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What is Production Management? Meaning

Production management means planning, organizing, directing and controlling of
production activities.
Production management deals with converting raw materials into finished goods or
products. It brings together the 6M's i.e. men, money, machines, materials, methods and markets
to satisfy the wants of the people.
Production management also deals with decision-making regarding the quality, quantity, cost,
etc., of production. It applies management principles to production.
Production management is a part of business management. It is also called "Production
Function." Production management is slowly being replaced by operations management.
The main objective of production management is to produce goods and services of the
right quality, right quantity, at the right time and at minimum cost. It also tries to improve the
efficiency. An efficient organization can face competition effectively. Production management
ensures full or optimum utilization of available production capacity.
Definition of Production Management:
E.S. Buffa defines "Production management deals with decision-making related to
production processes so that the resulting goods or service is produced according to
specification, in the amount and by the schedule demanded and at minimum cost."
Importance of Production Management:
The importance of production management to the business firm:
Accomplishment of firm's objectives: Production management helps the business firm to
achieve all its objectives. It produces products, which satisfy the customers' needs and wants. So,
the firm will increase its sales. This will help it to achieve its objectives.
Reputation, Goodwill and Image: Production management helps the firm to satisfy its
customers. This increases the firm’s reputation, goodwill and image. A good image helps the
firm to expand and grow.
Helps to introduce new products: Production management helps to introduce new products in
the market. It conducts Research and development (R&D). This helps the firm to develop newer
and better quality products. These products are successful in the market because they give full
satisfaction to the customers.
Supports other functional areas: Production management supports other functional areas in an
organisation, such as marketing, finance, and personnel. The marketing department will find it
easier to sell good-quality products, and the finance department will get more funds due to
increase in sales. It will also get more loans and share capital for expansion and modernization.
The personnel department will be able to manage the human resources effectively due to the
better performance of the production department.
Helps to face competition: Production management helps the firm to face competition in the
market. This is because production management produces products of right quantity, right

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quality, right price and at the right time. These products are delivered to the customers as per
their requirements.
Optimum utilization of resources: Production management facilitates optimum utilization of
resources such as manpower, machines, etc. So, the firm can meet its capacity utilization
objective. This will bring higher returns to the organization.
Minimises’ cost of production: Production management helps to minimize the cost of
production. It tries to maximize the output and minimize the inputs. This helps the firm to
achieve its cost reduction and efficiency objective.
Expansion of the firm: The Production management helps the firm to expand and grow. This is
because it tries to improve quality and reduce costs. This helps the firm to earn higher profits.
These profits help the firm to expand and grow.
The importance of production management to customers and society:
Higher standard of living: Production management conducts continuous research and
development (R&D). So they produce new and better varieties of products. People use these
products and enjoy a higher standard of living.
Generates employment: Production activities create many different job opportunities in the
country, either directly or indirectly. Direct employment is generated in the production area, and
indirect employment is generated in the supporting areas such as marketing, finance, customer
support, etc.
Improves quality and reduces cost: Production management improves the quality of the
products because of research and development. Because of large-scale production, there are
economies of large scale. This brings down the cost of production. So, consumer prices also
reduce.
Spread effect: Because of production, other sectors also expand. Companies making spare parts
will expand. The service sector such as banking, transport, communication, insurance, BPO, etc.
also expand. This spread effect offers more job opportunities and boosts economy.
Creates utility: Production creates Form Utility. Consumers can get form utility in the shape,
size and designs of the product. Production also creates time utility, because goods are available
whenever consumers need it.
Boosts economy: Production management ensures optimum utilisation of resources and effective
production of goods and services. This leads to speedy economic growth and well-being of the
nation.
Objectives of Production Management:
 Right Quality:
 Right Quantity:
 Manufacturing Costs:
 Manufacturing Schedule:
 Machinery and Equipment's:
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 Materials:
 Manpower.
 Supporting Services:
Production Planning Techniques:
Production planning is a three-step process. It involves scheduling, estimating and
forecasting. To perform this task, the customers’ orders, production capacities and foreseeing of
future inventories and trends are essential.
There are five main techniques of production planning. Each technique has its relative
merits and demerits. The underlying assumptions and principles are different with each different
technique. Also the application of these techniques depends on the type of the ware being
produced and the method in which it is being produced. The five main techniques are discussed
below.
Job Method:
This technique is used if either one single worker or a group of workers are needed to
produce the ware, or product. That is, if the work cannot be broken down into parts, this method
is used. The scale of operations for these types of jobs could be simple or complex.
The method is often used when customer specifications are important in the production.
Examples of professionals who use the Job Method of production planning are hairdressers,
cooks and tailors.
On the simpler end of this technique are jobs that are small-scale in nature, on which the
production is fairly easy and simple and for which the worker possesses the required skill set.
Equipment required for these jobs is also easy to procure and maintain. Therefore the customer’s
specific requirements can be incorporated or adjusted at any time during the progress of the job.
The more complex jobs are those that require the use of sophisticated technology and
proper control and management. The construction business offers complex jobs that use the Job
Method.
Batch Method:
Large-scale operations make it imperative for businesses to use the Batch Method. In this
method, the work is broken down into parts. To produce on a large scale, one batch of workers
works one part while another group works on another. A hitch in this method is that for any part
of work to proceed, it is essential that the work in the previous batch is totally completed. This
method requires specialization of labor for every division of the business. An example of
businesses that use the Batch Method would be manufacturers of electronic parts.
Flow Method:
This method is an improvisation on the batch method. The intent here is to improve on
the quality of work and on the flow of material being worked, reduction in labor costs and faster
delivery of the end product. Work is once again distributed but the process on all parts
progresses simultaneously as a flow. Once all the parts are manufactured, they are all assembled

