Module 4:

Product: Philip Kotler: “Product is anything that can be offered to someone to satisfy a need or a want.”
Further, it can be said that a product is a bundle of benefits-physical and psychological- that marketer wants
to offer, or a bundle of expectations that consumers want to fulfil. Marketer can satisfy needs and wants of
target consumers by products. Product includes both good and service. Normally, product is taken as a
tangible object. But a tangible product is a package of services or benefits.

Product Classification:
A. Consumer Products: Consumer products are the products purchased for ultimate consumption by the
consumers for satisfying their needs. They can further be divided on the basis of durability and shopping
efforts involved:
1. Durability of Products: The consumer goods can be classified into three parts on the basis of durability:
(a) Non-Durable Products: Non-durable products are those consumer products which are consumed in one
or few uses (soap, salt). These goods have a small profit margin, need heavy advertisement and should be
easily available.
(b) Durable Products: Durable products are the products with longer consumption period and uses (TV,
coolers). These goods provide high profit margin, require greater personal selling efforts, after sales services
etc.
(c) Services: Services are intangible in form and refer to those activities, benefits or satisfaction which are
offered for sale (postal service, tailoring). Services are intangible in nature.

2. Shopping Efforts Involved: Consumer products can be categorized on the basis of the time and efforts buyers
are willing to spend for the purchase of a product:
(a) Convenience Products: These products require minimum time and effort and are purchased frequently
by the customers (bread, sugar). Further classified as Staple goods, Impulse goods, and Emergency goods.
These products are easily available and require minimum time and effort; They are available at low prices;
These are essential goods; so their demand is regular and continuous; They have standardized price; The
supply of these goods is more than the demand; therefore competition for these products is very high;
Sales promotion schemes such as discount, free offer, rebate etc. help in marketing of these products.

(b) Shopping Products: These are the products that require considerable time and effort (clothes, jewellery).
Before making final purchase, a consumer compares the quality, price, style etc. at several stores.
They are durable in nature; These goods have high unit price as well as profit margin; Before making final
purchase, consumer compares the products of different companies; Purchases of these products are pre
planned; An important role is played by the retailer in the sale of shopping products.

(c) Speciality Products: Speciality Products refer to those products which have certain special features due
to which the buyers are willing to spend a lot of time and effort on the purchase of such products. These
products have brand loyalty of highest order (designer clothes, hair styling).
The demand for such products is relatively infrequent; These products are very costly; These are available for
sale only at few places; An aggressive promotion is essential for the sale of such products; Many of the
specialty product require after sales service too.

(d) Unsought Goods: The products classified as unsought goods are those that consumers don’t put much
thought into and generally don’t have compelling impulse to buy. Examples include batteries or life
insurance. Consumers essentially buy unsought goods when they have to, almost as an inconvenience.
Marketing unsought goods will likely be most effective with lots of advertising and salespeople promoting the
idea of unresolved needed.

B. Industrial Products: The products which are used as inputs to produce consumer products are known as
industrial products (raw material, machinery).. These products are used for non-personal & business purposes.
Manufacturers, transport agencies, mining companies etc. are the main parties involved, in marketing of
industrial products.
Following are the main features of Industrial products:
(i) Number of Buyers: have limited number of buyers as compared to consumer goods.
(ii) Channel Levels: as buyers limited, the sales take place with the help of shorter channels of distribution.
(iii) Geographic Concentration: The demand is concentrated at certain fixed geographical locations.
(iv) Derived Demand: The demand depends upon the demand for consumer goods, therefore the demand for
industrial products is known as derived demand.
(v) Role of Technical Considerations: Technical consideration plays an important role in the purchase of
industrial goods because these products are purchased for use in business operations.
(vi) Reciprocal Buying: A company may purchase some raw material from another company and also may
sell its finished good to the same company. Such a practice is known as reciprocal buying.
(vii) Leasing Out: The prices of the industrial products are very high; therefore the companies prefer to take
them on lease instead of buying.

Classification of Industrial Products:

1. Materials and Parts: These refer to the goods that completely enter into the manufacture of a product.
(a) Raw Material: These are of two types (i) agricultural products like sugar cane, wood, rubber etc. and (ii)
natural products like iron ore, crude petroleum etc.
(b) Manufactured Materials and Parts: These are of two types (i) component material like glass, iron,
plastic etc. and (ii) component parts like steering, battery, bulb etc.
2. Capital Items: These are the goods that are used in producing finished goods. They include tools,
machines, computer etc. Capital items are classified into (a) installations like elevators, mainframe computers
etc. and (b) equipment like hand tools, fax machine etc.
3. Supplies and Business Services: These include goods like paints, lubricants, computer stationary etc.
which are required for developing or managing the finished products. These are classified into (a)
maintenance and repair items like paints, nails, solutions etc. and (b) operating supplies like oils, lubricants,
ink etc.

Product Level Hierarchy:

Customers will choose a product based on their perceived value of it. Satisfaction is the degree to which the
actual use of a product matches the perceived value at the time of the purchase. A customer is satisfied only if
the actual value is the same or exceeds the perceived value.

1. Core benefit: The fundamental need or want that consumers satisfy by consuming the product or service.
For example, the need to process digital images.
2. Generic product: A version of the product containing only those attributes or characteristics absolutely
necessary for it to function. For example, the need to process digital images could be satisfied by a generic,
low-end, personal computer using free image processing software or a processing laboratory.
3. Expected product: The set of attributes or characteristics that buyers normally expect and agree to when
they purchase a product. For example, the computer is specified to deliver fast image processing and has a
high-resolution, accurate colour screen.
4. Augmented product: The inclusion of additional features, benefits, attributes or related services that
serve to differentiate the product from its competitors. For example, the computer comes pre-loaded with a
high-end image processing software for no extra cost or at a deeply discounted, incremental cost.
5. Potential product: This includes all the augmentations and transformations a product might undergo in
the future. To ensure future customer loyalty, a business must aim to surprise and delight customers in the
future by continuing to augment products. For example, the customer receives ongoing image processing
software upgrades with new and useful features.
Product Mix: Product mix of a company is made of all product lines and items. It includes the total number of
varieties or models offered by the company. Kotler: “A product mix is the set of all product lines and items
that a particular seller offers for the sale to buyers.”

