision calls for
designing messages, evaluating them, and
executing them effectively. The media
decision calls for defining reach, frequency, and impact goals; choosing major media types;
selecting media vehicles; and scheduling the media. Message and media decisions must be closely
coordinated for maximum campaign effectiveness. Finally, evaluation calls for evaluating the
communication and sales effect of advertising before, during, and after the advertising is placed.
ADVERTISING
A. ADVERTISING
Any paid form of non-personal presentation and promotion of ideas, goods, or services by an
identified sponsor is termed as advertising.
B. The Five M’s of Advertising
The five M’s are basically the different important decisions that are to be taken while designing the
advertising campaign. The five M’s of
advertising are (1) Mission (that is the
basic objective or goal that any
company wants to attain by its
advertising campaign), (2) Money
(how much money should be spent
by the company to achieve the
objective of advertising and the basic
factors that should be considered
while deciding about the budget of
the advertising) (3) Message (what
specific information company wants
to communicate through its
advertising, what should be the
contents of the message etc) (4) Media (communication of the message to people requires some
media that can be print electronic its selection requires certain decisions like selection of type of
media, scheduling of media etc) the last M is (5) Measurement (it is something related to evaluation
Mission
Sales
goals
Advertising
objectives
Message
Message generation
Message evaluation
and selection
Message execution
Social-responsibility
review
Money
Factors to
consider:
Stage in PLC
Market share
and consumer
base
Competition
and clutter
Advertising
frequency
Product
substitutability
Measurement
Communi
cation
impact
Sales
impact
Media
Reach, frequency,
impact
Major media types
Specific media
vehicles
Media timing
Geographical
media allocation
Objectives Setting Objectives Setting
Budget Decisions Budget Decisions
Message Decisions Message Decisions
Campaign Evaluation Campaign Evaluation
Media Decisions Media Decisions
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of the advertising campaign that can be done either by considering its impact on sales or profits of
the company).
C. Advertising decisions
Marketing management must take five important decisions when developing an advertising
program:
a. Setting advertising objectives.
b. Setting advertising budgets.
c. Developing advertising strategy.
o a). Message decisions.
o b). Media decisions.
d. Evaluating advertising campaigns.
a. Setting Advertising Objectives
Setting advertising objectives is the first step in developing an advertising program. These
objectives should be based on past decisions about the target market, positioning, and
marketing mix, which define the job that advertising must do in the total marketing program. An
advertising objective is a specific communication task to be accomplished with a specific
target audience during a specific period of time. Advertising objectives can be classified by
primary purpose as:
1). Informative advertising, which is used to inform consumers about a new product or
feature or to build primary demand.
2). Persuasive advertising which is used to build selective demand for a brand by
persuading consumers that it offers the best quality for their money.
3). Comparison advertising which is advertising that compares one brand directly or
indirectly to one or more other brands.
4). Reminder advertising, which is used to keep consumers thinking about a product. This
form of advertising is more important for mature products.
b. Setting the Advertising Budget
After determining its advertising objectives, the marketer must set the advertising budget for
each product and market. Four
commonly used methods for setting
promotion budgets were discussed in last
Lesson. No matter what method is used,
setting the advertising budget is no easy
task. How does a company know if it is
spending the right amount? Some critics
charge that large consumer packagedgoods
firms tend to spend too much on
advertising and business-to-business
marketers generally under spend on
advertising. They claim that, on the one
hand, the large consumer companies use
lots of image advertising without really knowing its effects. They overspend as a form of
"insurance" against not spending enough. On the other hand, business advertisers tend to rely too
heavily on their sales forces to bring in orders. They underestimate the power of company and
product image in pre-selling to industrial customers. Thus, they do not spend enough on
advertising to build customer awareness and knowledge.
Percentageof-
Sales
Method
Affordable
Method
Competitive-
Parity
Method
Objectiveand-
Task
Method
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Some specific factors that should be considered when setting the advertising budget are:
1). Stage in the product life cycle. New products typically need large advertising budgets.
2). Market share. High-market share brands usually need more advertising.
3). Competition and clutter. More advertising is usually required in a market with many
more competitors and their advertising clutter.
4). Product differentiation. When a brand closely resembles other brands in its product
class, more advertising (and therefore budget) is needed.
The primary questions to be answered during the budget process are how much to spend
and what impact is expected or acceptable. This process is difficult because measurement
techniques of effectiveness rarely give precise answers.
c. Developing Advertising Strategy
Advertising strategy consists of two major elements:
a) Creating advertising messages
b) Selecting advertising media.
In the past, companies often viewed media planning as secondary to the message-creation process.
The creative department first created good advertisements, and then the media department
selected the best media for carrying these advertisements to desired target audiences. This often
caused friction between creatives and media planners.
Today, however, media fragmentation, soaring media costs, and more focused target marketing
strategies have promoted the importance of the media-planning function. In some cases, an
advertising campaign might start with a great message idea, followed by the choice of appropriate
media. In other cases, however, a campaign might begin with a good media opportunity, followed
by advertisements designed to take advantage of that opportunity. Increasingly, companies are
realizing the benefits of planning these two important elements jointly.
Thus, more and more advertisers are orchestrating a closer harmony between their messages and
the media that deliver them. Media planning is no longer an after-the-fact complement to a new ad
campaign. Media planners are now working more closely than ever with creative to allow media
selection to help shape the creative process, often before a single ad is written. In some cases,
media people are even initiating ideas for new campaigns.
a) Creating the Advertising Message
No matter how big the budget, advertising can succeed only if commercials gain attention and
communicate well. Good advertising messages are especially important in today's costly and
cluttered advertising environment. If all this advertising clutter bothers some consumers, it also
causes big problems for advertisers. Until recently, television viewers were pretty much a captive
audience for advertisers. Viewers had only a few channels from which to choose. But with the
growth in cable and satellite TV, VCRs, and remote-control units, today's viewers have many more
options. They can avoid ads by watching commercial-free cable channels. They can "zap"
commercials by pushing the fast-forward button during taped programs. With remote control, they
can instantly turn off the sound during a commercial or "zip" around the channels to see what else
is on. In fact, a recent study found that half of all television viewers now switch channels when the
commercial break starts.
Thus, just to gain and hold attention, today's advertising messages must be better planned, more
imaginative, more entertaining, and more rewarding to consumers. Some advertisers even create
intentionally controversial ads to break through the clutter and gain attention for their products.
i. Message Strategy
The first step in creating effective advertising messages is to decide what general message will be
communicated to consumers—to plan a message strategy. The purpose of advertising is to get
consumers to think about or react to the product or company in a certain way. People will react
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only if they believe that they will benefit from doing so. Thus, developing an effective message
strategy begins with identifying customer benefits that can be used as advertising appeals. Ideally,
advertising message strategy will follow directly from the company's broader positioning strategy.
Message strategy statements tend to be plain, straightforward outlines of benefits and positioning
points that the advertiser wants to stress. The advertiser must next develop a compelling creative
concept—or "big idea"—that will bring the message strategy to life in a distinctive and memorable
way. At this stage, simple message ideas become great ad campaigns. Usually, a copywriter and art
director will team up to generate many creative concepts, hoping that one of these concepts will
turn out to be the big idea. The creative concept may emerge as visualization, a phrase, or a
combination of the two.
The creative concept will guide the choice of specific appeals to be used in an advertising
campaign. Advertising appeals should have three characteristics: First, they should be meaningful,
pointing out benefits that make the product more desirable or interesting to consumers. Second,
appeals must be believable—consumers must believe that the product or service will deliver the
promised benefits. However, the most meaningful and believable benefits may not be the best
ones to feature. Appeals should also be distinctive—they should tell how the product is better than
the competing brands.
ii. Message Execution
The advertiser now has to turn the big idea into an actual ad execution that will capture the target
market's attention and interest. The creative people must find the best style, tone, words, and
format for executing the message. Any message can be presented in different execution styles, such
as the following:
• Slice of life: This style shows one or more "typical" people using the product in a normal
setting.
• Lifestyle: This style shows how a product fits in with a particular lifestyle.
• Fantasy: This style creates a fantasy around the product or its use.
• Mood or image: This style builds a mood or image around the product, such as beauty,
love, or serenity. No claim is made about the product except through suggestion.
• Musical: This style shows one or more people or cartoon characters singing about the
product.
• Technical expertise: This style shows the company's expertise in making the product.
• Scientific evidence: This style presents survey or scientific evidence that the brand is better
or better liked than one or more other brands.
• Testimonial evidence or endorsement: This style features a highly believable or likable
source endorsing the product

 

[bonddonraj]