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together in the end. The ware is produced by numerous interconnected steps in which the raw
material moves from one stage to another without interruptions and time delays. Television
manufacturing utilizes the Flow Method.
Process Method:
The production uses a uniform sequence. Hence the production is always continuous. The
raw materials are few and received from few sources. The end unvaried product is made on the
latest and most sophisticated machinery.
Mass Production Method:
The organization uses some standardized techniques for the production, focusing on
quantity once sufficient quality has been achieved, with quality checks routinely scheduled.
There is usually a product-specific layout and balanced production.
Capacity utilization or Plant utilization
Capacity utilization or capacity utilisation is the extent to which an enterprise or a
nation uses its installed productive capacity. It is the relationship between output that is produced
with the installed equipment, and the potential output which could be produced with it, if
capacity was fully used.
Factory Utilization Rates
Factory utilization, referred to as capacity utilization, is the rate at which the productive capacity
of a factory is used to create goods. Most small businesses can attempt to increase profits by
forcing more productivity or use out of their existing factory capacity. By improving factory
utilization, or avoiding spare capacity, the cost of each production unit falls
Productive Capacity
A plant’s productive capacity is the total output that the plant can produce in a specific
amount of time with existing resources. Measured in production units, productive capacity
decreases if plant machinery is taken offline for maintenance or repairs. In contrast, productive
capacity increases if more than one shift is worked per day.
Factory Utilization
Factory or capacity utilization refers to the extent that a small business uses its productive
capacity. The amount of a plant’s total productive capacity that it uses at a particular time is its
capacity utilization. Capacity utilization relates the amount that a company can produce in a
factory to the factory’s actual output and is a factor of demand. As demand increases, capacity
utilization increases and as demand falls, capacity utilization falls. Businesses measure factory
utilization at the plant level.
Factory Utilization Rate
The factory utilization rate relates the actual number of units produced by a plant during a time
period to the number of units that a factory can produce using the existing capacity. To calculate
a factory’s utilization rate, you multiply the plant’s actual output per month or year times 100
and divide this number by the plant’s maximum output per month or year. For example, assume

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a plant’s actual production is 500 units a month, although it can produce 1,000 units a month.
The factory utilization percent equals 500 multiplied by 100 equals 50,000 divided by 1,000
units, or 50 percent.
Factory Utilization Rates and Manufacturing Costs
A company allocates fixed costs to each unit manufactured. As a result, as the number of units
manufactured increase, the fixed costs per manufactured unit decrease. For example, assume a
plant incurs $10,000 fixed costs per month. If a plant manufactures only 500 units, the fixed cost
per unit equals $10,000 divided by 500 units or $20 per unit. If the plant operates at 100 percent,
the fixed cost per unit equals $10,000 divided by 1,000 units or $10 per unit. In this case, all else
remaining the same, the company will benefit by increasing production to 1,000 units because
doing so will decrease the fixed costs per unit, which may increase the profit per unit.
Definition - What does Workplace Design mean?
Workplace design refers to the process of designing and organizing a workplace to optimize
worker performance and safety.
It is an important health and safety issue for workers in both high-risk environments (such as
construction sites) and low-risk workplaces (such as offices)
Inventory Control:
the fact or process of ensuring that appropriate amounts of stock are maintained by a
business, so as to be able to meet customer demand without delay while keeping the costs
associated with holding stock to a minimum.
A Definition of Inventory Control
Inventory control, also referred to as stock control, is so broad and incorporates so many
functions that it is difficult to describe in a limited definition, but we like how this Inc.com entry
puts it: Inventory control refers to “all aspects of managing a company’s inventories: purchasing,
shipping, receiving, tracking, warehousing and storage, turnover, and reordering.” Inventory
control is such a critical piece of an organization’s operations and bottom line that it is too
important to leave to human error or antiquated systems. That’s why so many companies opt to
invest in inventory control systems, so that all of the components of inventory control are
managed by one integrated system.
Advantages of Inventory Control
The ultimate goal of your inventory control should be to maximize your organization’s
use of inventory. When you maintain proper inventory levels, you can rest easily knowing that
your capital is not unnecessarily tied up in your inventory. If you are in manufacturing, inventory
control also protects production if there are problems with bottlenecking or the supply chain.
Typical benefits of a computerized inventory control system include…
 Increased profitability
 Having enough stock on hand so that you don’t run out
 Barcodes and inventory control labels to track inventory efficiently

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 Reduction or elimination of inventory write-offs

 The ability to conduct audits more quickly and efficiently
MATERIAL HANDLING
Material handling is a necessary and significant component of any productive activity. It
is something that goes on in every plant all the time. Material handling means providing the right
amount of the right material, in the right condition, at the right place, at the right time, in the
right position and for the right cost, by using the right method. It is simply picking up, moving,
and lying down of materials through manufacture. It applies to the movement of raw materials,
parts in process, finished goods, packing materials, and disposal of scraps. In general, hundreds
and thousands tons of materials are handled daily requiring the use of large amount of manpower
while the movement of materials takes place from one processing area to another or from one
department to another department of the plant. The cost of material handling contributes
significantly to the total cost of manufacturing.
DEFINITIONS
There are many ways by which material handling has been defined but one simple
definition is “Material handling is the movement and storage of material at the lowest possible
cost through the use of proper method and equipment”.
Other definitions are:
 “Material handling embraces all of the basic operations involved in the movement of
bulk, packaged, and individual products in a semisolid or solid state by means of
machinery, and within limits of a place of business”.
 “Material handling is the art and science of moving, storing, protecting, and controlling
material”
 “Material handling is the preparation, placing, and positioning of materials to facilitate
their movement or storage”.
OBJECTIVES OF MATERIAL HANDLING:
The primary objective of a material handling system is to reduce the unit cost of production.
The other subordinate objectives are:
1. Reduce manufacturing cycle time
2. Reduce delays, and damage
3. Promote safety and improve working conditions
4. Maintain or improve product quality
5. Promote productivity
i. Material should flow in a straight line
ii. Material should move as short a distance as possible
iii. Use gravity