Product Mix Dimensions:

i. Product Line: Philip Kotler: “Product line is a group of products that are closely related because
they function in a similar way, are sold to same customer groups, are marketed through the same
type of outlets, or fall within given price range.” Thus, product line is the group of similar
products. The similarity may be seen in one or more ways. Product line consists of product items
belonging to same class. Includes the concept of product items which are various varieties offered
within product line, which are similar in one or other ways. Such varieties are based on quality,
size, colour, capacity, price, model, performance, and so on.

ii. Product Mix Length: It refers to the total number of items (in all the product lines) in product
mix. For example, product mix of Bajaj Company has more than 100 items in various product
lines, such as fans, bulbs and tubes, heaters, motorbikes, shooters, rich-show, processing machines,
and many other ranges.

iii. Product Mix Width or Breadth: It indicates the total number of product lines a company carries.
For example, two wheelers (including various models) constitutes one of the product lines of Bajaj
Company.

iv. Product Mix Depth: It refers to a number of varieties in forms of sizes, colours, and models
offered within each product line. It can be said as the average number of product items offered by
the firm in each product line.

v. Product Mix Consistency: It refers to degree to which different product lines are related in one
or other ways. It indicates how closely various product lines are related. The consistency can be
judged on the basis of production requirements, uses of products, distribution channels, or some
other ways. For example, product lines of Philips India Ltd., include radios, bulbs and tubes,
different television sets, VCR, CD-DVD player, tape recorders, etc., can have higher consistency.
While Hindustan Machines and Tools produce wrist watches as well as tractors, it is called
inconsistent product mix.

Product line Decisions: A product line is too short if profits can be increased by adding items; the line is too
long if profits can be increased by dropping items.
1) Line Stretching: occurs when the company lengthens its product line beyond its current length.
I. Down market stretch: A company position in the middle market may want to introduce a lower price
line for any of three reasons:
a. The company may notice strong growth opportunities down the line.
b. The company may wish to tie up lower end competitors who may otherwise try to move upmarket
and thus offer low-priced offering.
c. The company may find that the middle market is stagnating or declining.
II. Upmarket stretch: Companies may wish to enter the high end of the market for more growth, higher
margins or simply to position themselves as full-line manufacturers.
III. Two-way stretch: A company serving the middle market might decide to stretch their line in both
directions.

2) Line Filling: A product line can be also be lengthened by adding more items within the present range
e.g., Maruti introduces Alto in between Zen and 800.

3) Line modernization: In some cases, product line length is adequate but needs to be modernized to be
competitive and refreshing. Shorten/ prune a line- old products or products with decreasing profits,
weak products are all pruned. Ex: P& G had 31 versions of Head and Shoulder shampoo in the
beginning which has been pruned to 15 variants.
Product Mix Pricing: When the product is a part of product mix or portfolio, companies adopt five kinds of
pricing strategies in marketing which are as under:

a. Product Line Pricing: This strategy is used for setting the price for entire product line. Many
companies now a day develop product line instead of a single product. So, product line pricing is
setting the price on the base of cost difference between different products in a product line. Marketer
also keeps in mind the customer evolution of different features and also competitive prices.

b. Optional Product Pricing: This strategy is used to set the price of optional products or accessories
along with a main product. Organizations separate these products from main product because
organizations want that customer should not perceive products are costly. Once the potential
customer comes to the show room, organization employees explain the benefits of buying these
optional or accessory products. For example, refrigerator comes with optional ice maker or CD players
and sound systems are optional product with a car.

c. Captive Product Pricing: This is strategy used for setting a price for a product that must be used
along with a main product, for examples blades with razor and films with a camera. Gillette sells low
priced razors but company make money on the replacement of cartridges.

d. By-Product Pricing: By-product pricing is determining of the price for by-products in order to make
the main product’s price more attractive and competitive. For example, processing of rice results in
two by-products i.e. rice husk and rice brain oil, and sugar cane with husk. Now if company sells husk
and brain oil to other consumers, they will generate extra revenue by adopting this by-product
pricing.

e. Product Bundle Pricing: This is a common price and selling strategy adopted by many companies.
Many companies offer several products together this is called a bundle. Companies offer the bundles at
the reduced price. This strategy helps many companies to increase sales, and to get rid of the unused
products. This bundle pricing strategy also attracts the price conscious consumer. Best example is
anchor toothpaste with brush at offered lower prices

f. Two-part Pricing: usually has a fixed element and variable element of pricing which depends upon
the consumer usage, requirement, etc. E.g. Telecom, DTH.

Product Life Cycle: Philip Kotler: ”The product life cycle is an attempt to recognize distinct stages in sales
history of the product.” More clearly and comprehensively, we can define it as: Product life cycle is the
historical study of (sales of) the product. It includes when it was introduced; when it was getting rapid
acceptance; when it was on the peak of its position; when it started falling from the peak; and when it
disappeared. Product passes through certain stages during its life span.

Assumptions:
“S” shape cure is an ideal state, and is hardly possible. Such diagram – stages, sales curve, and profit curve- is
possible only if following assumptions are fulfilled:

1) Product completes its entire life cycle. It passes through all four stages of its life.
2) Duration of each of the stages is equal or fixed.
 3) 3. There is no reintroduction of product.
4) Product passes through stages in chronological order, that is, one, two, three and likewise. There is no
bypassing or overlapping of any of the stages.

Stages of Product Life Cycle:

Product life cycle comprises of four steps/stages. Each stage of product life cycle can be characterized in
terms of at least four aspects – sales volume, amount of profits, level of promotional efforts and expenses, and
degree of competition. Each stage demands the unique marketing strategy:

a. Introduction Stage: Introduction stage starts when a new product is, for the very first time, made
available for purchase. Consumers are not aware of product, or they may not have general opinion and
experience regarding product. Moreover, a new product has to face the existing products. So, the sales remain
limited. In the very initial stage, there is loss or negligible profit. During this period, the direct competition is
almost absent. Company has not mastered production and selling problems. Price is normally high to
recover/offset costs of development, production, and marketing with minimum sales. So, sales rise at
gradually.
Characteristics of introduction stage include:
(i) Huge selling and promotional costs are required to increase awareness of customers.
(ii) Price is kept high to recover high development, production, and marketing costs.
(iii) Marketer has to tackle technical and production problems.
(iv) Sale is low and increasing at a lower rate.
(v) There is loss or negligible profit.
(vi) There is no competition

b. Growth Stage: This is the stage of a rapid market acceptance. Due to increased awareness, the product
gets positive repose from market. This stage is marked by a rapid climb in sales. Sales rise at the increasing
rate. Profits follow the sales. Seller shifts his promotional attempts from “try-my-brand” to “buy-my-brand.”
Company tries to develop effective distribution network. Here, the most of production and marketing
problems are mastered. Due to rise in profits, competitors are attracted. At a right time, price may be reduced
to attract the price-sensitive buyers. Company continues, even increases, its selling and promotional efforts to
educate and convince the market and meet competition. At the end of growth stage, sales start increasing at
decelerated rate, consequently, profits start to decline.