Lesson – 34
Lesson overview and learning objectives:
Today we will continue and discuss the remaining steps in major advertising decisions and other
topic of today’s Lesson is
ADVERTISING (CONT.)
SALES PROMOTION
b) Selecting advertising media.
The major steps in media selection are:
i. Deciding on reach, frequency, and impact;
ii. Choosing among major media types;
iii. Selecting specific media vehicles;
iv. Deciding on media timing.
I. Deciding on Reach, Frequency, and Impact
To select media, the advertiser must decide what reach and frequency are needed to achieve
advertising objectives. Reach is a measure of the percentage of people in the target market who are
exposed to the ad campaign during a given period of time. For example, the advertiser might try to
reach 70 percent of the target market during the first three months of the campaign. Frequency is a
measure of how many times the average person in the target market is exposed to the message. For
example, the advertiser might want an average exposure frequency of three. The advertiser also
must decide on the desired media impact—the qualitative value of a message exposure through a given
medium. For example, for products that need to be demonstrated, messages on television may
have more impact than messages on radio because television uses sight and sound. The same
message in one magazine may be more believable than in another. In general, the more reach,
frequency, and impact the advertiser seeks, the higher the advertising budget will have to be.
II. Choosing Among Major Media Types
The media planner has to know the reach, frequency, and impact of each of the major media types.
The major media types are newspapers, television, direct mail, radio, magazines, outdoor, and the
Internet. Each medium has advantages and limitations.
Media planners consider many factors when making their media choices. The media habits of target
consumers will affect media choice—advertisers look for media that reach target consumers
effectively. So will the nature of the product—for example, fashions are best advertised in color
magazines, and automobile performance is best demonstrated on television. Different types of
messages may require different media. A message announcing a major sale tomorrow will require
radio or newspapers; a message with a lot of technical data might require magazines, direct
mailings, or an online ad and Web site. Cost is another major factor in media choice. For example,
network television is very expensive, whereas newspaper or radio advertising costs much less but
also reaches fewer consumers. The media planner looks both at the total cost of using a medium
and at the cost per thousand exposures—the cost of reaching 1,000 people using the medium.
Media impact and cost must be reexamined regularly. For a long time, television and magazines
have dominated in the media mixes of national advertisers, with other media often neglected.
Recently, however, the costs and clutter of these media have gone up, audiences have declined, and
marketers are adopting strategies beamed at narrower segments. As a result, advertisers are
increasingly turning to alternative media—ranging from cable TV and outdoor advertising to
parking meters and shopping carts—that cost less and target more effectively.
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III. Selecting Specific Media Vehicles
The media planner now must choose the best media vehicles—specific media within each general
media type. Media planners must compute the cost per thousand persons reached by a vehicle. The
media planner ranks each magazine by cost per thousand and favors those magazines with the
lower cost per thousand for reaching target consumers.
The media planner must also consider the costs of producing ads for different media. Whereas
newspaper ads may cost very little to produce, flashy television ads may cost millions. In selecting
media vehicles, the media planner must balance media cost measures against several media impact
factors. First, the planner should balance costs against the media vehicle's audience quality.
IV. Deciding on Media Timing
The advertiser must also decide how to schedule the advertising over the course of a year. Suppose
sales of a product peak in December and drop in March. The firm can vary its advertising to
follow the seasonal pattern, to oppose the seasonal pattern, or to be the same all year. Most firms
do some seasonal advertising. Some do only seasonal advertising. Finally, the advertiser has to
choose the pattern of the ads. Continuity means scheduling ads evenly within a given period. Pulsing
means scheduling ads unevenly over a given time period.. The idea is to advertise heavily for a
short period to build awareness that carries over to the next advertising period. Those who favor
pulsing feel that it can be used to achieve the same impact as a steady schedule but at a much lower
cost. However, some media planners believe that although pulsing achieves minimal awareness, it
sacrifices depth of advertising communications.
Recent advances in technology have had a substantial impact on the media planning and buying
functions.
a. Evaluating Advertising
The fourth step in the advertising campaign is evaluation of the campaign. The advertising
program should evaluate both the communication effects and the sales effects of advertising
regularly. Measuring the communication effects of an ad—copy testing—tells whether the ad is
communicating well. Copy testing can be done before or after an ad is printed or broadcast. Before
the ad is placed, the advertiser can show it to consumers, ask how they like it, and measure recall or
attitude changes resulting from it. After the ad is run, the advertiser can measure how the ad
affected consumer recall or product awareness, knowledge, and preference.
But what sales are caused by an ad that increases brand awareness by 20 percent and brand
preference by 10 percent? The sales effects of advertising are often harder to measure than the
communication effects. Sales are affected by many factors besides advertising—such as product
features, price, and availability.
b. Ways to Handle Advertising
Different companies organize in different ways to handle advertising. In small companies,
advertising might be handled by someone in the sales department. Large companies set up
advertising departments whose job it is to set the advertising budget, work with the ad agency, and
handle other advertising not done by the agency. Most large companies use outside advertising
agencies because they offer several advantages.
How does an advertising agency work? Advertising agencies were started in the mid-to-late 1800s
by salespeople and brokers who worked for the media and received a commission for selling
advertising space to companies. As time passed, the salespeople began to help customers prepare
their ads. Eventually, they formed agencies and grew closer to the advertisers than to the media.
Today's agencies employ specialists who can often perform advertising tasks better than the
company's own staff. Agencies also bring an outside point of view to solving the company's
problems, along with lots of experience from working with different clients and situations. Thus,
today, even companies with strong advertising departments of their own use advertising agencies.
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Most large advertising agencies have the staff and resources to handle all phases of an advertising
campaign for their clients, from creating a marketing plan to developing ad campaigns and
preparing, placing, and evaluating ads. Agencies usually have four departments: creative, which
develops and produces ads; media, which selects media and places ads; research, which studies
audience characteristics and wants; and business, which handles the agency's business activities.
Each account is supervised by an account executive, and people in each department are usually
assigned to work on one or more accounts.
However, both advertisers and agencies have become more and more unhappy with the
commission system. Larger advertisers complain that they pay more for the same services received
by smaller ones simply because they place more advertising. Advertisers also believe that the
commission system drives agencies away from low-cost media and short advertising campaigns.
Another factor is vast changes in how ad agencies reach consumers that go way beyond network
TV or magazine advertising. Another trend is affecting the advertising agency business: Many
agencies have sought growth by diversifying into related marketing services. These new diversified
agencies offer a complete list of integrated marketing and promotion services under one roof,
including advertising, sales promotion, marketing research, public relations, and direct and online
marketing. Some have even added marketing consulting, television production, and sales training
units in an effort to become full "marketing partners" to their clients.
However, agencies are finding that most advertisers don't want much more from them than
traditional media advertising services plus direct marketing, sales promotion, and sometimes public
relations. Thus, many agencies have recently limited their diversification efforts in order to focus
more on traditional services. Some have even started their own "creative boutiques," smaller and
more independent agencies that can develop creative campaigns for clients free of large-agency
bureaucracy.
A. Sales Promotion
Sales promotion consists of short-term incentives to encourage the purchase or sale of a product
or service. Whereas advertising and personal selling offer reasons to buy a product or service, sales
promotion offers reasons to buy now.
Several factors have contributed to the rapid growth of sales promotion, particularly in consumer
markets. First, inside the company, product managers face greater pressures to increase their
current sales, and promotion is viewed as an effective short-run sales tool. Second, externally, the
company faces more competition and competing brands are less differentiated. Increasingly,
competitors are using sales promotion to help differentiate their offers. Third, advertising
efficiency has declined because of rising costs, media clutter, and legal restraints. Finally,
consumers have become more deal oriented and ever-larger retailers are demanding more deals
from manufacturers.
The growing use of sales promotion has resulted in promotion clutter, similar to advertising clutter.
Consumers are increasingly tuning out promotions, weakening their ability to trigger immediate
purchase. Manufacturers are now searching for ways to rise above the clutter, such as offering
larger coupon values or creating more dramatic point-of-purchase displays.
a. Sales Promotion Objectives
Sales promotion objectives vary widely. Sellers may use consumer promotions to increase shortterm
sales or to help build long-term market share. Objectives for trade promotions include getting
retailers to carry new items and more inventories, getting them to advertise the product and give it
more shelf space, and getting them to buy ahead. For the sales force, objectives include getting
more sales force support for current or new products or getting salespeople to sign up new
accounts. Sales promotions are usually used together with advertising or personal selling.
Consumer promotions must usually be advertised and can add excitement and pulling power to
ads. Trade and sales force promotions support the firm's personal selling process.
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In general, sales promotions should be consumer relationship building. Rather than creating only shortterm
sales or temporary brand switching, they should help to reinforce the product's position and
build long-term relationships with consumers. Increasingly, marketers are avoiding "quick fix,"
price-only promotions in favor of promotions designed to build brand equity.
b. Major Sales Promotion Tools
Many tools can be used to accomplish sales promotion objectives. Descriptions of the main
consumer, trade, and business promotion tools follow.
Consumer Promotion Tools
The main consumer promotion tools include samples, coupons, cash refunds, price packs,
premiums, advertising specialties, patronage rewards, point-of-purchase displays and
demonstrations, and contests, sweepstakes, and games.
• Samples are offers of a trial amount of a product. Sampling is the most effective—but
most expensive—
way to introduce a
new product. Some
samples are free;
for others, the
company charges a
small amount to
offset its cost. The
sample might be
delivered door-todoor,
sent by mail,
handed out in a
store, attached to
another product, or
featured in an ad.
Sometimes,
samples are
combined into sample packs, which can then be used to promote other products and
services.
• Coupons are certificates that give buyers a saving when they purchase specified products.
Most consumers love coupons: Coupons can stimulate sales of a mature brand or promote
early trial of a new brand. However, as a result of coupon clutter, redemption rates have
been declining in recent years. Thus, most major consumer goods companies are issuing
fewer coupons and targeting them more carefully.
• Cash refund offers (or rebates) are like coupons except that the price reduction occurs
after the purchase rather than at the retail outlet. The consumer sends a "proof of
purchase" to the manufacturer, who then refunds part of the purchase price by mail.
• Price packs (also called cents-off deals) offer consumers savings off the regular price of
a product. The reduced prices are marked by the producer directly on the label or package.
Price packs can be single packages sold at a reduced price (such as two for the price of
one), or two related products banded together (such as a toothbrush and toothpaste). Price
packs are very effective—even more so than coupons—in stimulating short-term sales.
• Premiums are goods offered either free or at low cost as an incentive to buy a product,
ranging from toys included with kids' products to phone cards, compact disks, and
Consumer Sales Promotion
Techniques
Price Deals
Advertising
Specialties Coupons
Sampling Rebates
Contests, Games,
Sweepstakes
Premiums Cross-
Promotions
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computer CD-ROMs. A premium may come inside the package (in-pack), outside the
package (on-pack), or through the mail.
• Advertising specialties are useful articles imprinted with an advertiser's name given as
gifts to consumers. Typical items include pens, calendars, key rings, matches, shopping
bags, T-shirts, caps, nail files, and coffee mugs. Such items can be very effective. In a
recent study, 63 percent of all consumers surveyed were either carrying or wearing an ad
specialty item. More than three-quarters of those who had an item could recall the
advertiser's name or message before showing the item to the interviewer.
• Patronage rewards are cash or other awards offered for the regular use of a certain
company's products or services. For example, airlines offer frequent flier plans, awarding
points for miles traveled that can be turned in for free airline trips.
• Point-of-purchase (POP) promotions include displays and demonstrations that take
place at the point of purchase or sale. Unfortunately, many retailers do not like to handle
the hundreds of displays, signs, and posters they receive from manufacturers each year.
Manufacturers have responded by offering better POP materials, tying them in with
television or print messages, and offering to set them up.
• Contests, sweepstakes, and games give consumers the chance to win something, such
as cash, trips, or goods, by luck or through extra effort. A contest calls for consumers to
submit an entry—a jingle, guess, suggestion—to be judged by a panel that will select the
best entries. A sweepstakes calls for consumers to submit their names for a drawing. A game
presents consumers with something—bingo numbers, missing letters—every time they
buy, which may or may not help them win a prize. A sales contest urges dealers or the sales
force to increase their efforts, with prizes going to the top performers
i. Trade Promotion Tools
Trade promotion can persuade resellers to carry a brand, give it shelf space, promote it in
advertising, and push it to consumers. Shelf space is so scarce these days that manufacturers often
have to offer price-offs, allowances, buy-back guarantees, or free goods to retailers and wholesalers
to get products on the shelf and, once there, to stay on it.
Manufacturers use several trade promotion tools. Many of the tools used for consumer
promotions—contests, premiums, displays—can also be used as trade promotions. Or the
manufacturer may offer a straight discount off the list price on each case purchased during a
stated period of time (also called a price-off, off-invoice, or off-list). The offer encourages dealers to buy
in quantity or to carry a new item. Dealers can use the discount for immediate profit, for
advertising, or for price reductions to their customers.
Manufacturers also may offer an allowance (usually so much off per case) in return for the
retailer's agreement to feature the manufacturer's products in some way. An advertising
allowance compensates retailers for advertising the product. A display allowance compensates
them for using special displays.
Manufacturers may offer free goods, which are extra cases of merchandise, to resellers who buy a
certain quantity or who feature a certain flavor or size. They may offer push money—cash or gifts
to dealers or their sales forces to "push" the manufacturer's goods. Manufacturers may give
retailers free specialty advertising items that carry the company's name, such as pens, pencils, calendars,
paperweights, matchbooks, memo pads, and yardsticks.
ii. Business Promotion Tools
Companies spend billions of dollars each year on promotion to industrial customers. These
business promotions are used to generate business leads, stimulate purchases, reward customers,
and motivate salespeople. Business promotion includes many of the same tools used for consumer
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or trade promotions. Here, we focus on two additional major business promotion tools—
conventions and trade shows, and sales contests.
Many companies and trade associations organize conventions and trade shows to promote their
products. Firms selling to the industry show their products at the trade show. Trade shows also
help companies reach many prospects not reached through their sales forces. About 90 percent of
a trade show's visitors see a company's salespeople for the first time at the show. A sales contest is a
contest for salespeople or dealers to motivate them to increase their sales performance over a given
period. Sales contests motivate and recognize good company performers, who may receive trips,
cash prizes, or other gifts. Some companies award points for performance, which the receiver can
turn in for any of a variety of prizes. Sales contests work best when they are tied to measurable and
achievable sales objectives (such as finding new accounts, reviving old accounts, or increasing
account profitability).
c. Developing the Sales Promotion Program
The marketer must make several other decisions in order to define the full sales promotion
program. First, the marketer must decide on the size of the incentive. A certain minimum
incentive is necessary if the promotion is to succeed; a larger incentive will produce more sales
response. The marketer also must set conditions for participation. Incentives might be offered
to everyone or only to select groups.
The marketer must decide how to promote and distribute the promotion program itself. A 50-
cents-off coupon could be given out in a package, at the store, by mail, or in an advertisement.
Each distribution method involves a different level of reach and cost. Increasingly, marketers are
blending several media into a total campaign concept. The length of the promotion is also
important. If the sales promotion
period is too short, many prospects
(who may not be buying during that
time) will miss it. If the promotion
runs too long, the deal will lose
some of its "act now" force.
Evaluation is also very important.
Yet many companies fail to evaluate
their sales promotion programs, and
others evaluate them only
superficially. Manufacturers can use
one of many evaluation methods.
The most common method is to
compare sales before, during, and
after a promotion. Suppose a
company has a 6 percent market share before the promotion, which jumps to 10 percent during
the promotion, falls to 5 percent right after, and rises to 7 percent later on. The promotion seems
to have attracted new triers and more buying from current customers. After the promotion, sales
fell as consumers used up their inventories. The long-run rise to 7 percent means that the company
gained some new users. If the brand's share had returned to the old level, then the promotion
would have changed only the timing of demand rather than the total demand.
Consumer research would also show the kinds of people who responded to the promotion and
what they did after it ended. Surveys can provide information on how many consumers recall the
promotion, what they thought of it, how many took advantage of it, and how it affected their
buying. Sales promotions also can be evaluated through experiments that vary factors such as
incentive value, length, and distribution method.
Decide on the Size of the Incentive Decide on the Size of the Incentive
Set Conditions for Participation Set Conditions for Participation
Evaluate the Program Evaluate the Program
Determine How to Promote and
Distribute the Promotion Program
Determine How to Promote and
Distribute the Promotion Program
Determine the Length of the Program Determine the Length of the Program
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Clearly, sales promotion plays an important role in the total promotion mix. To use it well, the
marketer must define the sales promotion objectives, select the best tools, design the sales
promotion program, implement the program, and evaluate the results. Moreover, sales promotion
must be coordinated carefully with other promotion mix elements within the integrated marketing
communications program.
d. Sales Promotion Uses and Limitations of Sales Promotion
Sales promotion tools are effective for the organizations in different aspects like they can be used
to Introduce new products, making existing customers to buy more, Attract new customers,
Combat competition, Maintain sales in off season, Increase retail inventories, Tie in advertising and
personal selling, Enhance personal selling efforts. Beside these advantages, sales promotions have
certain limitations as well like Cannot Reverse Declining Sales Trend, Cannot Overcome, inferior
Product, May Encourage Competitive Retaliation, May Hurt Profit
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[bonddonraj]

Lesson – 35
Lesson overview and learning objectives:
Discuss the role of a company’s salespeople in creating value for customers and building customer
relationships. Today, most companies use salespeople to bring their company’s offering to the
consuming or business publics. The salesperson’s role is a key one in the organization. The high
cost of maintaining a sales force means that management is especially interested in how to
efficiently organize this vital element.
PERSONAL SELLING
A. Personal selling
The direct presentation of a product to a prospective customer by a representative of the selling
organization is termed as personal selling. Personal selling is the personal communication of
information to persuade somebody to buy something. Personal Selling occurs when a company
representative comes in direct contact with a customer in order to inform a client about a good or
service to get a sale. Personal selling is especially important for business-to-business marketers
since products and services are complex and expensive. In many companies, personal selling is the
largest single operating expense.
a. The Nature of Personal Selling
Selling is one of the oldest professions in the world. Today, most salespeople are well-educated,
well-trained professionals who work to build and maintain long-term relationships with customers.
They build these relationships by listening to their customers; assessing customer’s needs, and
organizing the company’s efforts to solve customer problems. The term salesperson covers a wide
variety of positions and responsibilities. The person can be:
1). An inside order taker.
2). An order getter (a great amount of creative selling skills are demanded in this position).
Personal selling is likely to be emphasized in a promotional mix when the market is concentrated
or the product has a high unit value, is technical in nature, and requires a demonstration. It is also
useful if the product can be tailored to an individual customer’s need, or the product is in the
introductory stage of the product life cycle.
b. The Role of the Sales Force
Personal selling is the interpersonal arm of the promotion mix. Sales people represent the
company to the customer and act as an intermediary linking the customer to the company.
c. Salespeople.
Salespeople act for a company and perform one of more of the following: prospecting of new
business; communicating with potential and existing customers; servicing customers and
information gathering. Sales positions range from: delivering product; taking orders; building
goodwill or educating customers; positions where technical knowledge is required; and creative
selling.
d. Sales management.
Sales management involves the analysis, planning, implementation and control of sales force
activities. Advertising consists of one-way, non-personal communication with target customer
groups while the personal selling involves two-way, personal communication between salespeople
and individual consumers. Personal selling can be more effective than advertising in more
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complex selling situations. The role of personal selling varies from company to company. Some
firms have no salespeople at all. The sales force serves as a critical link between a company and its
customers. The salesperson can represent both buyer and seller i.e.
1). They represent the company to the customer.
2). They represent customers to the company.
Salespeople are becoming more market-focused and customer-oriented.
1).The old view was that salespeople should be concerned with sales and the company
should be concerned with profit.
2). The new view is that salespeople should be concerned with more than just producing
sales—they must know how to produce customer satisfaction and company profit.
Personal selling is performed by person-to-person dialogue between prospective buyer and the
seller through direct human contact for matching products to needs. It involves developing
relationships between buyer and the seller to discover the needs of the customers/buyers and the
benefits of the products that can satisfy the needs of customer can be communicated to customer.
e. The characteristics of personal selling
Personal selling is having flexibility of system it provides one to one contact between the buyers
and sellers. It Identify specific sales prospects the first step in the selling process is prospecting
identifying qualified potential customers. Approaching the right potential customers is crucial to
selling success. Direct contact with the potential buyers provides opportunity to demonstrate the
product and to customers and to answer the queries and questions of the customers. Answer
questions during the presentation step of the selling process, the salesperson tells the product
"story" to the buyer, showing how the product will make or save money. The salesperson describes
the product features but concentrates on presenting customer benefits. Using a need-satisfaction
approach, the salesperson starts with a search for the customer's needs by getting the customer to
do most of the talking. During demonstration there can be certain objections raised by the
customers, which can be overcome at very same time. Customers almost always have objections
during the presentation or when asked to place an order. The problem can be either logical or
psychological, and objections are often unspoken. In handling objections, the salesperson should
use a positive approach, seek out hidden objections, asks the buyer to clarify any objections, take
objections as opportunities to provide more information, and turn the objections into reasons for
buying. Every salesperson needs training in the skills of handling objections.
f. Builds Relationships
The principles of personal selling as just described are transaction oriented—their aim is to help
salespeople close a specific sale with a customer. But in many cases, the company is not seeking
simply a sale: It has targeted a major customer that it would like to win and keep. The company
would like to show that it has the capabilities to serve the customer over the long haul in a
mutually profitable relationship.
Most companies today are moving away from transaction marketing, with its emphasis on making
a sale. Instead, they are practicing relationship marketing, which emphasizes maintaining profitable
long-term relationships with customers by creating superior customer value and satisfaction. They
are realizing that when operating in maturing markets and facing stiffer competition, it costs a lot
more to wrest new customers from competitors than to keep current customers.
Today's customers are large and often global. They prefer suppliers who can sell and deliver a
coordinated set of products and services to many locations. They favor suppliers who can quickly
solve problems that arise in their different parts of the nation or world, and who can work closely
with customer teams to improve products and processes. For these customers, the sale is only the
beginning of the relationship.
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Unfortunately, some companies are not set up for these developments. They often sell their
products through separate sales forces, each working independently to close sales. Their technical
people may not be willing to lend time to educate a customer. Their engineering, design, and
manufacturing people may have the attitude that "it's our job to make good products and the
salesperson's to sell them to customers." However, other companies are recognizing that winning
and keeping accounts requires more than making good products and directing the sales force to
close lots of sales. It requires a carefully coordinated whole-company effort to create value-laden,
satisfying relationships with important customers.
Relationship marketing is based on the premise that important accounts need focused and ongoing
attention. Studies have shown that the best salespeople are those who are highly motivated and
good closers, but more than this, they are customer problem solvers and relationship builders.
Good salespeople working with key customers do more than call when they think a customer
might be ready to place an order. They also study the account and understand its problems. They
call or visit frequently, work with the customer to help solve the customer's problems and improve
its business, and take an interest in customers as people.
g. Basic Sales Tasks
Order Getting: It is creative selling ad is
more time consuming. It is used for
selling products to new prospects
(pioneers) and to sell to continuing
customers (account managers). Some
times telemarketing is used particularly
to small accounts for seeking customers,
analyzing their problems, Discover
solutions and finally selling solutions to
customers. Order Taking: This task is
related with very little creative selling,
used for Write up of orders, for
checking invoices for accuracy, to assure
timely order processing and may use suggestive selling for different problems that is supporting the
customers in acquiring solution for problem.
h. The advantages of personal selling
The advantages of personal selling over the other promotion tools…
• It can be adapted for individual customers.
• It can be focused on prospective customers.
• It results in the actual sale, while most other forms of promotion are used in moving the
customer closer to the sale.
i. The disadvantages of personal selling
• The major disadvantages of the personal selling are:
• Expensive per contact
• Many sales calls may be needed to generate a single sale
• Labor intensive
• It is costly to develop and operate a sales force.
• It may be difficult to attract high-caliber people.
j. Types of the personal selling
There are two types of personal selling:
Supporting Supporting
Order-Taking Order-Taking
Order-Getting Order-Getting ?????? ?????? ??????
?????? ?????? ??????
?????? ?????? ??????
?????? ?????? ??????
?????? ?????? ??????
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The customers come to the salespeople.
Mostly involves retail-store selling. Most salespeople fall into this category.
The salespeople go to the customers.
Usually represent producers or wholesaling middlemen and sell to business users. Some outside
selling is relying more on telemarketing.
k. Characteristics of Professional Selling
Sales reps engage in a total selling job. Reps work closely with customers. Sales reps organize much
of their own time and effort. They often experience role ambiguity and role conflict.
l. Contributions of Personal Selling to Marketing:
Today, most professional salespeople are well-educated, well-trained men and women who work to
build long-term, value-producing relationships with their customers. They succeed not by taking
customers in but by helping them out—by
assessing customer needs and solving customer
problems. Success in a selling environment requires
careful teamwork among well-trained, dedicated
sales professionals who are bent on profitably
taking care of their customers
m. Changing patterns in personal selling
Traditionally, personal selling has been a face-toface,
one-on-one situation. But now new trends
and patterns are emerging which are:
–Selling Centers — Team Selling
–Systems Selling
–Global Sales Teams
–Relationship Selling
–Telemarketing
n. Salesperson Attributes:
Salesperson is an individual( like: Serving, and Information gathering Salespeople, sales
representatives, account executives, sales consultants, sales engineers, agents, district managers,
marketing representatives, account development reps, etc) acting for a company by performing one
or more of the following activities.
Salesperson is an individual acting for
a company by performing one or more
of the following activities:
Prospecting, The first step in the
selling process is prospecting—
identifying qualified potential
customers. Approaching the right
potential customers is crucial to selling
success. Than during the presentation
step of the selling process, the
salesperson tells the product "story" to
the buyer, showing how the product
will make or save money. The
salesperson describes the product features but concentrates on presenting customer benefits.
Competent Competent
Likable Likable
Customer-
Oriented
Customer-
Oriented
Dependable Dependable
Honest Honest
Producing
Sales
Revenue
Producing
Sales
Revenue
Meeting
Buyer
Expectations
Meeting
Buyer
Expectations
Providing
Marketplace
Information
Providing
Marketplace
Information
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Using a need-satisfaction approach, the salesperson starts with a search for the customer's needs by
getting the customer to do most of the talking. To be more effective in this process sales person
should possess certain attributes, they should be honest should be competent to demonstrate the
products and handle objections should be customer oriented so tat customers can be satisfied,
should possess the skills so that potential customers are ready to listen about the offered products.
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[bonddonraj]