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iv. Move more material at one time

v. Automate material handling
6. Promote increased use of facilities
i. Promote the use of building cube
ii. Purchase versatile equipment
iii. Develop a preventive maintenance program
iv. Maximize the equipment utilization etc.
7. Reduce tare weight
8. Control inventory
Reduce Cost of Handling
The total cost of material handling per unit must decrease. The total cost per unit is the sum
of the following:
1. Cost of material handling equipment – both fixed cost and operating cost calculated as
the cost of equipment divided by the number of units of material handled over the
working life of the equipment.
2. Cost of labor – both direct and indirect associated cost calculated in terms of cost per unit
of material handled.
3. Cost of maintenance of equipment, damages, lost orders and expediting expenses, also
calculated, in terms of cost per unit of material handled.
Reduced Manufacturing Cycle Time
The total time required to make a product from the receipt of its raw material to the
finished state can be reduced using an efficient and effective material handling system. The
movement of the material can be faster and handling distance could be reduced with the adoption
of an appropriate material handling system.
LIMITATIONS OF AUTOMATED MATERIAL HANDLING SYSTEMS:
A good management practice is to weigh benefits against the limitations or disadvantages
before contemplating any change. Material handling systems also have consequences that may
be distinctly negative. These are:
1. Additional investment
2. Lack of flexibility
3. Vulnerability to downtime whenever there is breakdown
4. Additional maintenance staff and cost
5. Cost of auxiliary equipment.
6. Space and other requirements:

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The above limitations or drawbacks of adopting mechanized handling equipment have been
identified not to discourage the use of modern handling equipment but to emphasize that a
judicious balance of the total benefits and limitations is required before an economically sound
decision is made.
What is 'Quality Control'
Quality control is a process through which a business seeks to ensure that product quality
is maintained or improved with either reduced or zero errors. Quality control requires the
business to create an environment in which both management and employees strive for
perfection. This is done by training personnel, creating benchmarks for product quality, and
testing products to check for statistically significant variations.
A major aspect of quality control is the establishment of well-defined controls. These
controls help standardize both production and reactions to quality issues. Limiting room for error
by specifying which production activities are to be completed by which personnel reduces the
chance that employees will be involved in tasks for which they do not have adequate training.

Quality control at NOW

Quality Control staff members at NOW have many responsibilities, but everything they
do contributes to the quality of the end product, which is the main objective of quality control.
This task, however, is not a simple one, because it entails an incredible number of inspections,
checks and reviews before a product can be offered for sale.
Every person involved in making a product is responsible for making it a quality product.
Quality departments, such as Quality Control (QC) or Quality Assurance (QA) cannot inspect
quality into the product. The Quality Departments exist as an audit function within the
manufacturing and packaging areas.
 Approve or reject all procedures, specifications, methods, and results
 Approve or reject all raw materials, packaging materials, labeling and finished products
 Review all production records for accuracy and completeness before approving for
distribution
 Establish procedures for revising procedures, formulas, and more
 Approve changes to procedures, formulas, and more
 Ensure that the latest revision is being used at all times
 Perform all the required tests to ensure identity, purity, potency and composition, and to
ensure that products are not contaminated or adulterated
NOW Quality staff is also involved in:
 Investigation of consumer complaints
 Evaluation of new vendors/materials
 Internal audits to verify compliance to regulations

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 Maintaining relationships with vendors and regulatory agencies

Importance or Benefits of Quality Control | Production Management
 Encourages quality consciousness:
 Satisfaction of consumers:
 Reduction in production cost:
 Most effective utilisation of resources:
 Reduction in inspection costs:
 Increased goodwill:
 Higher morale of employees:
 Improved employer-employee relations:
MARKETING INTRODUCTION:
In today's world of marketing, everywhere you go you are being marketed to in one form
or another. Marketing is with you each second of your walking life. From morning to night you
are exposed to thousands of marketing messages every day. Marketing is something that affects
you even though you may not necessarily be conscious of it.
After reading this you'll understand - what exactly the marketing is, to whom it is
beneficial, and what are the nature and scope of marketing.

DEFINITION OF MARKETING:
According to American Marketing Association (2004) - "Marketing is an
organizational function and set of processes for creating, communicating and delivering value to
customers and for managing relationships in a way that benefits both the organization and the
stakeholder."
AMA (1960) - "Marketing is the performance of business activities that direct the flow of
goods and services from producer to consumer or user."
According to Eldridge (1970) - "Marketing is the combination of activities designed to
produce profit through ascertaining, creating, stimulating, and satisfying the needs and/or wants
of a selected segment of the market."
According to Kotler (2000) - "A societal process by which individuals and groups obtain
what they need and want through creating, offering, and freely exchanging products and services
of value with others."
Professor Philip Kotler explained that marketing was “meeting the needs of your
customer at a profit.”
Marketing is meeting the needs and wants of a consumer.
Classical marketing is often described in terms of the four “P’s, which are:
 Product – what goods or services are offered to customers

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 Promotion – how the producer communicates the value of its products

 Price – the value of the exchange between the customer and producer
 Placement – how the product is delivered to the customer.