Characteristics of growth stage include:

(i) Sales increase rapidly (or at increasing rate) as a result of consumer acceptance of the products.
(ii) Company can earn maximum profits.
(iii) Competitors enter the market due to attractive profits.
(iv) Price is reduced to attract more consumers.
(v) Distribution network is widened and improved.
(vi) Necessary primary changes are made in product to remove defects.
(vii) Company enters the new segments and new channels are selected.

c. Maturity Stage: This stage is marked with slowdown of sales growth. Sales continue to rise but at
decreasing rate. Competitors have entered the market and existing products face severe competition. Sales
curve is pushed downward. It is just like an inverse “U.” During this stage, for certain period of time, sales
remain stable. This level is called the Saturation. Profits also decline. Normally, this stage lasts longer and
marketers face formidable challenges. The stages may be divided into three phases:
i. Growth Maturity: Sales-growth rate starts to decline.
ii. Stable Maturity: Sales remain stable (i.e., saturation stage).
iii. Decline Maturity: Sales now start to decline.
Marginal producers are forced to drop out the products. Those who operate formulate various strategies to
extend the stage. Market, products, and marketing programme are to be modified to sustain the stage.

Characteristics of maturity stage include:

i. Sales increase at decreasing rate.
ii. Profits start to decline.
iii. Marginal competitors leave the market.
 iv. Customer retention is given more emphasis.
v. Product, market, and marketing mix modifications are undertaken.

d. Decline Stage: This is the last stage of product life cycle. Here, sales stat declining rapidly. Profits also
start erasing. There is a minimum profit or even a little loss. Advertising and selling expenses are reduced to
realize some profits. This stage is faced by only those who survived in maturity stage.
Most products obsolete as new products enter the market. All products have to face the stage earlier or later.
New products start their own life cycle and replace old ones. A number of competitors withdraw from the
market. Those who remain in the market prefer to drop smaller segments, make minor changes in products,
and continue selling the products in profitable segments and channels. Here, logic has its own role.
Management continues with the same product with expectation that sales improve when economy improves;
marketing strategy is revised expecting that competitors will leave the market; or product is improved to
attract new market segments. However, unless a strong reason exists, it is costly and risky to continue with
the same products. Later on it is difficult of manage selling and promotional efforts. Marketer must check
every possibility before dropping the product completely.

Characteristics of decline stage include:

i. Sales fall rapidly.
ii. Profits fall more rapidly than sales.
iii. Product modification is adopted.
iv. Gradually, the company prefers to shift resources to new products.
v. Most of sellers withdraw from the market.
vi. Promotional expenses are reduced to realize a little profit.

Types of PLC:
Style: A style is the manner in which a product is presented and certain styles come and go. The current style
for mobile phone is touch screen and this style will last until a new technology style appears. So, the shape of
a style product life cycle is like a wave, as one style fades out, another appears.
Fashion: A fashion is a current trend or popular style in a particular field. A fashion can have a long or short
product life cycle. Certain clothing fashions last for a short period and the product life cycle will decline very
rapidly, whilst others will decline slowly or even turn into what is known as a timeless classic product life
cycle.
Fad: A fad is a product that is around for a short period and is generated by hype. For a fad product sales peak
very quickly, as this product has a very short product life cycle. Sometimes a product may follow the standard
product life cycle but have one stage of the product life cycle which has a fad type of unusually high peak in
sales.

Differentiation between products:

Forms; Features; Performance Quality; Conformance Quality; Durability; Reliability; Repairability; Style.
New Product Development:
New Product Development (NPD) is the total process that takes a service or a product from conception to
market. Your business may need to engage in this process due to changes in consumer preferences, increasing
competition and advances in technology, or to capitalise on a new opportunity. The steps in product
development include drafting the concept, creating the design, developing the product or service, and defining
the marketing.
Need and purpose for NPD:
Changes in Market: Today’s market is much dynamic as compared to the past. Due to increased education,
borderless marketing, severe competition, and availability of a number of substitutes have posed tremendous
challenges for today’s marketers. Market fashion, preference, and habits are constantly changing and
marketer finds no option except to respect such market changes, by positive response in terms of innovation.
Thus, consumer behaviour is one of the dominant reasons for innovation.
2. Changes in Technology: Due to continuous technological development, new production methods are
invented. Old technology and production methods are replaced by newer ones. A company spends a large
amount of money for technological research. To match the technological changes, new products are
developed.
3. Increasing Competition: Increasing competition is one of significant reasons leading to go for innovation.
Every company struggles to attract and maintain consumers by offering superior products. To offer more
competitive advantages and to satisfy consumer more effectively and efficiently, the product innovation seems
to be necessary.
4. Diversification of Risk: In many cases, a company develops new products just to diversify risk. Existing
products may not be capable to match with market needs and wants. By offering more varieties, a company
can minimize the degree of obsolescence. Thus, the need for continuous innovation arises because older
products are thrown out of market.
5. Reputation and Goodwill: To create image and reputation as an innovative and dynamic firm, the
innovation is adopted. Company wishes to convince the market that it tries seriously to meet consumer’s
expectations. Obviously, a company developing new products periodically has more reputation, and can
attract consumers easily.
6. Utilization of Excess Capacity: Excess capacity may be in form of production capacity or human skills.
To utilize maximum plant and material capacity, a company may go for developing a new product.
Sometimes, excess managerial or human capacity may also tempt the company to opt for innovation.
7. Seasonal Fluctuations: Sometimes, new products are developed just to minimize seasonal fluctuations in
demand. By producing new product, a company can meet seasonal requirements of market. Market is satisfied
due to matching products in each of the seasons, and company can get attractive business.
8. Growth and Development: Innovation is an effective way to win more market share or sales. Marketer
can exploit emerging opportunities by innovative products. When it is not possible to accelerate growth rate
by the existing products, a company prefers to develop new products to expand its market, maximize sales,
and earn more profits.