Lesson – 36
Lesson overview and learning objectives:
Today, most companies use salespeople to bring their company’s offering to the consuming or
business publics. The salesperson’s role is a key one in the organization. The high cost of
maintaining a sales force means that management is especially interested in how to efficiently
organize this vital element.
Six basic steps or decisions are important to the sales management process. These are:
(a) Designing sales force strategy and structure.
(b) Recruiting and selecting salespeople.
(c) Training salespeople.
(d) Compensating salespeople.
(e) Supervising salespeople.
(f) Evaluating salespeople.
This Lesson thoroughly explains some of these steps and remaining steps will be discussed in
coming Lesson.
SALES FORCE MANAGEMENT
A. The Role of the Sales Force
Advertising consists of one-way, non personal communication with target consumer groups.
Personal selling involves two-way, personal communication between salespeople and
individual consumers. Personal selling can be more effective than advertising in more complex
selling situations. The role of personal selling varies from company to company. Some firms have
no salespeople at all. The sales force serves as a critical link between a company and its
customers. The salesperson can represent both buyer and seller. They represent company to the
customer and customers to the company. Salespeople are becoming more market-focused and
customer-oriented. The old view was that salespeople should be concerned with sales and the
company should be concerned with profit. The new view is that salespeople should be concerned
with more than just producing sales—they must know how to achieve customer satisfaction and
company profit.
B. The Personal Selling Process
The selling process consists of several steps that the salesperson must master. These steps focus on
the goal of getting new customers and obtaining orders from them. Most salespeople spend
much of their time in maintaining existing accounts and building long-term customer relationship.
These steps are:
1). Prospecting and qualifying. In this step the salesperson identifies qualified potential
customers.
2). Qualifying lead is the process of identifying good ones and screening out poor ones.
Prospects can be qualified by:
a) Financial ability.
b) Volume of business.
c) Special needs.
d) Location.
e) Possibilities for growth.
3). Reproach is the step in which the salesperson learns as much as possible about a
prospective customer before making a sales call.
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a). Set call objectives.
b). Consider timing.
c) Have a sales strategy.
4) During the approach step, the
salesperson should know how to meet the
buyer, make him satisfied and get the
relationship off to a good start.
5) The presentation and
demonstration is the step in which the
salesperson tells the product “story” to the
buyer, showing how the product will make
or save money for the buyer. A needsatisfaction
approach where the salesperson
investigates the buyer’s needs and then
matches the product to those needs is
advised.
6) Handling objections is the step in
the selling process in which the salesperson seeks out, clarifies, and overcomes customer
objections regarding buying.
7) Closing occurs when the salesperson asks the customer for an order. The techniques for
closing include:
a). Ask for the order.
b). Review points of agreement.
c). Offer to help in writing up the order.
d). Ask whether the buyer wants this model or that one.
e). Note that the buyer will lose out if the order is not placed now.
8). The follow-up occurs after the sale and ensures customer satisfaction.
C. Managing the Sales Force
Sales force management is the analysis, planning, implementation, and control of sales force
activities.
It includes:
1. Designing sales force strategy and structure,
2. Recruiting, selecting
3. Training
4. Compensating
5. Supervising
6. Evaluating the firm’s salespeople
a. Designing Sales Force Strategy and Structure
Marketing managers face several sales force strategy and design questions. How should
salespeople and their tasks be structured? Territorial sales force structure is a sales force
organization that assigns each salesperson to an exclusive geographic area and sells the company’s
full line products and services to all customers in that territory. Advantages include:
�� It defines the salesperson’s job.
�� The person gets credit for what they accomplish
�� person works in a territory
�� Increases the salesperson’s desire to build local business.
�� Traveling expenses are low (because of reduced territorial size).
Designing Sales force Strategy and Structure Designing Sales force Strategy and Structure
Recruiting and Selecting Salespeople Recruiting and Selecting Salespeople
Training Salespeople Training Salespeople
Compensating Salespeople Compensating Salespeople
Supervising Salespeople Supervising Salespeople
Evaluating Salespeople Evaluating Salespeople
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This form is often supported at various levels by managerial structure. Product sales force structure
is a sales force organization under which salespeople specialize in selling only a portion of the
company’s products or lines. Problems can occur if a single customer buys many different
products from the company. Extra costs of this method must be compared with the more
specialized product knowledge and extra attention to individual products. Customer sales force
structure is a sales force organization under which sales people specialize in selling only to certain
customers or industries. This form can help to become more customer focused. This form
carefully consider primary customers. Complex sales-force structure forms are usually deviations
of the basic three mentioned above where combinations occur. Each company should select a sales
force structure that best serves the needs of its customers and fits its overall marketing strategy.
Salespeople constitute one of the most productive and most expensive assets of the company.
Most companies use some form of workload approach to determine sales force size. The workload
approach is an approach of setting sales force size, whereby the company groups count into
different sizes and classes (or status) and then determines how many salespeople are needed to call.
The company may have an outside sales force (field sales-force) that travels to call on customers or
they can have an inside sales force which conducts business from their offices via telephone or
visits t the prospective buyers. To reduce time demands on their outside sales forces, many
companies have increased the size of their inside sales forces and have added:
1). Technical support people.
2). S ales assistants.
3). Telemarketers (using the telephone to sell directly to consumers).
The days when a single salesperson handled large and important customers are vanishing. Today,
team selling, using teams of people from sales, marketing, engineering, finance, technical support,
and even upper management to service large, complex accounts, is being used. A structure has to
be established that considers rewards and compensation if this method is to be effective.
In team selling situations, Pitfalls include:
a). Selling teams can confuse or overwhelm customers.
b). Salespeople may have trouble in learning to work with and trust others on a team.
c). There may be difficulties in evaluating individual contributions to the team selling effort.
b. Recruiting and Selecting Salespeople
At the heart of any successful sales force operation is the recruitment and selection of good
salespeople. Careful salesperson selection can greatly increase overall sales force performance.
There is no magic list of traits, however, that makes for a good salesperson.
These are the factors which should consider:
1). Enthusiasm.
2). Persistence.
3). Initiative.
4). Self-confidence.
5). Job commitment.
To recruit salespeople the organization can begin by getting recommendations from: current
salespeople, using employment agencies, placing ads in classified newspaper, contacting college
students.
The selection process usually evaluates:
1). Sales aptitude.
2). Analytical and organizational skills.
3). Personality traits.
4). And other characteristics.
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c. Training Salespeople
Many companies ignore the importance of training. Today, however, sales- people may spend
anywhere from a few weeks to many months in training. The average training period is four
months. Training programs usually have the following goals:
1). Help salespeople to know and identify with the company.
2).To knows how products are produced and how they work.
3) Knows about the competitor’s strategies and customer’s characteristics.
4). Learn how to make effective presentations.
5). Understand field procedures and responsibilities.
d. Compensating Salespeople
To attract salespeople, a company must have an appealing compensation plan.
Compensation is made up of the several elements:
1). A fixed amount, usually a salary, gives the salesperson a more stable income.
2). A variable amount, which might be commissions or bonuses, rewards a sales- person for
greater effort.
3). Expense allowances (which repay salespeople for job-related expenses) let salespeople
undertake needed and desirable selling efforts.
4). Fringe benefits provide job security and satisfaction.
Management must decide which of these elements (and which combination or amount) makes the
most sense for each sales job. The compensation plan can both motivate and direct a
salesperson’s work.
Basic methods include:
1) Straight salary
2) Straight commission
3) Salary plus bonus
4) Salary plus commission.
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Lesson – 37
SALES FORCE MANAGEMENT
DIRECT MARKETING
e) Supervising Salespeople
Through supervision, the company directs and motivates the sales force to do a better job. The
extent of the involvement of the sales management in helping salespeople to manage their
territories depending on a variety of factors:
1). Develop customer targets and call norms by dividing accounts into categories.
2). Develop prospect targets.
3). Using sales time efficiently. Aids can come from:
a). An annual call plan.
b). A time and duty analysis.
c). Technological equipment aids (such as cell phones, computers, and
sales force automation systems).
d).The fastest growing technology tool used by the sales force is the Internet.
Motivating the salespeople is one of the most important tasks of sales management.
Factors that should be considered in preparing a motivation plan and strategy include:
1) The organizational climate. This describes the feeling that salespeople have about their
opportunities, value, and rewards for a good performance within the company.
2). Sales quotas are standards set for salespeople, stating the amount they should sell and
how sales should be divided among the company’s products. Compensation is many times tied to
quotas.
3) The company can use several positive incentives to increase the sales force effort.
a). Sales meetings provide social occasions, breaks from routine, chances to meet and
talk with company managers, and opportunities to air feelings and to identify with a larger group.
b). Sales contests can also be used to spur the sales-force to make a selling effort
above what would normally be expected. Incentives could be:
• Honors.
• Merchandise and cash awards.
• Trips.
• Profit-sharing plans.
f) Evaluating Salespeople
Evaluating the salespeople is an important
process in the sales force management
function. This process requires good
feedback. Management gets information
about salespeople in several ways. A
company knowledgebase should include
sales performance by individual salespeople.
Feedback is an important aspect of formal
evaluation, followed by mutually agreed
remedies to problems. Benchmarking
between salespeople is good where there is
the ability to compare apples with apples in
terms of such factors as territory size or
Annual
Territory
Marketing Plan
Annual
Territory
Marketing Plan
Call
Reports
Call
Reports
Expense
Reports
Expense
Reports
Work
Plan
Work
Plan
Sales
Report
Sales
Report
Sources
of
Information
Sources
of
Information
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numbers of active customers.
1). an important source of information is the sales report (including call reports and expense
reports). Additions to this report can come from:
a). Personal observation.
b). Customer surveys.
c). Talks with other salespeople.
2). Salespeople are generally evaluated on their ability to “plan their work and work their
plan.”
D. Direct Marketing
Direct marketing consists of direct communications with carefully targeted individual consumers
to obtain an immediate response. Interactivity is essential to this process. The marketing manager
must remember that direct marketing is not new. Catalog companies, direct mailers, and
telemarketers have been using the approach for years. However, improved database technologies
and new media (computers, modems, fax machines, e-mail, the Internet, and online services) have
changed the direction and nature of direct marketing. Most direct marketers see direct marketing
as playing an even broader role than simply selling products and services. Mass marketing is
targeting broadly with standardized messages and marketing offers distributed through
intermediaries. Today, there is a trend toward more narrowly targeted or one-to-one marketing
(called direct marketing). This approach is being accepted as both a primary and supplemental
approach.
a. What is Direct Marketing?
Mass marketers have typically sought to reach millions of buyers with a single product and a
standard message delivered through the mass media. Under this mass-marketing model, most
marketing involved one-way Communications aimed at consumers, not two-way interactions with
them.
Direct marketing consists of direct communication with carefully targeted individual consumers to
both obtain an immediate response and cultivate lasting
Customer relationships. Direct marketers communicate directly with consumers, often on a oneto-
one, interactive basis. Today, improved databases permit more sophisticated direct marketing
and tailoring of marketing efforts. Beyond brand and image building, direct marketers seek a
direct, immediate, and measurable consumer response.
b. The New Direct Marketing Model
Early direct marketers--catalog companies, direct mailers, and telemarketers--gathered customer
names and sold goods mainly through the mail and by telephone. Today, advancement in database
technologies and new marketing media—especially the Internet and other electronic channels--
direct marketing has undergone a dramatic transformation. Direct marketing may be perceived as
being a distribution function (direct distribution) and a communication function (direct contact
with the consumer). Some firms use direct marketing as a supplemental medium. However, for
many companies today, direct marketing is more than just a supplemental channel or medium.
The Internet and electronic commerce now constitute a new and complete model for doing
business. Some say the Internet is the foundation for a new industrial order. Some firms (and the
number is growing) use the new direct model as their only approach. Experts envision the day
when all buying and selling will involve direct connections between companies and their
customers. The new model will change customer’s expectations about convenience, speed,
comparability, price, and service.
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c. Benefits and Growth of Direct Marketing
Direct marketing brings many benefits to both buyers and sellers. As a result, direct marketing is
growing very rapidly.
i. Benefits to Buyers
Direct marketing benefits buyers in many ways:
1). It is convenient.
2). Buying is easy and private.
3). Greater product access and selection.
4). Provides a wealth of comparative information.
5). Online buying is interactive and immediate.
ii. Benefits to Sellers
Sellers benefit by:
1). Direct marketing is a powerful tool for customer relationship building.
2). Direct marketing can also be timed to reach prospects at just the right moment.
3). Because of its one-to-one, interactive nature, the Internet is an especially potent
marketing tool. Continuous relationships can be developed.
4). Reduce costs and increase speed and efficiency.
5). Online marketing offers greater flexibility.
6). The Internet is a truly global medium.
d. The Growth of Direct Marketing
Sales through traditional direct marketing channels have been growing rapidly.
Sales through direct marketing channels are growing at about 8 percent annually (as compared to
only 6 percent overall sales growths). Online marketing is growing explosively. Sales on the
Internet have been growing at about 60 percent per year for the last five years. Trends that seem
to moving our society toward even more direct marketing include:
a). Degasification--focus is toward mini markets.
b). Lack of time and congestion. Higher costs of driving.
c).Growth of delivery services and the support infrastructure.
d). Growth of computer power and databases.
e) Growth has also occurred in the business-to-business sector.
e. Forms of Direct Marketing
Major forms of direct marketing are summarized below:
i. Face-to-Face Selling
The original and oldest form of direct
marketing is the sales. Today, many
companies’ still use salespersons or
representatives to reach their prospects,
develop them into customers, build lasting
relationships, and grow the business.
ii. Telemarketing
In telemarketing telephone is used to sell
directly to consumers. Two general types of
telemarketing include:
1). Outbound telephone marketing
to sell directly to consumers.
Direct
Mail
Kiosk
Marketing
Online
Marketing Telemarketing
Direct-Response
TV Marketing Catalog
Face-to-Face
Selling
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2). Inbound toll-free 800 numbers to receive orders from television and radio ads, direct
mail, or catalogs.
900 numbers are used to sell consumers’ information, entertainment, or the opportunity to voice
an opinion on a pay-per-call basis. Many customers appreciate the offers they receive by
telephone, however, because of the recent explosion in unsolicited telephone marketing,
lawmakers are responding with efforts to control unsolicited telemarketing during certain hours of
the day. Most telemarketers support some form of legislation.
iii. Direct-Mail Marketing
Direct mail marketing involves sending an offer, announcement, reminder, or other item to a
person at a particular address. Direct mail is well suited to direct, one-to-one communication.
Advantages include:
1). High target-market selection
2). Personalized.
3). Flexible.
4). Allows easy measurement of results.
Even though the cost per thousand can be high, the people who reached through direct marketing
are better prospects than those who reached with other media. New forms of direct mail include:
1). Fax mail.
2). E-mail.
3). Voice mail.
iv. Catalog Marketing
Catalog marketing involves selling through catalogs mailed to a selected list of customers or made
available in stores. A catalog is a printed, bound piece of at least eight pages, selling multiple
products, and offering a direct ordering mechanism. Some stores offer a complete line of goods
through their catalogs. Most direct retailers have put their catalogs on the World Wide Web. Web
catalogs are passive and must be marketed themselves.
v. Direct-Response Television Marketing
Direct-response television marketing takes one of two major forms.
1). Direct-response advertising occurs when marketers air television spots or
infomercials.
2). Home shopping channels are entire programs or channels dedicated to selling goods
and services.
In the near future, two-way interactive television and linkages with Internet technology will make
television shopping much different from what it is today and it will become one of the major
forms of direct marketing.
vi. Kiosk Marketing
Some companies place information and ordering machines (called kiosks) in stores, airports, and
other locations (in contrast to machines which dispense products--vending machines). Business
marketers can also use kiosks (such as at trade shows). Kiosks are also going online as companies
merge real-world and virtual worlds of commerce. The Gap interactive kiosk is a great example of
this technology.
vii. Online Marketing and Electronic Commerce
Online marketing is conducted through interactive online computer systems, which link
consumers with sellers electronically.
There are two types of online channels:
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1). Commercial online services offer information and marketing services to subscribers who
pay a monthly fee. The best known is America Online.
2). The commercial online services are now being overtaken by the Internet as the primary
online marketing channel. The Internet is a vast and burgeoning global web of computer
networks. The World Wide Web is a popular meeting place for consumer and business commerce.
• Rapid Growth of Online Marketing
Although still in their infancy, Internet usage and online marketing are growing explosively.
Electronic commerce is the general term for a buying and selling process that is supported by
electronic means. This would include electronic marketplaces (these are “market spaces” in
which sellers offer their products and services electronically, and buyers search for information,
identify what they want, and place orders using a credit card or other means of electronic
payment).
• The Online Consumer
The Internet user is not a pasty-faced computer nerd. As a whole, Internet users are an elite
group. They tend to be younger, more affluent, better educated, and more male than the general
population. However, female usage almost equals males. Net users come from all age groups,
about half are 40 years or older, they differ psycho graphically from the general population, and
they differ in their approaches to buying and in their responses to marketing. Teens are still a
targeted group. The seniors group is also expected to grow in the next several years.
• Creating Online Marketing
Marketers can conduct online marketing in four ways:
1).By creating an electronic online presence.
Using this method, a company can:
a). Buy space on a commercial online service.
b).Company can open its own Web site.
2). Web sites vary in purpose and content.
a).The most basic type is a corporate Web site. These sites are designed to handle
interactive communication initiated by the consumer. They seek to build customer good will and
to supplement other sales channels rather than to sell the company’s products directly.
b).The marketing Web site is designed to engage consumers in an interaction that will
move them closer to a purchase or other marketing outcome.
With this form of site, the marketer initiates communication and interaction.
3).Creating a Web site is one thing; getting people to visit the site is another. The key is to
create enough value and excitement to get consumers to come to the site, stick around, and come
back again. High involvement products (such as new cars, computers, or financial services) have
greater success than do lower involvement products.
The second method is to place advertisements online. Companies can place online
advertisement in several ways:
1) The company can put online ads that pop up while subscribers are surfing online services
or Web sites.
2). Content sponsorship allows a company to sponsor a specific report on one of the
services.
The third method is to participate in Forums, Newsgroups, and Web Communities.
1). Forums are discussion groups located on commercial online services.
2). Newsgroups are the Internet version of forums.
3). A Bulletin board system (BBS) is specialized online services that center on a specific
topic or group.
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4). Web communities are sites that provide a place where members can congregate online
and exchange views on issues of common interest. Visitors to these Net neighborhoods develop a
strong sense of community. Web communities can be either social or work-related.
The final method is to use E-mail and Web casting.
The normal method used is to encourage prospects and customers to send questions, suggestions,
and even complaints to the company via e-mail. Quick response to such messages is a key.
The Promise and Challenges of Online Marketing
Online marketing offers great promise for the future but is still years away from reaching its
potential. Online marketing is still just one important approach to the marketplace. The Web is
still not a moneymaking proposition for many firms.
Challenges that online marketers face include:
1). Limited consumer exposure and buying.
2). Skewed user demographics and psychographics.
3). Chaos and clutter.
4). Security.
5). Ethical concerns.
f. Customer Databases and Direct Marketing
There are differences between mass marketing and so-called one-to-one marketing. A
customer database is an organized collection of comprehensive data about individual customers
or prospects, including geographic, demographic, psychographics, and behavioral data. The
database can be used to locate potential customers, tailor products and services to the special needs
of targeted customers or/and maintain long-term customer relationships.
Database marketing is the process of building, maintaining, and using customer database and
other database for the purposes of contacting and transacting with customers. A customer
database is much more than just a list of names (i.e., customer mailing list). Business-to-business
marketers and service retailers most frequently use database marketing.
Companies use their databases in four ways:
1). Identifying prospects.
2). Deciding which customers should receive a particular offer.
3). Deepening customer loyalty.
4). Reactivating customer purchases.
Like many other marketing tools, database marketing requires a special investment.
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[bonddonraj]