NATURE OF MARKETING:
1. Marketing is an Economic Function:
Marketing embraces all the business activities involved in getting goods and services,
from the hands of producers into the hands of final consumers. The business steps through which
goods progress on their way to final consumers is the concern of marketing.
2. Marketing is a Legal Process by which Ownership Transfers:
In the process of marketing the ownership of goods transfers from seller to the purchaser
or from producer to the end user.
3. Marketing is a System of Interacting Business Activities
Marketing is that process through which a business enterprise, institution, or organisation
interacts with the customers and stakeholders with the objective to earn profit, satisfy customers,
and manage relationship. It is the performance of business activities that direct the flow of goods
and services from producer to consumer or user.
4. Marketing is a Managerial function:
According to managerial or systems approach - "Marketing is the combination of
activities designed to produce profit through ascertaining, creating, stimulating, and satisfying
the needs and/or wants of a selected segment of the market."
According to this approach the emphasis is on how the individual organisation processes
marketing and develops the strategic dimensions of marketing activities.
5. Marketing is a social process:
Marketing is the delivery of a standard of living to society.
According to Cunningham and Cunningham (1981) societal marketing performs three
essential functions:-
1. Knowing and understanding the consumer's changing needs and wants;
2. Efficiently and effectively managing the supply and demand of products and services;
and
3. Efficient provision of distribution and payment processing systems.
6. Marketing is a philosophy based on consumer orientation and satisfaction
7. Marketing had dual objectives - profit making and consumer satisfaction

SCOPE OF MARKETING:
1. Study of Consumer Wants and Needs:
Goods are produced to satisfy consumer wants. Therefore study is done to identify consumer
needs and wants. These needs and wants motivates consumer to purchase.
2. Study of Consumer behavior:

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Marketers perform study of consumer behavior. Analysis of buyer behavior helps marketer in
market segmentation and targeting.
3. Production planning and development:
Product planning and development starts with the generation of product idea and ends with the
product development and commercialization. Product planning includes everything from
branding and packaging to product line expansion and contraction.
4. Pricing Policies:
Marketer has to determine pricing policies for their products. Pricing policies differs form
product to product. It depends on the level of competition, product life cycle, marketing goals
and objectives, etc.
5. Distribution:
Study of distribution channel is important in marketing. For maximum sales and profit goods are
required to be distributed to the maximum consumers at minimum cost.
6. Promotion:
Promotion includes personal selling, sales promotion, and advertising. Right promotion mix is
crucial in accomplishment of marketing goals.
7. Consumer Satisfaction:
The product or service offered must satisfy consumer. Consumer satisfaction is the major
objective of marketing.

8. Marketing Control:
Marketing audit is done to control the marketing activities.

Functions of Marketing:
The ultimate aim of marketing is exchange of goods and services from producers to
consumers in a way that maximizes the satisfaction of customer’s needs. Marketing functions
start from identifying the consumer needs and end with satisfying the consumer needs. The
universal functions of marketing involve buying, selling, transporting, storing, standardizing and
grading, financing, risk taking and securing marketing information. However, modern marketing
has some other functions such as gathering the market info and analyzing that info. Market
planning and strategy formation. To assist in product designing and development also comes
under the marketing functions. The marketing functions have been discussed here briefly:
1. Market Information: To identify the needs, wants and demands of the consumers and
then analyzing the identified information to arrive at various decisions for the successful
marketing of a firm’s products and services is one of the most important functions of marketing.
The analysis involves judging the internal weaknesses and strengths of the organization as well
politico-legal, social and demographic data of the target market. This information is further used
in market segmentations.

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2. Market Planning: Market-planning aims at achieving a firm’s marketing objectives.

These objectives may involve increasing market presence, dominate the market or increase
market share. The market planning function covers aspects of production levels, promotions and
other action programmes.
3. Exchange Functions: The buying and selling are the exchange functions of marketing.
They ensure that a firm’s offerings are available in sufficient quantities to meet customer
demands. The exchange functions are supported by advertising, personal selling and sales
promotions.
4. Product Designing and development: The product design helps in making the prodyct
attractive to the target market. In today’s competitive market environment not only cost matters
but also the product design, suitability, shape, style etc. matter a lot in taking production
decisions.
5. Physical Distribution: The physical distribution functions of marketing involve
transporting and storing. The transporting function involve moving products from their points of
production to locations convenient for purchasers and storing function involve the warehousing
products until needed for sale.
6. Standardization and Grading: Standardization involves producing goods at
predetermined specifications. Standardization ensures that product offerings meet established
quality and quantity. It helps in achieving uniformity and consistency in the output product.
Grading is classification of goods in various groups based upon certain predetermined
characteristics. It involves the control standards of size, weight etc. Grading helps in pricing
decisions also. The higher quality goods and services attract higher prices.
7. Financing: The financing functions of marketing involve providing credit for channel
members or consumers.
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8. Risk Taking: Risk taking is one of the important marketing functions. Risk taking in
marketing refers to uncertainty about consumer purchases resulting from creation and marketing
of goods and services that consumers may purchase in future.
9. Packaging, labeling and branding: packaging involves designing package for the
products, labeling means putting information required / specified on a product’s covering.
Packaging and labeling serve as promotional tools now a days, Branding distinguishes the
generic commodity name to a brand name. For example, Wheat Flour is a generic name of a
commodity while “Ashirvad Aata” is a brand name. In service industry, also branding matters a
lot.
10. Customer Support: Customer support is a very important function of marketing. It
involves pre sales counseling, after sales service, handling the customer complaints and
adjustments, credit services, maintenance services, technical services and consumer information.
For example, water purifier comes with an onsite service warranty of 7 years helps in marketing
and is an important marketing function as well.
Market Segmentation:
Market segmentation is one of the most efficient tools for marketers to cater to their
target group. It makes it easier for them to personalize their campaigns, focus on what’s
necessary, and to group similar consumers to target a specific audience in a cost-effective
manner. Market segmentation is being used by marketers since late 1900’s. Simple though it may
be, it is of vital use to forming any marketing plan.
What is Market Segmentation?
Market Segmentation is a process of dividing the market of potential customers into
different groups and segments on the basis of certain characteristics. The member of these
groups share similar characteristics and usually have one or more than one aspect common
among them.
There are many reasons as to why market segmentation is done. One of the major reasons
marketers segment market is because they can create custom marketing mix for each segment
and cater them accordingly.
The concept of market segmentation was coined by Wendell R. Smith who in his article
“Product Differentiation and Market Segmentation as Alternative Marketing Strategies”
observed “many examples of segmentation” in 1956. Present-day market segmentation exists
basically to solve one major problem of marketers; more conversions. More conversion is
possible through personalized marketing campaigns which require marketers to segment market
and draft better product and communication strategies according to needs of the segment.
Bases of Market Segmentation
Segmenting is dividing a group into subgroups according to some set ‘basis’. These bases
range from age, gender, etc. to psychographic factors like attitude, interest, values, etc.