Stages in NPD:
1. Idea generation: Idea generation refers to the systematic search for new-product ideas. This stage
involves creating a large pool of ideas from various sources, which include Internal sources (employee
contributions, R&D); SWOT analysis; Market research – Companies constantly reviews the changing
needs, wants, and trends in the market; Customers – Sometimes reviews and feedbacks from the
customers or even their ideas can help companies generate new product ideas; Competition –
Competitors SWOT analysis can help the company generate ideas.

2. Idea screening: It includes filtering the ideas to pick out good ones, i.e., all ideas generated are screened to
spot good ones and drop poor ones as soon as possible. While the purpose of idea generation was to create
a large number of ideas, the purpose of the succeeding stages is to reduce that number. The reason is that
product development costs rise greatly in later stages. Therefore, the company would like to go ahead
only with those product ideas that will turn into profitable products. Factors here include: Company’s
strength, Company’s weakness, Customer needs, Ongoing trends, Expected ROI, Affordability, etc.
3. Concept development and Testing: A product concept is a detailed version of the new-product idea
stated in meaningful consumer terms. Concept development- The idea has passed the idea screening and
must now be developed into a concept. The marketer’s task is to develop this new product into alternative
product concepts. Then, the company can find out how attractive each concept is to customers and choose
the best one. Possible product concepts for this electric car could be. Concept testing- New product
concepts need to be tested with groups of target consumers. The concepts can be presented to consumers
either symbolically or physically. The question is always: does the particular concept have strong
consumer appeal? After exposing the concept to the group of target consumers, they will be asked to
answer questions in order to find out the consumer appeal and customer value of each concept.

4. Marketing strategy development: When a promising concept has been developed and tested, it is time
to design an initial marketing strategy for the new product based on the product concept for introducing
this new product to the market. The marketing strategy statement consists of three parts and should be
formulated carefully:

• A description of the target market, the planned value proposition, and the sales, market share and
profit goals for the first few years
• An outline of the product’s planned price, distribution and marketing budget for the first year
• The planned long-term sales, profit goals and the marketing mix strategy.

5. Business analysis: Once decided upon a product concept and marketing strategy, management can
evaluate the business attractiveness of the proposed new product. It involves a review of the sales, costs
and profit projections for the new product to find out whether these factors satisfy the company’s
objectives. If they do, the product can be moved on to the product development stage. In order to estimate
sales, the company could look at the sales history of similar products and conduct market surveys,
through this the firm can estimate the expected costs and profits for a product, including marketing, R&D,
operations etc.

6. Product development: Up to this point, for many new product concepts, there may exist only a word
description, a drawing or perhaps a rough prototype. But if the product concept passes the business test, it
must be developed into a physical product to ensure that the product idea can be turned into a workable
market offering. The problem is, though, that at this stage, R&D and engineering costs cause a huge jump
in investment. The R&D department will develop and test one or more physical versions of the product
concept. The products often undergo tests to make sure they perform safely and effectively. This can be
done by the firm itself or outsourced. In many cases, marketers involve actual customers in product
testing. Consumers can evaluate prototypes and work with pre-release products. Their experiences may
be very useful in the product development stage.

7. Test marketing: In this stage, the product and its proposed marketing programme are tested in realistic
market settings. Therefore, test marketing gives the marketer experience with marketing the product
before going to the great expense of full introduction (including targeting and positioning strategy,
advertising, distributions, packaging etc. before the full investment is made). The amount of test
marketing necessary varies with each new product.

8. Commercialisation: Commercialisation means nothing else than introducing a new product into the
market. At this point, the highest costs are incurred: the company may need to build or rent a
manufacturing facility. Large amounts may be spent on advertising, sales promotion and other marketing
efforts in the first year. Some factors should be considered before the product is commercialized:

• Introduction timing. For instance, if the economy is down, it might be wise to wait until the
following year to launch the product. However, if competitors are ready to introduce their own
products, the company should push to introduce the new product sooner.
• Introduction place. Where to launch the new product? Should it be launched in a single location, a
region, the national market, or the international market? Normally, companies don’t have the
confidence, capital and capacity to launch new products into full national or international distribution
from the start. Instead, they usually develop a planned market rollout over time.
In all of these steps of the new product development process, the most important focus is on creating superior
customer value. Only then, the product can become a success in the market. Only very few products actually
get the chance to become a success. The risks and costs are simply too high to allow every product to pass
every stage of the new product development process.

Different marketing strategies for different stages of the PLC:

1. Product introduction strategies: Introduction stage is marked with slow growth in sales and a very
little or no profit. Note that product has been newly introduced, and a sales volume is limited; product and
distribution are not given more emphasis. Basic constituents of marketing strategies for the stage include
price and promotion.
a. rapid skimming: This strategy consists of introducing a new product at high price and high
promotional expenses. The purpose of high price is to recover profit per unit as much as possible. The
high promotional expenses are aimed at convincing the market the product merits even at a high
price. High promotion accelerates the rate of market penetration.
b. slow skimming - This strategy involves launching a product at a high price and low promotion. The
purpose of high price is to recover as much as gross profit as possible. And, low promotion keeps
marketing expenses low. This combination enables to skim the maximum profit from the market.
c. rapid penetration - The strategy consists of launching the product at a low price and high
promotion. The purpose is the faster market penetration to get larger market share. Marketer tries to
expand market by increasing the number of buyers.
d. slow penetration - The strategy consists of introducing a product with low price and low-level
promotion. Low price will encourage product acceptance, and low promotion can help realization of
more profits, even at a low price.

2. Product growth strategies: The strategies are aimed at sustaining market growth as long as possible.
Here, the aim is not to increases awareness, but to get trial of the product. Company tries to enter the new
segments. Competitors have entered the market. The company tries to strengthen competitive position in
the market. It may forgo maximum current profits to earn still greater profits in the future. Some of the
common strategies to try are:

a. Product qualities and features improvement

b. Adding new models and improving styling
c. Entering new market segments
d. Designing, improving and widening distribution network
e. Shifting advertising and other promotional efforts from increasing product awareness to product
conviction
f. Reducing price at the right time to attract price-sensitive consumers
g. Preventing competitors to enter the market by low price and high promotional efforts
h. skimming product prices if your profits are too low.