Lesson – 38
Lesson overview and learning objectives:
Explain how companies use public relations to communicate with their publics. Public relations,
the final mass communication tool described in this chapter, is an attempt to build good relations
with the company’s various publics by obtaining favorable publicity, building up a good “corporate
image,” and handling or heading off unfavorable rumors, stories, or events. The organization has a
variety of tools at their disposal for accomplishing this feat. One of the overriding tasks of public
relations is to control the exposure and relationship with the mass media. By focusing on
consumer attitudes, awareness, and knowledge of the organization, the company is better prepared
to succeed. Public relations have even been extended to the Internet and companies are beginning
to explore ways to increase their effects on the newly emerging world of e-commerce.
A. DIRECT MARKETING
B. PUBLIC RELATIONS
A. Direct Marketing
a. Other Marketing Applications through Databases
Some of the important uses or advantages of using database market are as following:
• Match profiles to cross-sell other products to customers
• Modify marketing messages based on customer profiles
• Reach out to customers to reinforce the purchase decision
• Find new customers
• Gain insight into who is purchasing products
• Improve customer service
Beside uses database marketing also has some disadvantages like
�� Marketing databases can be costly and time consuming,
�� Databases need to be carefully planned
�� Consumer privacy issues.
b. Integrated Direct Marketing
Too often, a company’s individual direct marketing efforts are not well integrated with one another
or with other elements in its marketing and promotional mixes. A more powerful approach is
integrated direct marketing, which involves using multiple-vehicle, multiple-stage campaigns.
c. Public Policy and Ethical Issues in Direct Marketing
Direct marketers and their customers usually enjoy mutually rewarding relation-ships, however,
occasionally, a darker side emerges. Irritation, unfairness, deception, and fraud are common
complaints. Many consumers perceive that an innocent desire to become “close” to the customer
really is an invasion of privacy (this is the toughest issues facing the industry).
1). Consumers can benefit from database marketing, but at what cost to privacy?
2). in a company’s desire to build a database, they often get carried away.
3). in a recent survey, 79 percent of consumers expressed concern about their privacy. In
reality, direct marketing is just too expensive to waste on consumers who don’t want it.
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B. Public Relations
Public relations are very believable—news stories, features, and events seem more real and
believable to readers than ads do. Public relations can also reach many prospects who avoid
salespeople and advertisements—the message gets to the buyers as "news" rather than as a salesdirected
communication. As with advertising, public relations can dramatize a company or product.
Marketers tend to underused public relations or to use it as an afterthought. Yet a well-thought-out
public relations campaign used with other promotion mix elements can be very effective and
economical.
a. Public Relations
Public relations involves building good relations with the company’s various publics by obtaining
favorable publicity, building up a good corporate image, and handling or heading off unfavorable
rumors, stories, and events. Major functions are:
1). Press relations or press gentry.
2). Product publicity.
3). Public affairs.
4). Lobbying.
5). Investor relations.
6). Development.
Public relations are used to promote products, places, ideas, activities, organizations, even nations.
b. The Role and Impact of Public
Relations
Public relations can have a strong impact on
public awareness at a much lower cost than
advertising. Despite its potential strengths,
public relations are often described as a
marketing stepchild because of its limited and
scattered use. This may be changing, however.
Many companies today are looking for public
relations to take a more active role in
marketing and promotion planning.
Marketing public relations departments are
being formed. Public relation tools are being used by the companies in evaluating public attitudes,
identifying the issues of public concern and to execute the different programs that can gain public
acceptance. It means that the public relations is that marketing function which evaluates public
attitudes, identifies areas within the organization that the public may be interested in, and executes
a program of action to earn public understanding and acceptance.
c. Major Public Relations Tools
Major tools include:
1). News.
2). Speeches.
3). Special events (mobile
marketing).
4).Written materials (such as
annual reports, brochures, articles,
and company newsletters).
5). Audiovisual materials (such
as films, slide-and-sound programs,
video and audio cassettes).
Special
Events
Special
Events
Written
Materials
Written
Materials
Corporate
Identity
Materials
Corporate
Identity
Materials Speeches Speeches
News News
Audiovisual
Materials
Audiovisual
Materials
Public
Service
Activities
Public
Service
Activities
Web Site Web Site
Evaluates
public attitudes
Evaluates
public attitudes
Identifies
issues of public
concern
Identifies
issues of public
concern
Executes
programs to
gain public
acceptance
Executes
programs to
gain public
acceptance
The Role of
Public
Relations
The Role of
Public
Relations
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6) Corporate identity materials (such as logos, stationery, brochures, signs, business forms,
business cards, buildings, uniforms, and company cars and trucks).
Companies also improve public relations by contributing time and money to public service
activities. A company’s Web site can be a good public relations vehicle. Consumer and members of
other publics can visit the site for information and entertainment. Major public relations decisions
include:
1). Setting public relations objectives.
2). Choosing public relations messages and
vehicles.
3). Implementing the public relations plan.
4). Evaluating the results.
d. Major Public Relations Decisions
As shown in the fig major public relation decisions
are:
Setting Public relations objective that means deciding
what are the results that the companies want to
achieve by using public relation tools, than second
step is choosing the message that companies can
communicate to public to fulfill the role of public
relation, next step of this system is implementation of
the program and finally evaluation of the program in
order to judge the success level of public relations
tools used.
e. Publicity
Public information is information about a company’s goods or services appearing in the mass
media as a news item. Stimulation of demand for a good, service, place, idea, person, or
organization by unpaid placement of commercially significant news or favorable media
presentations. Publicity is more credible to consumers than any other promotional mix element
Although publicity is generally thought of as not paid for, firms incur publicity-related expenses
that include the cost of employing marketing personnel assigned to create and submit publicity
releases, printing and mailing costs, and related expenses.
Setting Public Relations Objectives Setting Public Relations Objectives
Choosing the Public Relations Messages
and Vehicles
Choosing the Public Relations Messages
and Vehicles
Implementing the Public Relations Plan Implementing the Public Relations Plan
Evaluating Public Relations Results Evaluating Public Relations Results
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[bonddonraj]

Lesson – 39
KEY TERMS
Advertising: Any paid form of non personal presentation and
promotion of ideas, goods, or services by an
identified sponsor.
Personal selling: Personal presentation by the
firm's sales force for the purpose of making sales
and building customer relationships.
Sales promotion: Short-term incentives to
encourage the purchase or sale of a product or
service.
Public relations: Building good relations with the company's various
publics by obtaining favorable publicity, building up
a good corporate image, and handling or heading off
unfavorable rumors, stories, and events.
Direct marketing: Direct connection with
carefully targeted individual consumers to both
obtain an immediate response and cultivate lasting
customer relationships—the use of telephone, mail,
fax, e-mail, the Internet, and other tools to
communicate directly with specific consumers.
Personal Communication Channels: In personal communication channels, two or more
people communicate directly with each other.
Non-personal Communication Channels: Non personal communication channels are media
that carry messages without personal contact or
feedback.
Public Relations: Public relations involves building good relations
with the company’s various publics by obtaining
favorable publicity, building up a good corporate
image, and handling or heading off unfavorable
rumors, stories, and events.
Advertising: can reach masses of geographically dispersed buyers
at a low cost per exposure, and it enables the seller
to repeat a message many times
Publicity Public information is information about a
company’s goods or services appearing in the mass
media as a news item. Stimulation of demand for a
good, service, place, idea, person, or organization by
unpaid placement of commercially significant news
or favorable media presentations.
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Sales Promotion: Sales promotion consists of short-term incentives to
encourage the purchase or sale of a product or service.
Whereas advertising and personal selling offer reasons to
buy a product or service, sales promotion offers reasons to
buy now.
Catalog Marketing: Catalog marketing involves selling through catalogs mailed to
a select list of customers or made available in stores
Kiosk Marketing: Some companies place information and ordering machines
(called kiosks) in stores, airports, and other location
Database marketing is the process of building, maintaining, and using
customer databases and other databases for the purposes of
contacting and transacting with customers.
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[bonddonraj]