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Gender
Gender is one of the most simple yet important bases of market segmentation. The
interests, needs and wants of males and females differ at many levels. Thus, marketers focus on
different marketing and communication strategies for both. This type of segmentation is usually
seen in the case of cosmetics, clothing, and jewellery industry, etc.
Age group
Segmenting market according to the age group of the audience is a great strategy for
personalized marketing. Most of the products in the market are not universal to be used by all the
age groups. Hence, by segmenting the market according to the target age group, marketers create
better marketing and communication strategies and get better conversion rates.
Income
Income decides the purchasing power of the target audience. It is also one of the key factors
to decide whether to market the product as a need, want or a luxury. Marketers usually segment
the market into three different groups considering their income. These are
 High Income Group
 Mid Income Group
 Low Income Group
This division also varies according to the product, its use, and the area the business is operating
in.
Place
The place where the target audience lives affect the buying decision the most. A person
living in mountains will have less or no demand for ice cream than the person living in a desert.
Occupation
Occupation, just like income, influences the purchase decision of the audience. A need
for an entrepreneur might be a luxury for a government sector employee. There are even many
products which cater to an audience engaged in a specific occupation.
Usage
Product usage also acts as a segmenting basis. A user can be labelled as heavy, medium
or light user of a product. The audience can also be segmented on the basis of their awareness of
the product.
Lifestyle
Other than physical factors, marketers also segment the market on the basis of lifestyle.
Lifestyle includes subsets like marital status, interests, hobbies, religion, values, and other
psychographic factors which affect the decision making of an individual.

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Types of Market Segmentation:

Geographic Segmentation
Geographic segmentation divides the market on the basis of geography. This type of
market segmentation is important for the marketers as people belonging to different regions may
have different requirements. For example, water might be scarce in some regions which inflates
the demand for bottled water but, at the same time, it might be in abundance in other regions
where the demand for the same is very less.
People belonging to different regions may have different reasons to use the same product
as well. Geographic segmentation helps marketer draft personalized marketing campaigns for
everyone.
Demographic Segmentation
Demographic segmentation divides the market on the basis of demographic variables like
age, gender, marital status, family size, income, religion, race, occupation, nationality, etc. This
is one of the most common segmentation practice among the marketers. Demographic
segmentation is seen almost in every industry like automobiles, beauty products, mobile phones,
apparels, etc and is set on a premise that the customers’ buying behaviour is hugely influenced
by their demographics.
Behavioural Segmentation
The market is also segmented based on audience’s behaviour, usage, preference, choices
and decision making. The segments are usually divided based on their knowledge of the product
and usage of the product. It is believed that the knowledge of the product and its use affects the
buying decision of an individual. The audience can be segmented into –

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 Those who know about the product,