3. Product maturity strategies: In this stage, competitors have entered the market, this often means that
your market will be saturated and you may find that you need to change your marketing tactics to prolong
the life cycle of your product. The company adopts offensive/aggressive marketing strategies to defeat
the competitors. Following possible strategies are followed:
a. To Do Nothing: To do nothing can be an effective marketing strategy in the maturity stage. New
strategies are not formulated. Company believes it is advisable to do nothing. Earlier or later, the
decline in the sales is certain. Marketer tries to conserve money, which can be later on invested in
new profitable products. It continues only routine efforts, and starts planning for new products.

b. Market Modification: This strategy is aimed at increasing sales by raising the number of brand
users and the usage rate per user. Sales volume is the product of number of users and usage rate per
users. So, sales can be increased either by increasing the number of users or by increasing the usage
rate per user or by both. There are three ways to expand the number of users:
i. Convert non-users into users by convincing them regarding uses of products
ii. Entering new market segments
iii. Winning competitors’ consumers
 Sales volume can also be increased by increasing the usage rate per user.
i. More frequent use of product
ii. More usage per occasion
iii. New and more varied uses of product

c. Product Modification: Product modification involves improving product qualities and modifying
product characteristics to attract new users and/or more usage rate per user. Product modification
can take several forms:
i. Strategy for Quality Improvement: Quality improvement includes improving safety, efficiency,
reliability, durability, speed, taste, and other qualities. Quality improvement can offer more
satisfaction.
ii. Strategy for Feature Improvement: This includes improving features, such as size, colour,
weight, accessories, form, get-up, materials, and so forth. Feature improvement leads to
convenience, versatility, and attractiveness. Many firms opt for product improvement to
sustain maturity stage.

d. Marketing Mix Modification: This is the last optional strategy for the maturity stage.
Modification of marketing mix involves changing the elements of marketing mix. This may
stimulate sales. Company should reasonably modify one or more elements of marketing mix (4P’s) to
attract buyers and to fight with competitors. Marketing mix modification should be made carefully
as it is easily imitated.

4. Product decline strategies: You will see declining sales and profits, this can be caused by changes in
consumer preferences, technological advances and alternatives on the market. Company may follow any of
the following strategies:
a. Continue with the Original Products: This strategy is followed with the expectations that
competitors will leave the market. Selling and promotional costs are reduced. Many times, a
company continues its products only in effective segments and from remaining segments they are
dropped. Such products are continued as long as they are profitable.
b. Continue Products with Improvements: Qualities and features are improved to accelerate sales.
Products undergo minor changes to attract buyers.
c. Drop the Product: When it is not possible to continue the products either in original form or with
improvement, the company finally decides to drop the products. Product may be dropped in
following ways:
i. Sell the production and sales to other companies
ii. Stop production gradually to divert resources to other products
iii. Drop product immediately.

Brand: In the words of Philip Kotler, a brand is defined as a "name, term, sign symbol (or a combination of
these) that identifies the maker or seller of the product". A brand name helps an organisation differentiate
itself from its competitors. In today's competitive world customers expect products to have branding.
Customers often build up a relationship with a brand that they trust and will regularly purchase products
from that brand.

• Branding: is a marketing process wherein the firm tries to create a unique image of the product in the
minds of the customer and establish a differentiated presence in the market with the intent to retain
the customer loyalty.
• Brand building: is generating awareness, establishing and promoting company using strategies and
tactics. In other words, brand building is enhancing brand equity using advertising campaigns and
promotional strategies. Branding is crucial aspect of company because it is the visual voice of the
company. It can be both local and global.

• Brand equity: refers to the additional value that a consumer attaches with the brand that is unique
from all the other brands available in the market. In other words, Brand Equity means the awareness,
 perception, loyalty of a customer towards the brand. It is the goodwill that the brand has gained with
time.
• Brand ambassadors: A company chooses a brand ambassador to be the "face" of the brand. Ideally,
the candidate is a tastemaker in their communities, and plans to use already established networks and
relationships to market the brand via word-of-mouth marketing tactics (i.e. referring friends, posting
about the brand online, etc.). On top of that, a brand ambassador will also represent the company at
specific events.
• Celebrity endorsements: or Celebrity branding is a form of advertising campaign or marketing
strategy used by brands, companies, or a non-profit organization which involves celebrities or a well-
known person using their social status or their fame to help promote a product, service or even raise
awareness on environmental or social matters. Marketers use celebrity endorsers in hopes that the
positive images of the celebrity endorser of the brand will also be passed on to the products or the
brand image associated with the celebrities. The primary goal, in this case, is to reach a greater
audience, represented by the celebrity’s fan base.

Pricing: Pricing is the method of determining the value a producer will get in the exchange of goods and
services. Simply, pricing method is used to set the price of producer’s offerings relevant to both the producer
and the customer. (Price is the amount of money charged for a product or service. It is the total value that
customers exchange for the benefits of having or using products/services.)
Pricing Objectives: The objective once set gives the path to the business i.e. in which direction to go. The
following are the pricing objectives that clears the purpose for which the business exists:

1. Profits-related Objectives:

a. Maximum Current Profit: This objective is aimed at making as much money as possible. Company
tries to set its price in a way that more current profits can be earned.
b. Target Return on Investment: Most companies want to earn reasonable rate of return on
investment. Target return may be: (1) fixed percentage of sales, (2) return on investment, or (3) a fixed
rupee amount. Company sets its pricing policies and strategies in a way that sales revenue ultimately
yields average return on total investment.

2. Sales-related Objectives:
a. Sales Growth: Company’s objective is to increase sales volume. It sets its price in such a way that
more and more sales can be achieved. It is assumed that sales growth has direct positive impact on the
profits. So, pricing decisions are taken in way that sales volume can be raised. Setting price, altering
in price, and modifying pricing policies are targeted to improve sales.
b. Target Market Share: A company aims its pricing policies at achieving or maintaining the target
market share. Pricing decisions are taken in such a manner that enables the company to achieve
targeted market share. Market share is a specific volume of sales determined in light of total sales in
an industry.
c. Increase in Market Share: Sometimes, price and pricing are taken as the tool to increase its market
share. When company assumes that its market share is below than expected, it can raise it by
appropriate pricing; pricing is aimed at improving market share.

3. Competition-related Objectives:
a. To Face Competition: Pricing is primarily concerned with facing competition. Company sets and
modifies its pricing policies so as to respond the competitors strongly.
b. To Keep Competitors Away: To prevent the entry of competitors can be one of the main objectives
of pricing. To achieve the objective, a company keeps its price as low as possible to minimize profit
attractiveness of products.
c. To Achieve Quality Leadership by Pricing: Pricing is also aimed at achieving the quality
leadership. The quality leadership is the image in mind of buyers that high price is related to high
quality product. In order to create a positive image that company’s product is standard or superior
than offered by the close competitors; the company designs its pricing policies accordingly.
 d. To Remove Competitors from the Market: This can be done by forgoing the current profits – by
keeping price as low as possible – in order to maximize the future profits by charging a high price
after removing competitors from the market.