Lesson – 40
Lesson overview and learning objectives:
Basic learning objective of today’s Lesson is to discuss the need to understand competitors as well
as customers through competitor analysis. Explain the fundamentals of competitive marketing
strategies based on creating value for customers. Two key trends in marketing for the twenty-first
century are:
(a) The trend towards the use of relationship marketing to improve customer satisfaction.
(b) The trend towards in-depth competitor analysis as a means of identifying the company’s major
competitors (using both an industry and market-based analysis) and closely examining and
formulating strategies to deal with competitors’ objectives, strategies, strengths and weaknesses,
and reaction patterns.
CREATING COMPETITIVE ADVANTAGE
To be successful, a company must consider its competitors as well as its actual and potential
customers. In the process of performing a competitor analysis, the company carefully analyzes and
gathers information on competitors’ strategies and programs. A competitive intelligence system
helps the company to acquire and manage competitive information. The company must then
choose a competitive marketing strategy of its own. The strategy chosen depends on the
company’s industry position and its objectives, opportunities, and resources. Several basic
competitive strategies are outlined in this chapter. Some of these are time-tested and some are
relatively new.
Four primary competitive positions are reviewed in the Lesson.
The first is that of the market leader which faces three challenges: expanding the total market,
protecting market share, and expanding market share. The market leader is interested in finding
ways to expand the total market because it will benefit from any increased sales. The leader must
also have an eye towards protecting its share. Several strategies for accomplishing this protection
task are presented. Aggressive leaders also try to expand their own market share.
The second position is that of the market challenger. This is a firm that aggressively tries to
expand its market share by attacking the leader, other runner-up firms, or smaller firms in the
industry.
The third position is that of the market follower which is designated as a runner-up firm that
chooses not to rock the boat (usually out of fear that it stands to lose more than it might gain).
Lastly, the market niche is a position option open to smaller firms that serve some part of the
market that is not likely to attract the attention of the larger firms. These firms often survive by
being specialists in some function that is attractive to the marketplace.
The competitive analysis of these four competitive position options presented in this chapter is a
truly unique presentation and offers insight for every potential manager. This information can be
used by every mid-level strategic planner who seeks insight into competitive strategy dynamics.
A. Competitive Advantage:
Today’s companies face their toughest competition ever. To win in today’s marketplace,
companies must become adept not just in managing products, but in managing customer
relationships in the face of determined competition. Building profitable customer relationships
and gaining competitive advantage requires delivering more value and satisfaction to target
customers than competitors do. Two steps must be taken in order to deal effectively with
competitors and their strategies:
1). the first step is competitor analysis where the company goes through the process of
identifying, assessing, and selecting key competitors.
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2). the second step is competitive marketing strategies where the company strongly positions
itself against competitors and finds a way to give itself the greatest possible competitive
advantage.
a. Competitor Analysis
To plan effective marketing strategies, the company needs to find out all it can about its
competitors. In this way the company can find the areas of potential competitive advantage and
disadvantage.
i. Identifying Competitors
Competitors include those who make similar products and services and sell them to the same
customers at similar prices. Competitors can be:
1). those that make the same product or class of products.
2). those that supply the same services.
3). those that compete for the same consumer dollars.
Companies must avoid “competitive myopia” (seeing only one set of competitors). Companies can
identify their competitors from the industry point of view or the market point of view. One
approach is to profile the company’s direct and indirect competitors by mapping the steps buyers
take in obtaining and using the product (i.e., a competitor map).
ii. Assessing Competitors
It is important to determine the objectives of the competition. It is important to determine the
importance a competitor places on:
1). Current profitability.
2). Market share growth.
3). Cash flow.
4). Technological leadership.
5). Service leadership.
6). other goals.
The more that one firm’s strategy resembles another firm’s strategy, the more the two firms
compete. Strategic groups should be identified. A strategic group is a group of firms in an industry
following the same or similar strategy in a given target market.
A). There is often rivalry among groups.
b). All dimensions must be examined to identify the correct strategic group.
Assessment of strengths and weaknesses should be accomplished. Benchmarking is the process of
comparing the company’s products and processes to those of competitors or leading firms in
other industries to find ways to improve quality and performance. A company also wants to know
what a competitor will do in a certain situation. Each competitor normally reacts differently.
iii. Selecting Competitors to Attack and Avoid
It is very important that a company have an idea of how to select competitors to attack and avoid.
Strong or weak competitors may be attacked. Weak competitors are easier targets but less
profitable. Succeeding against stronger competitors often provides greater returns. A useful tool
for assessing competitor strengths and weaknesses is customer value analysis. The aim of customer
value analysis is to determine the benefits that target customer’s value and how customers rate the
relative value of various competitors’ offers.
Steps in conducting customer value analysis include:
• Identify the major attributes that customer’s value and the importance customers place on
these attributes.
• Assess the company’s and competitors’ performance on the valued attributes.
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Close or distant competitors may be targeted. A company really needs and benefits from
competitors.
Benefits of competition include:
• Competitors may help to increase total demand.
• They may share the costs of market and product development and help to legitimize new
technologies.
• They may serve less-attractive segments or lead to more product differentiation.
• They lower the antitrust risk and improve bargaining power versus labor or regulators.
A company may not view all competitors as beneficial. “Good” or “bad” competitors also provide
opportunities and different threats. Good competitors play by the rules of the industry while bad
competitors break the rules.
b. Designing a Competitive Intelligence System
The company must design a broad competitive strategy by which to gain competitive advantage.
No one strategy, however, is best for all companies. The competitive intelligence system does the
following:
• Identifies the vital types of competitive information and the best sources of this
information.
• The system continuously collects information from the field and from published data.
• The system checks the information for validity and reliability, interprets it, and organizes it
in an appropriate way.
• It sends key information to relevant decision makers and responds to inquiries from
managers about competitors.
c. Competitive Strategies
i. Approaches to Marketing Strategy
No one strategy is best for all companies. Companies differ on how they approach the strategy
planning process. Approaches to marketing strategy often pass through three stages:
1). Entrepreneurial marketing—companies started by individuals.
2). Formulated marketing—as small companies achieve success, they inevitably move
toward more formulated marketing (formulated marketing strategies).
3). Entrepreneurial marketing—companies that became lost and re-established themselves
with the entrepreneurial spirit and actions that made them successful in the first place.
ii. Basic Competitive Strategies
Basic competitive positioning winning strategies include (as suggested by Michael Porter):
1). Overall cost-leadership—cost-leadership is gained by being the lowest-cost producer in
the industry. This affords the company flexibility in responding to competitive moves by always
being able to offer the lowest price to the consumer. This strategy usually wins the company a
large market share.
2). Differentiation—this strategy creates competitive advantage by offering products with
unique customer benefits or features not available from competitive offerings. Here the company
concentrates on creating a highly differentiated product line and marketing program so that it
comes across as the leader in the industry. This image helps it to compete against lower cost rivals.
3). Focus—this narrow-focus strategy achieves competitive advantage by
concentrating on narrow segments of a larger market. Emphasis is often on quality or benefits in
tightly defined market sub segments.
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Firms that do not pursue a clear strategy (a losing strategy) are called middle-of-the-readers.
According to Porter, these firms do the worst in competitive struggles. Another set of strategies
based on what they call value disciplines are:
1). Operational excellence—the company provides superior value by leading its industry in
price and convenience.
2). Customer intimacy—the company provides superior value by precisely
Segmenting its markets and tailoring its products and services to match
Exactly the needs of targeted customers.
3). Product leadership—the company provides superior value by offering a
Continuous stream of leading-edge products or services that make their own and
competing products obsolete.
iii. Competitive Positions
Firms competing in a given target market, at any point in time, differ in their objectives and
resources. These firms might take four different forms:
1). Market leader—the firm with the largest market share.
2). Market challenger—the runner-up firm, fighting to overtake the leader.
3). Market follower—the firm that also has runner-up status but seeks to maintain share
and not rock the boat.
4). Market niche—the firm that serves small segments that the other firms overlook or
ignore.
iv. Market Leader Strategies
Market leader strategies—most industries contain an acknowledged market leader. The leader has
the largest market share and usually leads the other firms in price changes, new product
introductions, distribution coverage, and promotion spending. Competitors focus on the leader as
a company to challenge, imitate, or avoid. To remain number one, leading firms may take any of
three actions.
A). Expanding the total demand—the leader gains the most when the market
expands.
1. New users can be attracted from those who are still unaware of the
product.
2. New uses can be discovered and marketed to increase purchase.
3. More usage strategies aim at convincing buyers to use the product more
often and in greater amounts for each existing usage occasion.
B). Protecting market share.
1. Prevent or fix weaknesses that provide opportunities for competitors.
2. The best defense is a good offense, and the best response is continuous
innovation.
3. Increase competitive effectiveness and value to customers.
C). Expanding market share—sometimes the leaders can expand their relative market
share. If this expansion comes in the served market then even small increases in share can lead to
large increases in profitability.
v. Market Challenger Strategies
These firms are usually the second, third, or lower in an industry. These runner-up firms can
adopt one of two competitive strategies:
• They can challenge the leader and other competitors in an aggressive bid for
more market share (market challengers).
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• They can play along with competitors and not rock the boat (market followers.
A market challenger must first define the strategic objective and competitor. The market
challenger must decide from among the following strategies:
A). Attack the leader.
b). Avoid the leader.
c). Attack other firms.
d). Acquire smaller firms.
Choosing an attack strategy. The options available are:
A). Frontal attack. Strong challengers sometimes match the market leader’s product,
advertising, price, and distribution efforts. It strengths rather than weaknesses.
b). Indirect attack. Attack competitive weaknesses or on gaps in the competitor’s market
coverage.
c). Diversify into unrelated products or leapfrog into new technologies to replace
existing products.
vi. Market Follower Strategies
Market follower strategies—not all runner-up companies want to challenge the market leader. The
follower can learn from the leader’s successes and failures and copy or improve on the leader’s
product and programs, usually with less investment. This might be called following closely. The
follower must also be aware of attacks from challengers. The follower must keep costs low and its
product quality and services high, look for new markets as they open. This might be called
following at a distance.
vii. Market Niche Strategies
Market niche strategies—mass marketers achieve high volume, the niche achieves high margins.
These firms have limited resources. These firms usually know their markets very well. The key idea
in nichemanship is specialization. They look for markets that are safe and profitable. The niche can
specialize along any of several market, customer, product, or marketing mix lines (Risks are often
overcome by multiple nicking).
a). End-user specialist.
b). Customer-size specialist.
c). Specific-customer niche.
d. Balancing Customer and Competitor Orientations
Organizations must continually adapt their strategies to fit the fast-paced and ever-changing
environment. A competitor-centered company is one that spends most of its time tracking
competitors’ moves and market shares and trying to find strategies to counter them.
1). Advantages include:
A). A fighter orientation.
b). Alertness.
2). Disadvantages include:
A). the company becomes too reactive.
b). Strategy is built on what others do. Bases goals on what others do.
c). Lessens innovation. It only matches or extends what others does.
Customer-centered company focuses more on customer developments in designing strategies.
1). in a better position to identify new opportunities and set long-run strategies that make
sense.
2). It can concentrate on serving the needs of important customer groups.
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Market-centered companies are ones that watch both their customers and their competition.
Companies have moved through four orientations over the years:
1). Product-oriented—pay little attention to either customers or competitors.
2). Customer-oriented—started to pay attention to customers.
3). Competitor-oriented—when they started to pay attention to customers, they became
competitor-oriented.
4). Market-oriented—this advanced form balances attention between customers and
competition. This method finds new ways to deliver satisfaction to customers and, therefore,
overcomes competition. Find innovative ways to deliver more value than competitors do.
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d). Geographic market specialist.
e). Quality-price niche.
f). Service

 

[bonddonraj]