 Those who don’t know about the product,
 Ex-users,
 Potential users,
 Current Users,
 First time users, etc.
People can be labelled as brand loyal, brand-neutral, or competitor loyal. They can also
be labelled according to their usage. For example, a sports person may prefer an energy drink as
elementary (heavy user) and a not so sporty person may buy it just because he likes the taste
(light/medium user).
Psychographic Segmentation
Psychographic Segmentation divides the audience on the basis of their personality,
lifestyle and attitude. This segmentation process works on a premise that consumer buying
behaviour can be influenced by his personality and lifestyle. Personality is the combination of
characteristics that form an individual’s distinctive character and includes habits, traits, attitude,
temperament, etc. Lifestyle is how a person lives his life.
Personality and lifestyle influence the buying decision and habits of a person to a great extent. A
person having a lavish lifestyle may consider having an air conditioner in every room as a need,
whereas a person living in the same city but having a conservative lifestyle may consider it as a
luxury.
Nature of a market segment
A market segment needs to be homogeneous. There should be something common
among the individuals in the segment that the marketer can capitalise on. Marketers also need to
check that different segments have different distinguishing features which make
them unique. But segmenting requires more than just similar features. Marketers must also
ensure that the individuals of the segment respond in a similar way to the stimulus. That is,
the segment must have a similar type of reaction to the marketing activities being pitched.
Market research:
the action or activity of gathering information about consumers' needs and preferences.
What is Market Research?
Market research consists of systematically gathering data about people or companies – a
market – and then analyzing it to better understand what that group of people needs. The results
of market research, which are usually summarized in a report, are then used to help business
owners make more informed decisions about the company’s strategies, operations, and potential
customer base.
Understanding industry shifts, changing consumer needs and preferences, and legislative
trends, among other things, can shape where a business chooses to focus its efforts and resources.
That’s the value of market research.
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Meaning, if your research told you that scientists had recently created a new kind of
fabric that helped the wearer lose weight just by putting it on, for example, your retail clothing
store might want to adjust its buying plan to test designs using this new fabric. Or if you
uncovered that shoppers in your area rely heavily on coupons in making a purchase decision, you
might decide to test sending your mailing list a promotional coupon.
Market research can help businesses run more efficiently and market more effectively.
Types of Market Research
While there are a number of market research tools you can use, there are really only two types
of market research data:
 Primary. Primary data is first-hand information you gather yourself, or with the help of a
market research firm. You control it.
 Secondary. Secondary data is pre-existing public information, such as the data shared in
magazines and newspapers, government or industry reports. You can analyze the data in new
ways, but the information is available to a large number of people.
Using primary or secondary data, there are two types of research studies:
 Exploratory. Exploratory market research gathers lots of open-ended data from many people
to better understand a problem or opportunity. The goal is to gather perceptions and opinions
regarding an issue, so your company can decide how to address it. But first you have to
understand how your market sees the issue.
 Specific. Once you understand the larger market issues, or opportunities, you can use specific
questions to gather information that could lead to a new product or service. Market research
firms often use specific questions to gather feedback on a new advertising campaign, or to
refine a planned new product.
Primary Market Research Tools
While primary research is more time-consuming and expensive, sometimes it’s the only way
to get the information you need. The most common primary research tools are:
 Surveys. Asking customers a series of questions to better understand how they feel about a
product’s features, or about the experience they had during their hotel stay, for example, are
two possible uses of a survey. Surveys consist of a list of questions that can be shared with an
individual by phone, in person, on a card or paper, or online using a survey software.
 Focus groups. Bringing together groups of people with a common characteristic, such as age,
hobby, or buying habits, to better understanding their likes and dislikes is a focus group. Focus
groups typically consist of 8-12 people with a moderator who poses questions for the group to
discuss. They are a useful way of getting feedback on a new product, new features, or new ad
campaign.
 Observation. When the researcher gathers information simply by watching how a subject
interacts with a product, the technique is observation. This is often used in comparing
preferences for several types of products.

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 In-depth interviews. Another market research technique is the one-on-one interview with an
individual, during which probing questions are posed to better understand that person’s
product preferences.
Sources of Secondary Data
When conducting market research to better understand industry trends and broader shifts,
secondary research is often a good place to start. Some of the most useful sources include:
 Industry associations and trade groups – most associations publish annual outlooks
 Trade journals specific to your industry
 Government reports - such as the Census or annual federal procurement results
 Industry analysts – these individuals monitor the performance of public companies in your
space
 University faculty members – see what research reports they may have published
 Websites – while Wikipedia isn’t a reliable source, there may be others that lead you to
reputable sources and reports
 Competitor websites and materials – to convince potential customers to buy from them, they
may share useful statistics and reports
The purpose of market research is to provide information that will assist you in making better
decisions, to help your company be more successful.
Marketing Management - Distribution Channels
A distribution channel is the route through which goods or services move from the
company to the customer or the transfer of payment happens from the customer to the company.
Distribution channels can mean selling of products directly or selling through wholesalers,
retailers etc. The same applies for payment transfer from customers to company; it can move
through a path or can be sent directly to the company.

Functions of Distribution Channels:

Distribution channels basically function to deliver goods from the manufacturer to the customer.

The following are the functions of distribution channels −

 Facilitate selling by being physically close to customers
 Gather information about potential and current customer competitions, other factors and
forces of the environment
 Provide distributional efficiency by bridging the gap between the manufacturer and the
user efficiently and economically
 Assemble products into assortments to meet buyers’ needs

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 Match segments of supply with segments of demand

 Assist in sales promotion
 Assist in introducing new products
 Assist in implementing the price mechanism
 Assist in developing sales forecast
 Provide market intelligence and feedback
 Maintain records
 Take care of liaison requirements
 Standardize transaction
Objectives of Distribution Channels:
Objectives of a distribution channel are planned as per the target of the enterprise and
executed respectively. The following are the various objectives behind the planning of
distribution channels −
 To ensure availability of products at the point of sale
 To build channel member’s loyalty
 To stimulate channel members to put greater selling efforts
 To develop management efficiency in channel organization
 To identify the organization at the level
 To have an efficient and effective distribution system for making the products and
services available readily, regularly, equitably and fresh.
Major Channels of Distribution:

Here is a list of some of the major channels of distribution −

 Manufacturer → Consumer

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 Manufacturer → Retailer → Customer

 Manufacturer → Wholesaler → Customer
 Manufacturer → Wholesaler → Retailer → Customer
 Manufacturer → Agent → Retailer → Customer
 Manufacturer → Agent → Wholesaler → Customer
 Manufacturer → Agent → Wholesaler → Retailer → Customer
Profit distribution decreases as the channel length increases.
Designing Distribution Channels:
We have seen what a distribution channel is. Let us now see the designing process of a
distribution channel.