4. Customer-related Objectives: To satisfy customers is the prime objective of the entire range of marketing
efforts. Company sets, adjusts, and readjusts its pricing to satisfy its target customers. In short, a company
should design pricing in such a way that results into maximum consumer satisfaction and brand loyalty.
a. To Win Confidence of Customers,
b. To Satisfy Customers

5. Other Objectives:
a. Market Penetration: This objective concerns with entering the deep into the market to attract
maximum number of customers. This objective calls for charging the lowest possible price to win
price-sensitive buyers.
b. Promoting a New Product: to promote a new product successfully, the company sets low price for its
products in the initial stage to encourage for trial and repeat buying.
c. Maintaining Image and Reputation in the Market: charging reasonable price, stabilizing price, or
keeping fixed price can create a good image and reputation in the mind of the target customers.
d. To Skim the Cream from the Market: This objective concerns with skimming maximum profit in
initial stage of product life cycle. Because a product is new, offering new and superior advantages, the
company can charge relatively high price. Some segments will buy product even at a premium price.
e. Price Stability: Company with stable price is ranked high in the market. Company formulates pricing
policies and strategies to eliminate seasonal and cyclical fluctuations.
f. Survival and Growth: Finally, pricing is aimed at survival and growth of company’s business
activities and operations. It is a fundamental pricing objective.

Price Sensitivity: Price sensitivity can be defined as the degree to which consumers’ behaviours are affected
by the price of the product or service. Also known as price elasticity of demand it is the extent to which sale of
a particular product or service is affected. It basically helps the manufacturers study the consumer behaviour
and assists them in making good decisions about the products. The level of price sensitivity varies depending
on various products and consumers. Price sensitivity is generally quantified through the price elasticity of
demand. Thus, the formula for price sensitivity is:
Price Sensitivity = % Change in Quantity Purchased/% Change in Price
Factors influencing pricing:
1. Internal:
a. Organisational Factors: Pricing decisions occur on two levels in the organisation. Over-all price
strategy is dealt with by top executives. They determine the basic ranges that the product falls into
in terms of market segments. The actual mechanics of pricing are dealt with at lower levels in the
firm and focus on individual product strategies. Usually, some combination of production and
marketing specialists are involved in choosing the price.
b. Marketing Mix: Marketing experts view price as only one of the many important elements of the
marketing mix. A shift in any one of the elements has an immediate effect on the other three—
Production, Promotion and Distribution. In some industries, a firm may use price reduction as a
marketing technique. Other firms may raise prices as a deliberate strategy to build a high-prestige
product line. In either case, the effort will not succeed unless the price change is combined with a
total marketing strategy that supports it. A firm that raises its prices may add a more impressive
looking package and may begin a new advertising campaign.
c. Product Differentiation: The price of the product also depends upon the characteristics of the product. In
order to attract the customers, different characteristics are added to the product, such as quality, size, colour,
attractive package, alternative uses etc. Generally, customers pay more prices for the product which is of the
new style, fashion, better package etc.
d. Cost of the Product: Cost and price of a product are closely related. The most important factor is
the cost of production. In deciding to market a product, a firm may try to decide what prices are
realistic, considering current demand and competition in the market. The product ultimately goes to
 the public and their capacity to pay will fix the cost, otherwise product would be flapped in the
market.
e. Objectives of the Firm: A firm may have various objectives and pricing contributes its share in
achieving such goals. Firms may pursue a variety of value-oriented objectives, such as maximizing
sales revenue, maximizing market share, maximizing customer volume, minimizing customer
volume, maintaining an image, maintaining stable price etc. Pricing policy should be established
only after proper considerations of the objectives of the firm.

2. External:
a. Demand: The market demand for a product or service obviously has a big impact on pricing. Since
demand is affected by factors like, number and size of competitors, the prospective buyers, their
capacity and willingness to pay, their preference etc. are taken into account while fixing the price. A
firm can determine the expected price in a few test-markets by trying different prices in different
markets and comparing the results with a controlled market in which price is not altered. If the
demand of the product is inelastic, high prices may be fixed. On the other hand, if demand is elastic,
the firm should not fix high prices, rather it should fix lower prices than that of the competitors.
b. Competition: Competitive conditions affect the pricing decisions. Competition is a crucial factor in
price determination. A firm can fix the price equal to or lower than that of the competitors, provided
the quality of product, in no case, be lower than that of the competitors.
c. Suppliers: Suppliers of raw materials and other goods can have a significant effect on the price of a
product. If the price of cotton goes up, the increase is passed on by suppliers to manufacturers.
Manufacturers, in turn, pass it on to consumers. Sometimes, however, when a manufacturer appears to
be making large profits on a particular product, suppliers will attempt to make profits by charging
more for their supplies. In other words, the price of a finished product is intimately linked up with the
price of the raw materials. Scarcity or abundance of the raw materials also determines pricing.
d. Economic Conditions: The inflationary or deflationary tendency affects pricing. In recession period,
the prices are reduced to a sizeable extent to maintain the level of turnover. On the other hand, the
prices are increased in boom period to cover the increasing cost of production and distribution. To
meet the changes in demand, price etc.
e. Buyers: The various consumers and businesses that buy a company’s products or services may have an
influence in the pricing decision. Their nature and behaviour for the purchase of a particular product,
brand or service etc. affect pricing when their number is large.
f. Government: Price discretion is also affected by the price-control by the government through
enactment of legislation, when it is thought proper to arrest the inflationary trend in prices of certain
products. The prices cannot be fixed higher, as government keeps a close watch on pricing in the
private sector. The marketers obviously can exercise substantial control over the internal factors,
while they have little, if any, control over the external ones.

Pricing strategies
1. Cost based pricing: this type of pricing strategies uses break even concept which means the point where
the total cost = total revenue. Profit will be zero at break-even point. At level where the total revenue
> total cost there is profit and where total revenue< total cost there is loss.
2. Demand based pricing: it is of two types;
a. Skimming pricing: it means skim the market initially with high price and high profit, later settle
down for the lower price.
b. Penetration pricing: it seeks to achieve high sale with low price. It is generally used when there are
non-luxury goods.
3. Competition oriented pricing: in a competitive market the companies generally opt for this pricing
strategy. It has three types:
a. Premium pricing: it means price above the competitor’s price.
b. Discount pricing: it means price below the competitor’s price.
c. Parity pricing: it means price equals to the competitor’s price.