Lesson – 41
Lesson overview and learning objectives:
Discuss the global marketing environment, the international trade system and the economic,
political-legal, and cultural environments that affect marketing decisions. Outline the key elements
of deciding whether to go international, deciding which markets to enter, and deciding how to
enter the market, either through exporting, joint venturing, or direct investment. Explain the
primary issue of deciding on the global marketing program, whether to use a standardized or
adapted marketing mix, or some combination of the two. Distinguishing among the ways
companies manage their global marketing organizations, through export departments, international
divisions and becoming a global organization.
A. GLOBAL MARKETING
Companies today can no longer afford to pay attention only to their domestic market, no matter
how large it is. Many industries are global industries, and those firms that operate globally achieve
lower costs and higher brand awareness. At the same time, global marketing is risky because of
variable exchange rates, unstable governments, protectionist tariffs and trade barriers, and several
other factors. Given the potential gains and risks of international marketing, companies need a
systematic way to make their international marketing decisions. The company must understand
the international marketing environment.
The l990s mark the first decade in which companies around the world must start thinking globally.
Time and distance are shrinking rapidly with the advent of faster communication, transportation,
and financial flows. Products developed in one country are finding enthusiastic acceptance in
other countries. Domestic companies that never thought about foreign competitors suddenly find
these competitors in their own backyards. The firm that stays at home to play it safe not only
might lose its chance to enter other markets but also risks losing its home market. A company
faces six major decisions in international marketing.
a. Getting involved in international marketing:
Before getting involved in
the international marketing
some important aspects
should be considered by the
organization, these include
the basic decisions that why
should we go international
than in which specific market
to enter, how to reorganize
the resources and the impact
of the international
operations on local or
domestic operations should
also be considered major
decisions that company takes
in involving into
international marketing are:
Major International Marketing Decisions:
1. Understanding - comes from looking at the international marketing environment.
Multinational companies operating in many countries have proliferated and in a global
economy more companies must consider international markets if they are to grow.
DO WE GET
INVOLVED IN
INTERNATINAL
MARKETING?
IF YES,
WHICH
MARKETS?
HOW MUCH
COMMITMENT
IN EACH
MARKET?
HOW SHOULD
WE
REORGANIZE
OUR
OPERATIONS?
IMPACT ON
DOMESTICBASED
MARKETING?
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2. Deciding - whether to go abroad may be the best growth opportunity, even for relatively small
companies. More foreign markets can increase volume.
3. Which Markets - to enter is also based upon environmental conditions.
4. How to Enter - involves choices about how to compete.
5. The Marketing Program - appropriate to international markets includes variations on the
product and promotion.
6. The Marketing Organization - choices available in international marketing include export
department, international division, and global organization.
b. LOOKING AT THE GLOBAL MARKETING ENVIRONMENT
i. Globalization
A myriad of forces are coming together in the late 1990's which are triggering the globalization of
industries, companies and individuals. Trade blocks are forming which are consolidating market
regions; global communications and media are bringing information, services, cultures and brands
to all corners of the world. Industries such as finance, computers, telecommunications and media
have become global.
ii. International Trade System
Trade system concerns identify opportunities and obstacles for US firms abroad. Companies
should investigate tariffs (taxes on imported goods), quotas (which restrict import amounts), and
other obstacles such as non-tariff barriers that may affect ability to compete.
1. The General Agreement on Tariffs and Trade - GATT: This is a 45-year-old treaty designed to
promote world trade by reducing tariffs and other international trade barriers.
2. Regional Free Trade Zone: Certain countries have formed free trade zones or economic
communities–groups of nations organized to work toward common goals in the regulation of
international trade. One such community is the European Community (EC)
When selling aboard, the firm faces various restrictions. Examples are:
1). A tariff is a tax levied by a government against certain imported products, which is designed
to raise revenue or to protect domestic firms. This is the most common barrier. The tariff may
be designed either to raise revenue or to protect domestic firms.
2). A quota is a limit on the amount of goods that an importing country will accept in certain
product categories. It is designed to conserve on foreign exchange and to protect local industry
and employment.
3). An embargo is a ban on the import of a certain product (the strongest form of quota).
4). Exchange controls are limits placed by a government on the amount of its foreign exchange
with other countries and on its exchange rate against other countries.
5). Non tariff trade barriers are no monetary barriers to foreign products, such as biases against a
foreign company’s bids or product standards that go against a foreign company’s product features.
c. Looking at the Global Marketing Environment
i. Economic Environment.
Concerns relate to the industrial structure of the host country. Subsistence and raw-material
exporting countries may be limited markets for some kinds of consumer goods.
ii. Political/Legal Environments.
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Regulations and government attitudes vary from country to country and in each country in their
attitude toward foreign firms. Scrutiny of legal regulation is a must. At least four political—legal
factors should be considered when considering whether to do business in a given country.
1. Attitudes towards international buying: Some nations are quite receptive to foreign firms and
others are quite hostile.
2. Political Stability: Stability is another issue. Governments change hands, sometimes violently.
Even without a change a government may decide to respond to new popular feelings.
3. Monetary Regulations: Firms need to assess the government and currency regulations within a
country to determine if any restrictions exist and if they will play a negative role in the
international business in that country. Besides currency limits, a changing exchange rate also
creates high risks for the seller. International trade usually involves cash transactions; however
in some instances a barter system can be developed, this practice has been called counter trade
and now accounts for about 25% of all world trade.
iii. Cultural Environment.
Cultural differences are very important in international marketing. Most advertising and even
product images are culturally based and may be inappropriate, ineffective, and even offensive in
another culture. Care is required.
d. DECIDING WHETHER TO GO INTERNATIONAL
Not all companies need to venture into foreign markets to survive. For example, many companies
are local businesses that need to market well only in the local marketplace. However, companies
that operate in global industries, where their strategic positions in specific markets are affected
strongly by their overall global positions, must think and act globally. Any of several factors might
draw a company into the international arena. International competitors might attack the
company’s domestic market by offering better products or lower prices. The company might want
to counterattack these competitors in their home markets to tie up their resources. Or the
company might discover foreign markets that present higher profit opportunities than the
domestic market does. The company’s domestic market might be shrinking, or the company
might need an enlarged customer base in order to achieve economies of scale. Or it might want to
reduce its dependence on any one market so as to reduce its risk. Finally, the company’s
customers might be expanding abroad and require international servicing.
e. DECIDING WHICH MARKETS TO ENTER
Before going abroad, the company should try to define its international marketing objectives and
policies. First, it should decide what volume of foreign sales it wants. Second, the company must
choose how many countries it wants to market in. Third, the company must decide on the types of
countries to enter. Possible international markets should be ranked on several factors, including
market size, market growth, and cost of doing business, competitive advantage, and risk level.
f. DECIDING HOW TO ENTER THE MARKET
i. Exporting.
Exporting may be of two kinds.
1. Indirect Exporting: works through independent international intermediaries and involves less
investment by the exporter.
2. Direct Exporting: involves more risk and investment as the firm sets up its own presence in
the host country but the potential return is also greater.
ii. Joint Venturing.
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Firms have four types of joint venture available to them.
1. Licensing: occurs when a company enters into an agreement with a licensee in the foreign
market. Licensing means little risk but also little control.
2. Contract Manufacturing: arranges for a foreign producer to make products in the host country
for that market.
3. Management Contracting: has the exporting firm provide the management team with the host
country supplying the capital.
4. Joint Ownership consists: of one company joining with another in the host country to create
a local business in which they share owner ship and control.
iii. Direct Investment
Direct investment occurs when the exporting firm enters a foreign market by developing foreignbased
assembly or manufacturing facilities.
g. DECIDING ON THE INTERNATIONAL MARKETING PROGRAM
Global or multinational?
Although the issue
has been vigorously
debated, there is
increasing recognition
that a global strategy
can possess sufficient
flexibility to have a
standardized business
strategy and yet still
market and deliver
products adapted for
many different
markets.
i. Product Strategies.
1. Straight Product Extension: involves marketing a product in the foreign market without
making any changes. Some products may have very strong brand awareness and already be
desired as is in the new market.
2. Product Adaptation: involves changing the product to meet local conditions or wants. Often
product forms need to be altered. Size and tastes, for example, are usually at least partially
preferred on some culturally related dimensions.
3. Product Invention: consists of creating something entirely new for the foreign market.
ii. Promotion
1. Communication Adaptation: is often required. Although some companies can use a single
theme and meaning internationally, it is often the case that the local variation on even a
universal theme may require some modification. Also, media vary in the reach and
effectiveness, even their availability.
2. Dual Adaptation: involves a combination of promotion and product alternations for the
foreign market.
iii. Price
S tra ig h t
E x te n s io n
C o m m u n ic a tio n
A d a p ta tio n
P ro d u c t
A d a p ta tio n
D u a l
A d a p ta tio n
Promotion
D o n ’t C h a n g e
P ro d u c t
A d a p t
P ro d u c t
P ro d u c t
D o n ’t
C h a n g e
P ro m o tio n
A d a p t
P ro m o tio n
P ro d u c t In v e n tio n
D e v e lo p N ew P ro d u c t
F iv e In te rn a tio n a l P ro d u c t a n d
P ro m o tio n S tra te g ie s
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International pricing: Regardless of method used to calculate prices, they will probably be higher
than domestic prices. Issues relate to transfer pricing, dumping (The controversial trade practice
of selling a product in a foreign market at a lower price than it commands in the producer’s
domestic market.) and grey market.
iv. Distribution channels
1. Whole-channel view: This view involves designing channels that take into account all
the necessary links in distributing the seller’s products to final buyers, including the
seller’s headquarters organization, channels between nations and channels within
nations.
h. THE GLOBAL STRATEGY FRAMEWORK
i. Three Step Global Strategy
Every industry has aspects that are global or potentially global - global meaning that there are inter
country connections. A strategy is global to the extent that it is integrated across countries. George
Yip suggests that a total global strategy usually has three separate steps or components:
1. Step one is the development of a core strategy which is the basis of the firm’s competitive
advantage.
2. Step two involves the internationalization of the strategy through expansion of activities and
adaptation of the core strategy to several country markets.
3. Step three integrates the strategy across countries. At this stage globalization is achieved. This
involves managing for worldwide business leverage and competitive advantage.
ii. Globalization strategy
1. Market participation relates to the choice of country markets and the level of activity in these
countries.
2. Product/Service standardization involves the extent to which standardization or differentiation
exists in each country.
3. Location of value adding activities requires choices of location of each of those activities in the
business's value chain from R & D to service back-up.
4. Marketing involves choices about worldwide use of brand names, advertising, sales strategies
and service.
5. Competitive moves relate to the extent to which moves in specific countries form part of a
global competitive strategy.
i. DECIDING ON THE MARKETING ORGANISATION
i. Export Department.
During early international marketing efforts, companies typically just create a new department to
coordinate international operations. The sales manager may take on larger staff if and as the
international business grows in importance and more marketing services are needed to support it.
ii. International Division.
As the level of involvement in and complexity of international operations increases, companies
commonly organize an international division. In addition to running international operations, the
division oversees strategic growth and investigates different types of foreign entry opportunities in
new countries. Operating units in foreign markets under division control may be organized by
geographical organization, world product groups, or international subsidiaries.
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iii. International Organization.
For many large companies, the scope of operations grows to the point where they are no longer a
firm involved in many foreign markets, they are a truly a multinational company. Recruitment,
management, suppliers, manufacturing, and financing are no longer linked to a single-country
mentality. The entire world becomes a single market whose segmentation is base upon strategic
and tactical competitive advantage, not national affiliation.
j. BASIC COMPETITIVE STRATEGY PROFILES
i. Global Leader Strategy
Innovator in technologies, products and markets with high global share and wide country market
coverage
ii. Global Challenger Strategy 1
Frontal or encirclement attack on the leader in all markets with increasing country market coverage
and high global share but less than the leader.
iii. Global Challenger Strategy 2
Flanking or bypassing world leader with increasing country market coverage and high global share
but less than the leader.
iv. Global Follower Strategy
Rapid imitation of leader or challenger with moderate country market coverage and emphasis on
price sensitive markets. The result is overall moderate share with high shares in selected country
markets.
v. Global Niche Strategy 1
Rapid penetration of narrow market segments by selective targeting of country markets and small
share of overall market.
vi. Global Niche Strategy 2
Infiltration - slow penetration of selected narrow markets with focus on selected country markets
and low share of the overall market.
vii. Global Collaborator Strategy
Innovations in research and development of technologies, products and markets, set standards and
shares them with other firms. This shows small or moderate country market shares but high shares
when all strategic "standards users" are included.
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Internet Internet
Postal Service Postal Service
Television Television
Telephone Telephone
Radio Radio

 

[bonddonraj]

Lesson – 42
After today’s Lesson students should be able to explain the importance of the E. Marketing,
benefits of using internet as a tool to reach the customers, and at the same time a tool to do
business in more effective and time saving way.
A. E-MARKETING
a. Internet Marketing:
Internet was used for the first time in 1982. It began to expand in 1991 with the World Wide Web.
Internet technologies pose managerial implications to business. Marketers are using internet as very
effective tool of marketing
b. Major Forces Shaping the Digital Age:
Digitalization and Connectivity: The flow of digital information requires connectivity which is best
provided by the Intranets, Extranets, and the Internet. The Internet explosion is the key driver of
the “new economy”. New types of the intermediaries are also playing important role in the shaping
of digital age
c. The Role of the Internet in Marketing:
Internet is very important tool in marketing.
It is useful for marketers in different ways
like:
• It is the fastest growing
communication technology.
• Within the first five years, 50 million
people were connected.
• Capable of interactively sharing
information in real time.
Internet is a new tool to reach consumers
initially different tools like telephone, postal
services, radio and televisions were used as a
source to communicate to consumers but
now days along with these tools internet is
also being used as a source to reach and to communicate to customers/consumers. Using internet
companies can provide their information to customers through websites, search engines can be
used to coordinate the consumers and producers, customers can used the e. mails to connect to
the producers. Customers
and consumers not only
acquire information through
internet but also can make
online purchases by placing
orders to desired producers,
it provides convenience and
time saving for both
The Internet Presence
Engage in interactive, personalized communications Engage in interactive, personalized communications
E-mail E-mail Web Sites Web Sites On-line
Banner Ads
On-line
Banner Ads
Virtual storefronts and inventory systems Virtual storefronts and inventory systems
Easy access to
delivery info
Easy access to
delivery info
Lower storage
costs
Lower storage
costs
Reduces
Inventory
Reduces
Inventory
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Internet
Marketing
Objectives
Internet
Marketing
Objectives
Sales Level Sales Level
Repeat Purchase Repeat Purchase
Market Positioning Market Positioning
Image Image
Brand Awareness Brand Awareness
On-Line Market Share On-Line Market Share
consumers and producers, as shown in the
fig. Companies can reduce their need of
inventory stocks by using the inventory
systems. Online banners, ads, website and e.
mails can be used as personalized
communication tools.
d. Electronic Commerce
• E-Commerce- The process of
conducting business transactions over
electronic networks, mostly the
Internet
• E-Marketing : The process of utilizing Information Technology in the conception,
distribution, promotion, and pricing of goods, services, and ideas to create exchanges that
satisfy individual and organizational objectives
• E-Business: The use of Information Technology in all business tasks including
production, marketing, accounting, finance, and human resources management
Basic objective of the marketing is to use of 4 “P’s” to meet customer’s needs. This objective is
best achieved by using E. marketing in Supply Chain Management. Technology can be used to
increase efficiency of marketing and increases company profitability and adds customer value
e. Rules of E-Marketing:
General rules of E. Marketing are:
1. Power Shift from sellers to buyers
2. Increasing Velocity
3. Death of Distance
4. Global reach
5. Time compression
6. Knowledge management is key
7. Market deconstruction
8. Intellectual capital rules
f. Buyer Benefits of E-Commerce
• Convenience
• Easy and private
• Greater product access/selection
• Access to comparative
information
• Interactive and immediate
g. Seller Benefits of ECommerce:
• Relationship building
• Reduced costs
• Increased speed and efficiency
• Flexibility
• Global access, global reach
Business-to-Consumer
(B2C)
Business-to-Consumer
(B2C)
Basic Forms
of
Electronic
Commerce
Basic Forms
of
Electronic
Commerce
Business-to-Business
(B2B)
Business-to-Business
(B2B)
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h. Basic-Forms
i. Virtual Business:
There are two types of the electronic
commerce one is termed as business to
business and second is termed as
business to business electronic
commerce. As the term indicates
business to consumer commerce mean
consumer acquires product through
electronic commerce for consumption
purpose while for business to business
commerce is used to sale the product
for further business processes. What
ever is the type of commerce it requires connection between the two parties which are buyer and
the seller. This connection and the interaction are provided by the virtual communities.
Manufacturers or sellers can use the bulletin boards, chat rooms, newsletters and discussion lists
for communication process that can facilitate the exchange process between the buyers and the
sellers. Major source of effectiveness of this system is dependent upon the internet technology that
is changed the world into global village.
j. Key Success Factor for Internet Businesses
Success of the internet business depends upon the offer of value and customer driven products
adjusting the prices according to products values, going for specific customers instead of the mass
marketing, distributing the products according to customer’s convenience. Designing the
marketing mix that is 4ps in that way which is beneficent for both customers and producers.
k. Internet Marketing Objectives
As shown in the fig the main objectives of the internet marketing are, to have online market share,
to increase the sales level, make customers to make repeat purchases, market positioning, image
building of the company and creation of awareness regarding the brand of the company this can be
created by using different online promotional tools on internet that include bulletin advertisement,
button advertisement, targeted E. mail etc. By using these tools phenomenon of the digital world is
being created. Basic concept of the phenomenon is to provide the value products to the customers
with speed. Pakistani manufacturers/ producers can use the internet technologies for the
development of the businesses.
Some advantages that can be achieved by using internet include:
�� it can be used as a tool to do business
�� increase your customers base
�� increase your efficiency and effectiveness
�� cost effective
�� time saving
�� open new venue
�� Can become the part of global economy through internet marketing
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[bonddonraj]