The following steps are involved in the designing of a channel system −

 Formulating the channel objectives
 Identifying the functions to be performed by the channel
 Analyzing the product and linking the channel design to the product characteristics
 Evaluating the distribution environment, including legal aspects
 Evaluating competitor’s channel designs
 Evaluating company resources and matching the channel design to the resources
 Generating alternative designs, evaluating them and selecting the one that suits the firm
best

Classification of Wholesalers:
A wholesaler purchases from the manufacturer and further distributes the product to
customers or retailers. Wholesalers can be classified into the following categories as per area of
functioning −
 Merchant wholesalers
 Agents and brokers
 Manufacturer’s sales branches and offices

Sales Promotion:
Sales promotion is one level or type of marketing aimed either at the consumer or at the
distribution channel (in the form of sales-incentives). It is used to introduce new product, clear
out inventories, attract traffic, and to lift sales temporarily.

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Definition of 'Sales Promotion':

Sales promotions are the set of marketing activities undertaken to boost sales of the
product or service.

Definition: Sales promotions are the set of marketing activities undertaken to boost sales of the
product or service.
Description: There are two basic types of sales promotions: trade and consumer sales
promotions. The schemes, discounts, freebies, commissions and incentives given to the trade
(retailers, wholesalers, distributors, C&Fs) to stock more, push more and hence sell more of a
product come under trade promotion. These are aimed at enticing the trade to stock up more and
hence reduce stock-outs, increase share of shelf space and drive sales through the channels.
However, trade schemes get limited by the cost incurred by the company as well as the
limitations of the trade in India to stock up free goods. Incentives can be overseas trips and gifts.
Objectives of Sales Promotion:
Sales promotion is a vital bridge or a connecting link between personal selling and advertising.
Sales promotion activities are undertaken to achieve the following objectives:
 To increase sales by publicity through the media which are complementary to press and
poster advertising.
 To disseminate information through salesmen, dealers etc., so as to ensure the product
getting into satisfactory use by the ultimate consumers.
 To stimulate customers to make purchases at the point of purchase.
 To prompt existing customers to buy more.
 To introduce new products.
 To attract new customers.
 To meet competition from others effectively.
 To check seasonal decline in the volume of sales.
Importance of Sales Promotion:
The importance of sales promotion has increased tremendously in the modern times.
Lakhs of rupees are being spent on sales promotional activities to attract the consumers in our
country and also in other countries of the world.
Some large companies have also begun to appoint sales promotion managers to handle
miscellaneous promotional tools. All these facts show that the importance of sales promotion
activities is increasing at a faster rate.

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11 Important Techniques of Sales Promotion:

1) Rebate: Under it in order to clear the excess stock, products are offered at some reduced
price. For example, giving a rebate by a car manufacturer to the tune of 12,000/- for a limited
period of time.
(2) Discount: Under this method, the customers are offered products on less than the listed
price. For example, giving a discount of 30% on the sale of Liberty Shoes. Similarly giving a
discount of 50% + 40% by the KOUTONS.
(3) Refunds: Under this method, some part of the price of an article is refunded to the customer
on showing proof of purchase. For example, refunding an amount of 5/- on showing the empty
packet of the product priced 100/-.
(4) Product Combination: Under this method, along with the main product some other product
is offered to the customer as a gift. The following are some of the examples:
(5) Quantity Gift: Under this method, some extra quantity of the main product is passed on as a
gift to the customers. For example, 25% extra toothpaste in a packet of 200 gm tooth paste.
Similarly, a free gift of one RICH LOOK shirt on the purchase of two shirts.
(6) Instant Draw and Assigned Gift: Under this method, a customer is asked to scratch a card
on the purchase of a product and the name of the product is inscribed thereupon which is
immediately offered to the customer as a gift. For example, on buying a car when the card is
scratched such gifts are offered – TV, Refrigerator, Computer, Mixer, Dinner Set, Wristwatch,
T-shirt, Iron Press, etc.
(7) Lucky Draw: Under this method, the customers of a particular product are offered gifts on a
fixed date and the winners are decided by the draw of lots. While purchasing the product, the
customers are given a coupon with a specific number printed on it.
On the basis of this number alone the buyer claims to have won the gift. For example,
‘Buy a bathing soap and get a gold coin’ offer can be used under this method.
(8) Usable Benefits: Under this method, coupons are distributed among the consumers on behalf
of the producer. Coupon is a kind of certificate telling that the product mentioned therein can be
obtained at special discount.
It means that if a customer has a coupon of some product he will get the discount
mentioned therein whenever he buys it. Possession of a coupon motivates the consumer to buy
the product, even when he has no need of it.
Such coupons are published in newspapers and magazines. Some companies distribute
coupons among its shareholders. Sellers collect the coupons from the customers and get the
payment from the company that issues the same.
(9) Full Finance @ 0%: Under this method, the product is sold and money received in
installment at 0% rate of interest. The seller determines the number of installments in which the
price of the product will be recovered from the customer. No interest is charged on these
installments.