4. Value pricing: this method is used when the objective is not to recover the cost of the product but to
judge the value of the product in the eyes of the customer.
5. Product line pricing: in this case the company need not fix the price for each product rather they fix
the price for the entire product line which results in optimal sales through optimal profit.
 6. Sealed bid or tender pricing: a contract or tender for production of the product is floated in the market
and many parties submit their proposals. The party with the lowest bid or quote gets the tender and the
quoted amount is the price.
7. Affordable or social welfare pricing: the pricing is done in such a way that all the segments of the
market can afford to buy and consume the product as per their need. Like government subsidy help each
segment of the consumer to buy the product at an affordable pricing.
8. Differentiated pricing: in this case different price is charged by the company from the different
segment. Like charging low price from the whole sellers and high price from the retailers.
9. Psychological pricing: prices are set according to the emotional and mental appeal of customers that
influence their buying decisions.
10. Target pricing: here the price is fixed at full cost + mark up.
11. Loss leader: sometime firm sell multiple products, charge relatively low price on some popular product
with the hope that customer who will buy this product will also buy the other product of the firm.
12. Cyclical pricing: in depression firm reduce the price of the product while in boom increases the price.
13. Suggested pricing: in this case the manufacturer or whole seller suggests the retailer to charge this
price from the customers.

Pricing methods:

1. Cost-based Pricing: Cost-based pricing refers to a pricing method in which some percentage of desired
profit margins is added to the cost of the product to obtain the final price, i.e., a certain percentage of the
total cost of production is added to the cost of the product to determine its selling price.
a. Cost-plus Pricing: Refers to the simplest method of determining the price of a product. In cost-plus
pricing method, a fixed percentage, also called mark-up percentage, of the total cost (as a profit) is
added to the total cost to set the price. Cost-plus pricing is also known as average cost pricing. This is
the most commonly used method in manufacturing organizations.
P = AVC + AVC (M); AVC= Average Variable Cost. M = Mark-up percentage, AVC (m) = Gross
profit margin; Mark-up percentage (M) is fixed in which AFC and net profit margin (NPM) are
covered. Therefore, AVC (m) = AFC+ NPM

b. Mark-up Pricing: Refers to a pricing method in which the fixed amount or the percentage of cost of
the product is added to product’s price to get the selling price of the product. Mark-up pricing is more
common in retailing in which a retailer sells the product to earn profit. (formula)

2. Demand-based Pricing: Demand-based pricing refers to a pricing method in which the price of a product
is finalized according to its demand. If the demand of a product is more, an organization prefers to set
high prices for products to gain profit; whereas, if the demand of a product is less, the low prices are
charged to attract the customers. The success of demand-based pricing depends on the ability of
marketers to analyse the demand. This type of pricing can be seen in the hospitality and travel industries.

a. What the Traffic Can Bear’ Pricing: As per pricing based on ‘what the traffic can bear’, the seller
takes the maximum price, which the customers are willing to pay for the product under the given
circumstances. It is used more by retail traders than by manufacturing firms. This method brings high
profits in the short-term. Chances of errors in judgment are very high. Also, it involves trial and error.
It can be used where monopoly / oligopoly conditions exist and where demand is quite inelastic with
respect to price.
b. Skimming Pricing: Skimming pricing aims at high price and high profits in the early stage of
marketing the product and subsequently settles down for a lower price. It profitably taps the
opportunity for selling at high prices to those segments of the market which do not bother much about
the price. The method is very useful in the pricing of new products, especially, the ones that have a
luxury or specialty element. As the product has novelty and as it is aimed at the affluent sections, the
 quantity that can be sold is not affected by the price level. Skimming will also help the firm feel the
market/demand for the product and then make appropriate decisions on pricing.
c. Penetration Pricing: Seeks to achieve greater market penetration through relatively low prices. It is
the opposite of skimming pricing. This method too is quite useful in pricing of new products under
certain circumstances. For such products, the quantity that can be sold is highly sensitive to the price
level even in the introductory stage. And soon after introduction, the product may encounter stiff price
competition from other brands/substitutes. Penetration pricing in such cases will help the firm obtain
a good coverage of the market and keep competition out for quite some time. Moreover, for products
of this category, large sales may be necessary for break-even, even in the initial stages and penetration
pricing alone can bring in the high volume of sales required for breaking even and making profits,

3. Competition-based Pricing: Competition-based pricing refers to a method in which an organization

considers the prices of competitors’ products to set the prices of its own products. The organization may
charge higher, lower, or equal prices as compared to the prices of its competitors. The aviation industry is
the best example of competition-based pricing where airlines charge the same or fewer prices for same
routes as charged by their competitors. In addition, the introductory prices charged by publishing
organizations for textbooks are determined according to the competitors’ prices.

a. Premium pricing: it means price above the competitor’s price.

b. Discount pricing: it means price below the competitor’s price.
c. Parity pricing: it means price equals to the competitor’s price.
d. Sealed bid or tender pricing: a contract or tender for production of the product is floated in the market
and many parties submit their proposals. The party with the lowest bid or quote gets the tender and the
quoted amount is the price.

4. Other Pricing Methods:

a. Value Pricing: Implies a method in which an organization tries to win loyal customers by charging
low prices for their high- quality products. The organization aims to become a low cost producer
without sacrificing the quality. It can deliver high- quality products at low prices by improving its
research and development process. Value pricing is also called value-optimized pricing.
b. Target Return Pricing: Helps in achieving the required rate of return on investment done for a
product. In other words, the price of a product is fixed on the basis of expected profit.
c. Going Rate Pricing: Implies a method in which an organization sets the price of a product according
to the prevailing price trends in the market. Thus, the pricing strategy adopted by the organization
can be same or similar to other organizations. However, in this type of pricing, the prices set by the
market leaders are followed by all the organizations in the industry.
d. Transfer Pricing: Involves selling of goods and services within the departments of the organization.
It is done to manage the profit and loss ratios of different departments within the organization. One
department of an organization can sell its products to other departments at low prices. Sometimes,
transfer pricing is used to show higher profits in the organization by showing fake sales of products
within departments.
e. Product line pricing: prices are set on the basis of well-established price points of other products in
the product line.
f. Bundle pricing, Captive pricing (special price is offered to loyal customers), Two-part pricing.
 Promotion Mix: also called “Marketing Communication Mix”, refers to the blend of several
promotional tools used by the business to create, maintain and increase the demand for goods and services.
The fourth element of the 4 P’s of Marketing Mix, it focuses on creating awareness and persuading the
customers to initiate the purchase. The Promotion Mix is the integration of Advertising, Personal Selling,
Sales Promotion, Public Relations and Direct Marketing.