Lesson – 43
Lesson overview and learning objectives:
This Lesson examines the social effects of private marketing practices. A marketing system should
sense, serve, satisfy consumer needs and improve the quality of consumers’ lives. In working to
meet the consumer’s needs, marketers may take some actions that are not approved of by all the
consumers or publics within the social sector. Marketing managers must understand the criticism
that the marketing function may encounter. By understanding the criticism, the manager is better
prepared to respond to it in a proactive manner. Some of the criticism is justified; some is not.
After this Lesson students should be able to Identify the major social criticisms of marketing.
Describe the principles of socially responsible marketing. Explain the role of ethics in marketing.
MARKETING AND SOCIETY
Responsible marketers discover what consumers want and respond with the right products at right
price to give good value to buyers, and profit to the producer. The marketing concept is a
philosophy of customer satisfaction and mutual gain. Its practice leads the economy by an
invisible hand to satisfy the many and changing needs of millions of consumers. Not all marketers
follow the marketing concept; however private transactions may involve larger questions of public
policy (i.e., the illustration of the sale of cigarettes). Two major issues in marketing are ethics and
Social responsibilities which we will be discussing today.
A. Social Criticisms of Marketing
Marketing receives much criticism. Some of this is justified and some is not. Social critics claim
that certain marketing practices hurt individual consumers, society as a whole, and other business
firms.
a. Marketing’s Impact on Individual Consumers:
Consumers have many concerns about how well the marketing system serves their interests. There
are six primary criticisms leveled at the marketing function by consumers, consumer advocates,
and government agencies.
i. Harming consumers through high prices.
ii. Deceptive practices.
iii. High-pressure selling.
iv. Shoddy or unsafe products.
v. Planned obsolescence.
vi. Poor service to disadvantaged consumers.
i. Harming consumers through high prices: Many critics charge the marketing system
causes prices to be higher than need be. Some factors to which these critics point are as
follows:
• High costs of distribution. Greedy intermediaries mark up prices beyond the value of
their services. There are too many intermediaries and they duplicate services. Resellers have
responded by saying that: the work performed by the intermediaries is necessary and takes
away the responsibility from the consumer or the manufacturer, the rising markup is really
the result of improved services, operating costs are driving up prices, in reality, profit
margins are low because of intense competition. Strong retailers pressure their channel
members to keep prices low.
• High advertising and promotion costs. Marketing is accused of driving up promotion
and advertising costs. Marketers respond by saying that: consumers want more than the
merely functional qualities of products, they want psychological benefits, branding, even
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though it may cost more, gives buyers confidence, heavy advertising is needed to inform
millions of potential buyers of the merits of a brand, Heavy advertising and promotion
may be necessary for a firm to match competitors’ efforts. Companies are cost-conscious
and try to spend their promotional dollars wisely.
• Excessive markups. Critics charge that some companies mark up goods excessively. This
charge is responded by the marketers respond by saying as: most businesses try to deal
fairly with consumers because they want the repeat business, most consumer abuses are
unintentional, When shady marketers do take advantage of consumers, and they should be
reported to the authorities, Consumers often do not understand the reason for the high
markup.
ii. Deceptive Pricing: Marketers are sometimes accused of deceptive practices that lead
consumers to believe that they will get more value than they actually do. Three groups
exist with respect to these alleged practices:
1). Deceptive pricing includes such practices as falsely advertising “factory” or “wholesale”
prices, or a large reduction from a phony high list price.
2). Deceptive promotion includes such practices as overstating the product’s features or
performance, luring the customer to the store for a bargain that is out of stock, or running rigged
contests.
3). Deceptive packaging includes exaggerating package contents through subtle design, not
filling the package to the top, using misleading labeling, or describing size in misleading terms.
Deceptive practices have led to legislation and other consumer protection actions. Marketers argue
that most companies avoid deceptive practices because such practices harm their business in the
long run. According to some experts, some puffery, however, will always occur.
iii. High-pressure selling: High-pressure selling is another criticism of marketing. Laws
require door-to-door salespeople to announce that they are selling a product. Also, buyers
have a “three-day cooling-off period” in which they can cancel a contract after rethinking
it.
iv. Shoddy and Unsafe products: Shoddy or unsafe products are another criticism leveled
against marketers. Complaints include: 1). Complaints about products not being made
well or services were not performed well. 2). Products deliver little benefit. 3). Product
safety has been a problem for several reasons:
a). Manufacturer indifference.
b). Increased production complexity.
c). Poorly trained labor.
d). Poor quality control.
Responses to these complaints from marketers are positive. Marketers in general want to make
beneficial and safe products.
v. Planned obsolescence: Planned obsolescence is a strategy of causing products to become
obsolete before they actually need replacement and is a criticism leveled by consumers.
Fashion is often cited as an example. Marketers respond that consumers like lifestyle
changes; they get tired of old goods and want a new look. Much of so-called planned
obsolescence is actually the normal interaction of competitive and technological forces in
a free society.
vi. poor service: In contemporary society poor service to disadvantaged consumers is another
criticism against marketing. Clearly, better marketing systems must be built in low-income
areas. Critics believe the poor have been exploited by marketers.
b. Marketing’s Impact on Society as a Whole
Some criticisms have also been leveled at marketing because of its perceived negative impact on
society as a whole. Criticisms include marketing creating:
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i. False wants and too much materialism. People are judged by what they own rather than
who they are. This criticism perhaps overstates the power of business to create needs. Our
needs are influenced by other forces than just marketing needs. Some even see materialism
as a positive force.
ii. Producing too few social goods. There needs to be more of a balance between social
(public) and private goods. Options are the government could require more safety be built
into products (autos for example), or make consumers pay social costs.
iii. Cultural pollution. Constant assaults on privacy by advertising and noise
clutter. Marketing answers by saying: Marketers hope that their ads reach primarily the
target audience; ads make much of television and radio free to users and keep down the
costs of magazines and newspapers.
iv. Too much political power.
companies do promote and protect their own interests. They have a right to. Counter forces are in
place to offset business promotional and political power.
c. Marketing’s Impact on Other Businesses
Critics charge that a company’s marketing practices can harm other companies and reduce
competition. Three problems are involved:
1). Acquisitions of competitors. There may be too many of these according to some
acquisition is a complex subject, however, and sometimes acquisition may be good for
society.
2). Marketing practices that create barriers to entry. Patents and heavy promotional spending
are often cited
3). Unfair competitive marketing practices. Predatory competition is dangerous to the
overall well-being of the economy. To distinguish between what is predatory and what is
healthy competition is often difficult.
B. Marketing Ethics
Marketing Ethics are marketers’ standards of conduct and moral values. People develop standards
of ethical behavior based on their own systems of values and that may differ from employer’s
organizational ethics, which produces conflicts Conscientious marketers face many moral
dilemmas. Companies need to develop corporate marketing ethics policies—broad guidelines
that everyone in the organization must follow. Areas of concern include:
1). Distributor relations.
2). Advertising standards.
3). Customer service.
4). Pricing.
5). Product development.
6). General ethical standards.
The finest guidelines cannot resolve all the difficult ethical situations a marketer faces. What
principle should guide companies and marketing managers on issues of ethical and social
responsibility? Two general philosophies are used:
1). Issues are decided by the free market and legal system. Under this system companies and
their managers are not responsible for making moral judgments. Companies can do whatever the
system allows.
2). Issues are the responsibility of individual companies and managers. This approach says
that the company should have a “social conscience” that guides action. This is a more enlightened
philosophy.
Each company and marketing manager must work out a philosophy of socially responsible and
ethical behavior. Remember that written codes do not ensure ethical behavior. The issue of ethics
provides special challenges for international marketers. Bribery may be socially acceptable in one
country and completely illegal in another. Companies must commit to a single ethical standard
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that can be applied worldwide. Many industrial and professional associations have suggested codes
of ethics; many companies are now adopting their own codes. Companies are developing
programs to teach managers about important ethics issues and help them find the proper
responses. Still, written codes and ethics programs do not ensure ethical behavior. Given the
challenges of this century, companies that are able to create new values in a socially-responsible
way will have a world to conquer.
a. Consumerism:
Business firms have been the target of organized consumer movements Traditional sellers’
rights include:
1). Right to introduce any product in any size and style, provided it is not hazardous to
personal health or safety; or, if it is, to include proper warnings and controls.
2). Right to charge any price for the product, provided no discrimination exists among
similar kinds of buyers.
3). Right to spend any amount to promote the product, provided it is not defined as unfair
competition.
4). Right to use any product message, provided it is not misleading or dishonest in content
or execution.
5). Right to use buying incentive schemes, provided they are not unfair or misleading.
Traditional buyers’ rights include:
1). Right not to buy a product that is offered for sale.
2). Right to expect the product to be safe.
3). Right to expect the product to perform as claimed.
4). Right to be well informed about important aspects of the product.
5). Right to be protected against questionable products and marketing practices.
6). Right to influence products and marketing practices in ways that will improve the
“quality of life.”
Consumers have the right but also the responsibility to protect themselves instead of leaving this
function to someone else.
b. Environmentalism
Environmentalists are concerned with marketing’s effects on the environment and with the costs
of serving consumers needs and wants. Environmentalism is an organized movement of concerned
citizens and government agencies to protect and improve people’s living environment.
Environmentalists are not against marketing and consumption. They simply want people and
organizations to operate with more care for the environment. The marketing system’s goal should
be to maximize “life quality.” Companies are adopting policies of environmental sustainability
developing strategies that both sustain the environment and produce profits for the company. The
challenge is to develop a sustainable global economy. Environmental sustainability has several
strategies:
• Pollution prevention—this involves more than pollution control (cleaning up waste after it
has been created). It means eliminating or minimizing waste before it is created. Green
marketing programs have helped.
• Product stewardship—minimizing not just pollution from production but all
environmental impacts throughout the full product life cycle a]. Many companies are
adopting design for environment (DFE practices, which involve thinking ahead in the
design stage to create products that are easier to recover, reuse, or recycle.
• New environmental technologies—new technologies.
• Sustainability vision—serves as a guide to the future. It shows how the company’s
products and services, processes, and policies must evolve and what new technologies must
be developed to get there. Environmentalism creates special challenges for global
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marketers because environmental policies vary widely between countries. There are no
uniform standards.
C. Enlightened Marketing
Enlightened marketing is a philosophy holding that a company’s marketing should support the best
long-run performance of the marketing system. It has five principles:
a. Consumer-oriented marketing. A principle of enlightened marketing which
holds that the company should view and organize its marketing activities from the
consumer’s point of view.
b. Innovative marketing. A principle of enlightened marketing that requires that a
company seek real product and marketing improvements.
c. Value marketing. A principle of enlightened marketing which holds that a
company should put most of its resources into value-building marketing
investments.
d. Sense-of-mission marketing. A principle of enlightened marketing that holds
that a company should define its mission in broad social terms rather than narrow
product terms.
e. Societal marketing. A principle of enlightened marketing which holds that a
company should make marketing decisions by considering consumer’s wants, the
company’s requirements, consumer’s long-run interests, and society’s long-run
interests. A societal oriented marketer wants to design products that are pleasing
and beneficial. Products can be classified according to their degree of immediate
consumer satisfaction and long-run consumer benefit. Degree of satisfaction
might include:
• Deficient products are products that have neither immediate appeal nor
long-term benefits. Example: bad-tasting medicine.
• Pleasing products are products that give high immediate satisfaction but
may hurt consumers in the long-run. Example: cigarettes.
• Salutary products are products that have low appeal but may benefit
consumers in the long-run. Example: seat belts and air bags.
• Desirable products are products that give both high immediate satisfaction
and high long-run benefits. Example: a tasty and nutritious food.
Key Principles for Public policy towards Marketing:
Certain public policy principles can be used to make the marketing more effective these principles
include full consumer and producer freedom, potential harms should be eliminated, producers
should meet the basic needs of the
consumers, there should be economic
efficiency consumers and producers both
should be on beneficent in practicing the
exchange process, producer should
ensure the innovation , consumer should
be provided full knowledge about the
products and should be protected against
any sort of unethical and illegal practices
by the producers,
Key Principles
for a Public Policy
Toward Marketing
Key Principles
for a Public Policy
Toward Marketing
Economic
Efficiency
Economic
Efficiency
Meeting Basic
Needs
Meeting Basic
Needs
Innovation Innovation
Curbing Potential
Harm
Curbing Potential
Harm
Consumer
Education
Consumer
Education
Consumer
Protection
Consumer
Protection
Consumer and
Producer Freedom
Consumer and

 

[bonddonraj]