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(10) Samples or Sampling: Under this method, the producer distributes free samples of his
product among the consumers. Sales representatives distribute these samples from door-to-door.
This method is used mostly in case of products of daily-use, e.g., Washing Powder, Tea,
Toothpaste, etc. Thus, the consumers willy-nilly make use of free sample. If it satisfies them,
they buy it and in this way sales are increased.
(11) Contests: Some producers organise contests with a view to popularizing their products.
Consumers taking part in the contest are asked to answer some very simple questions on a form
and forward the same to the company. The blank form is made available to that consumer who
buys the product first.
Result is declared on the basis of all the forms received by a particular date. Attractive
prizes are given to the winners of the contest. Such contests can be organised in different ways.
Pricing a Product:
No matter what type of product you sell, the price you charge your customers or clients will
have a direct effect on the success of your business. Though pricing strategies can be complex,
the basic rules of pricing are straightforward:
 All prices must cover costs and profits.
 The most effective way to lower prices is to lower costs.
 Review prices frequently to assure that they reflect the dynamics of cost, market demand,
response to the competition, and profit objectives.
 Prices must be established to assure sales.
Before setting a price for your product, you have to know the costs of running your business.
If the price for your product or service doesn't cover costs, your cash flow will be cumulatively
negative, you'll exhaust your financial resources, and your business will ultimately fail.
To determine how much it costs to run your business, include property and/or equipment
leases, loan repayments, inventory, utilities, financing costs, and salaries/wages/commissions.
Don't forget to add the costs of markdowns, shortages, damaged merchandise, employee
discounts, cost of goods sold, and desired profits to your list of operating expenses.
Most important is to add profit in your calculation of costs. Treat profit as a fixed cost, like a
loan payment or payroll, since none of us is in business to break even.
Because pricing decisions require time and market research, the strategy of many
business owners is to set prices once and "hope for the best." However, such a policy risks
profits that are elusive or not as high as they could be.
When is the right time to review your prices? Do so if:
 You introduce a new product or product line;
 Your costs change;
 You decide to enter a new market;
 Your competitors change their prices;

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 The economy experiences either inflation or recession;

 Your sales strategy changes; or
 Your customers are making more money because of your product or service.
There are several pricing strategies:
Premium pricing: high price is used as a defining criterion. Such pricing strategies work in
segments and industries where a strong competitive advantage exists for the company. Example:
Porche in cars and Gillette in blades.

Penetration pricing: price is set artificially low to gain market share quickly. This is done when
a new product is being launched. It is understood that prices will be raised once the promotion
period is over and market share objectives are achieved. Example: Mobile phone rates in India;
housing loans etc.
Economy pricing: no-frills price. Margins are wafer thin; overheads like marketing and
advertising costs are very low. Targets the mass market and high market share. Example:
Friendly wash detergents; Nirma; local tea producers.
Skimming strategy: high price is charged for a product till such time as competitors allow after
which prices can be dropped. The idea is to recover maximum money before the product or
segment attracts more competitors who will lower profits for all concerned. Example: the earliest
prices for mobile phones, VCRs and other electronic items where a few players ruled attracted
lower cost Asian players.

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Global Aspects of Entrepreneurship:

National borders are no longer defensible against the invasion of knowledge, ideas, and
financial data. -Walter Wriston
The new electronic interdependence recreates the world in the image of a global village. -
Marshall McLuhan
Why Go Global?
 Offset sales declines in the domestic market.
 Increase sales and profits.  Extend their products’ life cycle.
 Lower manufacturing costs.
 Lower the cost of their products.
 Improve competitive position and enhance reputation.
 Raise quality levels.
 Become more customer-oriented.
Before venturing into the global marketplace, entrepreneurs should ask themselves six
questions:
1. Is there a profitable market in which our firm has the potential to be successful over the long
run?
2. Do we have and are willing to commit adequate resources of time, people, and capital to
global campaign?
3. Are we considering going global for the right reasons?
4. Do we understand the cultural differences, history, economics, value systems, opportunities,
and risks of conducting business in the country (or countries) we are considering?
5. Is there a viable exit strategy for our company if conditions change or the new venture is not
successful?
6. Can we afford not to go global?

Strategies for Going Global

Creating a presence on the web
a) Trade intermediaries
o Export management companies
o Export trading companies
o Manufacturer’s export agents
o Export merchants
o Resident buying offices
o Foreign distributors
b) Joint ventures
c) International franchising
1. Identify the county or countries that are best suited to the franchiser’s business concept.
2. Generate leads for potential franchisees.
3. Select quality candidates.

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4. Structure the franchise deal.

d) Countertrading and bartering
e) Foreign licensing
f) Exporting
 Step 1: recognize that even the tiniest companies and least experienced entrepreneurs have the
potential to export.
 Step 2: analyze your product or service.
 Step 3: analyze your commitment.
 Step 4: research markets and pick your target.
 Step 5: develop a distribution strategy.
 Step 6: find your customer.
 Step 7: find financing.
 Step 8: ship your goods.
 Step 9: collect your money.
g) Establishing international locations
 Importing and outsourcing
Entrepreneurs who are considering importing goods and service or outsourcing their
manufacturing to foreign countries should follow these steps:
1. Make sure that importing or outsourcing is right for your business.
2. Establish your target cost for your product.
3. Do your research before you leave home.
4. Be sensitive to cultural differences.
5. Do your groundwork.
6. Protect your company’s intellectual property.
7. Select a manufacturer.
8. Provide an exact model of the product you want manufactured.
9. Stay in constant contact with the manufacturer and try to build a long-term relationship.
Barriers to International Trade
 Domestic barriers
 International barriers
 Tariff barriers
 Nontariff barriers
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 Quotas
 Embargoes
 Dumping
 Political barriers
 Business barriers
 Cultural barriers
National Trade Agreements:
The world trade organization (WTO)

 NAFTA Among NAFTA’s provisions are:

 Tariff reductions

 Elimination of nontariff barriers

 Simplified border processing

 Tougher health and safety standards

 Central america free trade agreement (CAFTA)

Conclusion:
Although there are no sure-fire rules for going global, small businesses that want to
become successful international competitors should observe these guidelines:

o Make yourself at home in all three of the world’s key markets: North America, Europe,
and Asia.
o Appeal to the similarities within the various regions in which you operate but recognize
the differences in their specific cultures.
o Develop new products for the world market.  Familiarize yourself with foreign customs
and languages; constantly scan, clip, and build a file on other cultures: their lifestyles, values,
customs, and business practices.

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