Lesson – 44
Learning objectives:
After reading this handout you will be able to learn the following areas.
A. MARKETING
B. SIMPLE MARKETING SYSTEM
C. CORE CONCEPTS OF MARKETING
D. CUSTOMER RELATIONSHIP MANAGEMENT
E. MARKETING PHILOSOPHIES
F. BCG MATRIX
G. PRODUCT MARKET EXPANSION GRID
H. MARKETING PROCESS
I. MARKETING ENVIRONMENT
J. MARKETING INFORMATION SYSTEM AND MARKETING RESEARCH
K. CONSUMER BEHAVIOR
L. MARKETING SEGMENTATION
M. PRODUCT AND SERVICES
Marketing
Marketing involves having the right product available in the right place at the right time and
making sure that the customer is aware of the product.
Marketing is part of all of our lives and touches us in some way every day. To be successful each
company that deals with customers on a daily basis must not only be customer-driven, but
customer-obsessed. The best way to achieve this objective is to develop a sound marketing
function within the organization. Marketing is defined as “a social and managerial process by
which individuals and groups obtain what they need and want through creating and exchanging
products and value with others.” Marketing is a key factor in business success. The marketing
function not only deals with the production and distribution of products and services, but it also is
concerned with the ethical and social responsibility functions found in the domestic and global
environment. Marketers must also be aware of customer value and customer satisfaction and make
these concepts a central part of the firm’s strategic plan. Marketing must also be aware of and
respond to change. Four of the greatest changes that have had an impact on the way companies
bring value to their customers are the explosive growth of the computer, the Internet,
telecommunications, and information technology. Marketing and its core concepts, the exchange
relationship, the major philosophies of marketing thought and practice, customer relationship
management
What is Marketing?
a. Creating customer value and satisfaction are at the very heart of modern
marketing thinking and practice.
b. A very simple definition of marketing is managing profitable customer
relationships.
1). The twofold goal of marketing is to attract new customers by promising
superior value and to keep and grow current customers by delivering
satisfaction.
2). Sound marketing is critical to the success of every organization.
c. You already know a lot about marketing—it’s all around you.
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Core Marketing Concepts:
1. Needs, wants, and demands
2. Products and Services
3. Value, satisfaction, and quality
4. Exchange, transactions, and relationships
5. Markets
Simple Marketing Simple Marketing
System System
Producer/Seller Consumer
Communication
Product/Service
Money
Feedback
Products
and
Services
Value,
satisfaction,
and quality
Needs, wants,
and demands
Exchange,
transactions,
and relationships
Markets
Core
Marketing
Concepts
Core
Marketing
Concepts
D. Simple Marketing System
1. Producer/ seller
2. Consumer
3. Communication
4. Product/ service
5. Money
6. Feedback
E. Core Marketing Concepts
1. Needs, wants, and demands
Needs: Human needs are the most basic
concept underlying marketing. A human
need is a state of felt deprivation.
1). Humans have many complex
needs.
a). Basic, physical needs for
food, clothing, warmth, and safety.
b). Social needs for belonging
and affection.
c). Individual needs for knowledge and self-expression.
2). These needs are part of the basic human makeup.
Demands: Another concept in marketing is human wants. A human want is the form that a
human need takes as shaped by culture and individual personality.
Demands: are human wants that are backed by buying power.
Consumers view products as bundles of benefits and choose products that give them the best
bundle for their money. Outstanding marketing companies go to great lengths to learn about and
understand their customer’s needs, wants, and demands.
2. Products and Services
Marketing Offers—Products, Services, and Experiences
Companies address needs by putting forth a value proposition, a set of benefits that they promise
to consumers to satisfy their needs.
a. The value proposition is fulfilled through a marketing offer—some combination of
products, services, information, or experiences offered to a market to satisfy a need
or want.
Participants in a simple marketing system:
1. Producer/ seller
2. Consumer
3. Communication
4. Product/ service
5. Money
6. Feedback
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b. The concept of product is not limited to physical objects and can include
experiences, persons, places, organizations, information, and ideas.
c. Be careful of paying attention to the product and not the benefit being satisfied.
d. “Marketing myopia” is caused by shortsightedness or losing sight of
underlying customer needs by only focusing on existing wants.
e. Smart marketers create brand meaning and brand experiences for
consumers.
3. Value, satisfaction
Customer value: is the difference between the values that the customer gains from owning and
using a product and the costs of obtaining the product. Customers form expectations about the
value of various marketing offers and buy accordingly.
Customer satisfaction: depends on a product’s perceived performance in delivering value relative
to a buyer’s expectations. Customer satisfaction is a key influence on future buying behavior.
1). Marketers must be careful to set the right level of expectations.
2). Customer value and customer satisfaction are key building blocks for developing and
managing customer relationships.
4. Exchange, transactions, and relationships
Marketing occurs when people decide to satisfy needs and wants through exchange.
Exchange is the act of obtaining a desired object from someone by offering something in return.
Whereas exchange is a core concept of marketing, a transaction (a trade of values between two
parties) is marketing’s unit of measurement. Most involve money, a response, and action.
Marketing consists of actions taken to build and maintain desirable exchange relationships with
target audiences involving a product, service, idea, or other object.
5. Markets
The concepts of exchange and relationships lead to the concept of a market. A market is the set of
actual and potential buyers of a product.
1). originally a “market” was a place where buyers and sellers gathered to exchange goods (such as
a village square).
2). Economists use the term to designate a collection of buyers and sellers who transact in a
particular product class (as in the grain or housing market).
3). Marketers see buyers as constituting a market and sellers constituting an industry.
4). Marketers are keenly interested in markets.
F. Customer Relationship Management
Customer relationship management (CRM) has been defined narrowly as a customer database
management activity.
Customer relationship management. “is the overall process of building and maintaining profitable
customer relationships by delivering superior customer
value and satisfaction?”
1). Today, customer relationship management is seen as the overall process of building and
maintaining profitable customer relationships by delivering superior customer value and
satisfaction.
2). Traditional marketing practices focused on attracting new customers rather than retaining
existing ones. The move today, however, is toward building long-term relationships with customers
and other stakeholders.
G. Marketing Philosophies
There are five alternative concepts under which organizations conduct their marketing activities:
the production, product, selling, marketing, and societal marketing concepts.
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The Production Concept
The production concept holds that consumers will favor products that are available and highly
affordable and that management should, therefore, focus on improving production and
distribution efficiency. This is one of the oldest philosophies that guide sellers.
The production concept is useful when:
1). Demand for a product exceeds the supply.
2). The product’s cost is too high and improved productivity is needed to bring it down.
The risk with this concept is in focusing too narrowly on company operations. Do not ignore the
desires of the market. This concept can lead to “marketing myopia.”
The Product Concept
The product concept states that consumers will favor products that offer the most quality,
performance, and features, and that the organization should, therefore, devote its energy to making
continuous product improvements.
1). some manufacturers mistakenly believe that if they “build a better mousetrap,” Consumers will
beat a path to their door just for their product.
2). the product concept can also lead to “marketing myopia,” the failure to see the challenges being
presented by other products.
The Selling Concept
Many organizations follow the selling concept. The selling concept is the idea that consumers will
not buy enough of the organization’s products unless the organization undertakes a largescale
selling and promotion effort.
1). this concept is typically practiced with unsought goods (those that buyers do not normally think
of buying).
2). to be successful with this concept, the organization must be good at tracking down the
interested buyer and selling them on the product benefits.
3). Industries that use this concept usually have overcapacity. Their aim is to sell what they make
rather than make what will sell in the market.
4). There are not only high risks with this approach but low satisfaction by customers.
The Marketing Concept
The marketing concept holds that achieving organizational goals depends on determining the
needs and wants of target markets and delivering the desired satisfactions more effectively and
efficiently than competitors do.
Under the marketing concept, customer focus and value are paths to sales and profits. The
marketing and selling concepts are often confused. The primary differences are:
1). The selling concept takes an “inside-out” perspective (focuses on existing products and uses
heavy promotion and selling efforts).
2). The marketing concept takes an “outside-in” perspective (focuses on customer needs, values,
and satisfactions).
Many companies claim to adopt the marketing concept but really do not unless they commit to
market-focused and customer-driven philosophies.
1). Customer-driven companies research current customers to learn about their desires,
gather new product and service ideas, and test proposed product improvements.
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3 ?
10x 4x 2x 1.5x 1x 10x 4x 2x 1.5x 1x
20% 20%-
18% 18%-
16% 16%-
14% 14%-
12% 12%-
10% 10%-
8% 8%-
6% 6%-
4% 4%-
2% 2%-
0
Market growth rate Relative market share
Stars
Cash cow
Question marks
Dogs
?
?
?
5
4
2
1
6
8
7
.5x .4x .3x .2x .1x .5x .4x .3x .2x .1x
2). Such customer-driven marketing usually works well in a situation of clear need and when
customers know what they want.
3). When customers do not know what they want, marketers can try customer-driving
marketing—understanding customer needs even better than customers themselves do, and creating
products and services that will meet existing and latent needs now and in the future.
The Societal Marketing Concept
The societal marketing concept holds that the organization should determine the needs, wants, and
interests of target markets. It should then deliver the desired satisfactions more effectively and
efficiently than competitors in a way that maintains or improves the consumer’s and the society’s
well-being.
1). The societal marketing concept is the newest of the marketing philosophies.
2). It questions whether the pure marketing concept is adequate given the wide variety of societal
problems and ills.
3). According to the societal marketing concept, the pure marketing concept overlooks possible
conflicts between short-run consumer wants and long- run consumer welfare.
4). The societal concept calls upon marketers to balance three considerations in setting their
marketing policies:
a). Company profits.
b). Customer wants.
c). Society’s interests.
5). It has become good business to consider and think of society’s interests when the organization
makes marketing decisions.
H. Boston Consulting Group
Using the matrix, four
types of SBUs can be
identified:
a). Stars are highgrowth,
high-share
businesses or
products (they need
heavy investment to
finance their rapid
growth potential).
b). Cash Cows are
low-growth, highshare
businesses or
products (they are
established,
successful, and need
less investment to hold share).
c). Question Marks are low-share business units in high-growth markets (they require a lot of
cash to hold their share).
d). Dogs are low-growth, low-share businesses and products (they may generate enough cash to
maintain them, but do not have much future).
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Marketpenetration
strategy
(Diversification
strategy)
Productdevelopment
strategy
Marketdevelopment
strategy
Current Current
markets markets
New New
markets markets
Current Current
products products
New New
products products
I. Product/Market Expansion Grid
Companies should always be looking to the
future. One useful device for identifying
growth opportunities for the future is the
product/market expansion grid. The
product/market expansion grid is a portfolioplanning
tool for identifying company growth
opportunities through:
1). Market Penetration—making more sales
to present customers without
changing products in any way (example,
adding more stores).
2). Market Development—a strategy for
company growth by identifying a developing new markets for current company products (example,
demographic and geographical markets).
3). Product Development—a strategy for company growth by offering modified or new products
to current markets.
4). Diversification—a strategy for company growth by starting up or acquiring businesses outside
the company’s current products and markets.
J. Marketing Process
Once the strategic plan has defined the company’s overall mission and objectives, Marketing plays
a role in carrying out these objectives. The marketing process is the process of analyzing market
opportunities, selecting target markets, developing the marketing mix, and managing the marketing
effort. Target customers stand at the center of the marketing process. The goal is to make strong
and profitable connections with these customers.
K. Marketing Environment
In order to correctly identify opportunities and monitor threats, the company must begin with a
thorough understanding of the marketing environment in which the firm operates. The marketing
environment consists of all the actors and forces outside marketing that affect the marketing
management’s ability to develop and maintain successful relationships with its target customers.
Though these factors and forces may vary depending on the specific company and industrial
group, they can generally be divided into broad micro-environmental and macro-environmental
components. For most companies, the micro-environmental components are: the company,
suppliers, marketing channel firms (intermediaries), customer markets, competitors, and publics.
The macro-environmental components are thought to be: demographic, economic, natural,
technological, political, and cultural forces. The wise marketing manager knows that he or she
cannot always affect environmental forces. Smart managers can take a proactive, rather than
reactive, approach to the marketing environment.
As a company’s marketing management collects and processes data on these environments, it must
be ever vigilant in its efforts to apply what it learns to developing opportunities and dealing with
threats. Studies have shown that excellent companies not only have a keen sense of customer but
an appreciation of the environmental forces swirling around them. By constantly looking at the
dynamic changes that are occurring in the aforementioned environments, companies are better
prepared to adapt to change, prepare long-range strategy, meet the needs of today’s and
tomorrow’s customers, and compete with the intense competition present in the global
marketplace.
L. Marketing Information System and Marketing Research
In carrying out their marketing responsibilities, marketing managers need a great deal of
information. “Information is power” is a legitimate statement. Despite the importance and growing
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supply of information, managers often lack enough information of the right kind or have too much
of the wrong kind to make the critical decisions necessary to be successful in our highly
competitive global marketplace. Most marketing managers don’t need more information, they need
better information. To overcome these problems, many companies are taking steps to improve
their marketing information systems. A commitment to an information system is not just a
technological commitment but a corporate culture commitment as well.
A well-designed marketing information system (MIS) first assesses information needs. The MIS
next develops needed information (generally from internal company data, marketing intelligence
activities, marketing research, and information analysis procedures and sources). Finally, the MIS
distributes information to managers in the right form at the right time to help them make better
marketing decisions. Once the system is in place and functioning, decision-making becomes easier
and better. Few firms with efficient information systems fail in the marketplace.
Marketing research, which is one of the components of an information system, involves
collecting information relevant to a specific marketing problem facing the company. The marketing
research process consists of four steps: defining the problem and research objectives, developing
the research plan, implementing the research plan, and interpreting and reporting the findings. In
addition to traditional sources of information that can now be used for marketing research, online
databases and Internet data sources are becoming more important to the marketing research
process.
Marketing research is the systematic design, collection, analysis, and reporting of data and
findings relevant to a specific marketing situation facing an organization.
1). Every marketer needs research.
2). Marketing research can be done by an internal department or it can be done by an outside firm.
The marketing research process consists of four steps: defining the problem and research
objectives, developing the research plan, implementing the research plan, and interpreting and
reporting the findings.
Step 1—Problem Definition and the Research Objectives
Step 2— Developing the Research Plan
Step 3 — Implementation
Step 4— Interpretation and Reporting of Findings
M. Consumer Buying Behavior
Markets (and those which they serve) have to be understood before marketing strategies can be
developed. The consumer market buys goods and services for personal consumption. With respect
to the individuals in the consumer market, the behavior of the consumer is influenced by the
buyer’s decision process. Buyer characteristics include four major factors: cultural, social, personal,
and psychological. Each of these factors is explored in detail. Relationships are drawn between the
factors (and factor subparts) and the consumption purchases made by consumers. Because many
of these factors are deep and long lasting in their effect, the marketing manager should pay special
attention to acquiring information about them with respect to the organization’s target markets.
Decisions vary based on the degree of buyer involvement and the degree of differences among
brands. For new products, special situations affect the consumer choice decision. It has been
found that consumers respond at different rates (depending on consumer and product
characteristics), gain knowledge about the products in different ways, and become aware of
“newness” with varying rates of consideration. Factors that speed the rate of adoption of new
products are covered and explained. Understanding consumer behavior is difficult enough for
companies marketing within the borders of a single country. The problem is compounded when a
firm attempts to market in the global environment.
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Marketing and
Other Stimuli
Marketing and
Other Stimuli
Buyer’s Black Box
”what” & “how”
Buyer’s Black Box
”what” & “how”
Buyer’s Response Buyer’s Response
Product
Price
Place
Promotion
Economic
Technological
Political
Cultural
Buyer
characteristics
affecting
consumer
behavior
Buyer’s decision
process
Product choice
Brand choice
Dealer choice
Purchase timing
Purchase
quantity
Consumer Black Box
a) Consumers make many
buying decisions every
day.
b) A model of consumer
behavior helps managers
answer questions about
what consumers buy,
where they buy, how and
how much they buy,
when they buy, and why
they buy.
1). Learning about the what, where,
when, and how much is fairly easy.
2). Learning
about the “why” is much more difficult.
c) The central question is: How do consumers respond to various marketing efforts
the company might use.
d) The stimulus-response model of buyer behavior shows that marketing (made up of
the four P’s—product, price, place, and promotion) and other stimuli (such as the
economic, technological, political, and cultural environments) center on the
consumer’s “black box” and produce certain responses.
e) Marketers must figure out what is “in” the consumer’s “black box.”
f) The “black box” has two parts.
1). The buyer’s characteristics influence how he or she perceive and react to stimuli.
2). The buyer’s decision process itself affects the buyer’s behavior.
N. Market Segmentation
Market Segmentation: “Dividing a market into distinct groups with distinct needs,
characteristics, or behavior who might require separate products or marketing mixes”.
Market segmentation provides a method to divide or segment the market into narrow segments
(using a variety of different meaningful variables—these variables or bases are discussed at length
in the chapter) that can be better reached with the resources of the marketer. Market targeting
examines each of the designated segment’s attractiveness and chooses one or more that match the
marketing desires and objectives of the organization. Various coverage strategies are explained and
detailed.
The concept of market positioning arranges for a product to occupy a clear, distinctive, and
desirable place relative to competition. Various methods for achieving significant differentiation
are explained and illustrated. The above three steps aid the marketer in effectively arranging the
company’s marketing mix so that the likelihood of consumer response and competitive advantage
is maximized by the organization.
Segmentation Variables
�� Geographical segmentation
�� Demographic segmentation
�� Psychographic segmentation
�� Behavioral segmentation
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Requirements for Effective Segmentation
Product & services
Product is a complex concept that must be carefully defined. As the first of the four marketing mix
variables, it is often where strategic planning begins. Product strategy calls for making coordinated
decisions on individual products, product lines, and the product mix. Products and services can be
thought of as occupying three levels: the core product, the actual product, and the augmented
product. Consumer products are usually classified according to how consumers buy them
(convenience, shopping, specialty, or unsought products). Industrial goods are classified according
to whether materials and parts, capital items, and supplies and services are produced. The primary
difference between industrial and consumer goods is the purpose for which the product is bought.
In addition to tangible products and services, in recent years marketers have broadened the
concept of a product to include other “marketable entities”—namely, organizations, persons,
places, and ideas. Whether an organization is classed as profit or nonprofit, marketing has a role to
play in the entity. Political candidates and sports figures are perhaps the best examples of how
important marketing is to person marketing. With the growth of tourism marketing, many states,
nations, and attractions have learned how to market themselves effectively. Lastly, idea marketing
(primarily social marketing issues) has gained in popularity in the latter part of this century. Those
that study trends in marketing believe that all of the above areas will continue to grow and expand
in the years ahead.
Companies have to develop strategies for the items in their product lines. They must decide on
product attributes, branding, packaging, labeling, and product support services. Each of these areas
is explained so that the individual product decision is seen as a sequence of planned events. Most
companies produce a product line rather than a single product. Product line and product mix
decisions are critical to the success of the product in a competitive environment. The product mix
• Size, purchasing power, profiles of
segments can be measured.
• Segments must be effectively
reached and served.
• Segments must be large or
profitable enough to serve.
Measurable
Accessible
Substantial
Differential
Actionable
• Segments must respond
differently to different marketing
mix elements & actions.
• Must be able to attract and serve
the segments.
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describes the set of product lines and items offered to customers by a particular seller. Product
lines must be managed carefully. One way to do this is to examine how to stretch and fill lines. The
product mix is described by its width, length, depth, and consistency. Each of these tools helps the
planner to properly view the product so it can achieve competitive superiority and better product
strategy.
The twenty-first century may well indeed be the century of the brand. There has been renewed
interest in the concept of brand equity (the positive differential effect that knowing the brand
name has on customer response to the product or service). Solid brands counter cynical
consumers. Managing brand is an art that must be mastered by the successful marketer. This art is
increasingly difficult and complicated with the emergence of strong global brands and increasing
competition for consumer dollars. In reality, a brand’s position will not take hold fully unless
everyone in the company lives the brand.
Services (although many times mentioned in the same breath as product) are different from
products. Because the United States has become a service economy, it is very important that the
marketer understand the strategies associated with the delivery of services. The characteristics of
services (intangibility, inseparability, variability, and perish-ability) are examined and detailed. The
ability to differentiate and produce high quality services is a must for the services marketer. Today,
successful companies focus on the creation of service-profit chains. To make these chains work, a
company may have to undertake internal and interactive marketing. Service productivity is as
important as manufacturing productivity.
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