Elements of Promotion Mix:

1. Advertising: is any paid form of non-personal presentation and promotion of goods and services by the
identified sponsor in the exchange of a fee. Through advertising, the marketer tries to build a pull strategy;
wherein the customer is instigated to try the product at least once. The complete information along with the
attractive graphics of the product or service can be shown to the customers that grab their attention and
influences the purchase decision.
2. Personal Selling: This is one of the traditional forms of promotional tool wherein the salesman interacts with
the customer directly by visiting them. It is a face to face interaction between the company representative and
the customer with the objective to influence the customer to purchase the product or services.
3. Sales Promotion: The sales promotion is the short-term incentives given to the customers to have an
increased sale for a given period. Generally, the sales promotion schemes are floated in the market at the time
of festivals or the end of the season. Discounts, Coupons, Payback offers, Freebies, etc. are some of the sales
promotion schemes. With the sales promotion, the company focuses on the increased short-term profits, by
attracting both the existing and the new customers.
4. Public Relations: The marketers try to build a favourable image in the market by creating relations with the
general public. The companies carry out several public relations campaigns with the objective to have a
support of all the people associated with it either directly or indirectly. The public comprises of the customers,
employees, suppliers, distributors, shareholders, government and the society as a whole. The publicity is one
of the forms of public relations that the company may use with the intention to bring newsworthy information
to the public.
5. Direct Marketing: With the intent of technology, companies reach customers directly without any
intermediaries or any paid medium. E-mails, text messages, Fax, are some of the tools of direct marketing.
The companies can send emails and messages to the customers if they need to be informed about the new
offerings or the sales promotion schemes.
6. Publicity: includes non-personal promotions of products by obtaining public attention through the news in
various media platforms. This form is not paid for by the sponsor.

Thus, the companies can use any tool of the promotion mix depending on the nature of a product as well as
the overall objective of the firm.

* Integrated Marketing Communication (IMC): Integrated marketing communication refers to integrating

all the methods of brand promotion to promote a particular product or service among target customers. In
integrated marketing communication, all aspects of marketing communication work together for increased
sales and maximum cost effectiveness.

* Media Planning and Media Scheduling: Media planning refers to the best way to get the advertiser’s
message across to the market. The goal of the media plan is to find that combination of media vehicles that
enables the message to be communicated to the largest proportion of the target audience at the most effective
cost. It is a science designed to generate maximum sales from all the advertising your company invests in.
Media planning refers to the best way to get the advertiser’s message across to the market. The goal of the
media plan is to find that combination of media vehicles that enables the message to be communicated to the
largest proportion of the target audience at the most effective cost.

*VMS, HMS, MCM: Vertical Market System (VMS) is where main members of the distribution channel
that is producer, wholesaler and retailer work together as a unified group in order to achieve customer’s
needs, achieve greater efficiency, eliminate channel conflicts arising due to individual objectives, and achieve
economies of scale. Here, at least one member of the channel is predominant and controls the entire channel.
Horizontal Marketing system is a form of distribution channel wherein two or more companies at the same
level unrelated to each other come together to gain the economies of scale and exploit the market
opportunities. Generally, this type of marketing system is followed by companies who lack in capital, human
resources, production techniques, marketing programs and are afraid of incurring the huge losses. In order to
overcome these limitations, the companies join hands with other companies who are big in size either in the
form of joint venture –that can be temporary or permanent, or mergers to sustain in the business.
Multichannel marketing refers to the practice of interacting with customers using a combination of indirect
and direct communication channels – websites, retail stores, mail order catalogs, direct mail, email, mobile,
etc. – and enabling customers to take action in response – preferably to buy your product or service – using
the channel of their choice. In the most simplistic terms, multichannel marketing is all about choice.

*Product Assortment is the same as Product Mix. The collection of goods or services that a business
provides to consumers. The main characteristics of a company's product assortment are: (1) its length or
number of products, (2) its breadth or number of product lines, (3) its depth or number of product varieties
within a product line and (4) its consistency or how products relate to each other in a retail environment.
Distribution:
Distribution Strategy is a strategy or a plan to make a product or a service available to the target customers
through its supply chain. Distribution strategy designs the entire approach for availability of the offering. A
company can decide whether it wants to serve the product and service through their own channels or partner
with other companies to use their distribution channels to do the same. Distribution Strategy is precisely the
strategy deployed by a company to make sure the product/service can reach the maximum potential
customers at minimal or optimal distribution costs. Overall there are 3 major distribution strategies:
i. Exclusive Distribution : Exclusive stories to sell products leads to more control. Example, Luis Vuitton
Stores
ii. Intensive Distribution : Maximizing outlets to maximize sales. Example, Coca Cola
iii. Selective Distribution : Carefully choosing multiple channels and partners. Example, Adidas, Nike
The above 3 distribution strategies are the most used but a typical strategy may differ for a particular product
or a company. Many companies use online as well as offline strategies together to optimize sales e.g. Apple
iPhone. Distribution strategy should be optimized and updated regularly as per the market parameters
through demand analysis and supply analysis so that it can keep up with the current market scenarios and
does what it is intended to do i.e. make product reach to potential customers.
Distribution Channels:
1. Direct Channel or Zero-level Channel: Direct selling is one of the oldest forms of selling products. It
doesn’t involve the inclusion of an intermediary and the manufacturer gets in direct contact with the
customer at the point of sale. E.g. brand retail stores, factory outlets, Eureka Forbes. Direct channels
are usually used by manufacturers selling perishable goods, expensive goods, and whose target
audience is geographically concentrated. For example, bakers, jewellers, etc.

2. Indirect Channels (Selling Through Intermediaries): When a manufacturer involves a

middleman/intermediary to sell its product to the end customer, it is said to be using an indirect
channel. Indirect channels can be classified into three types:

a. One-level Channel: Retailers buy the product from the manufacturer and then sell it to the
customers. One level channel of distribution works best for manufacturers dealing in shopping
goods like clothes, shoes, furniture, toys, etc.

b. Two-Level Channel: Wholesalers buy the bulk from the manufacturers, break it down into small
packages and sell them to retailers who eventually sell it to the end customers. Goods which are
durable, standardised and somewhat inexpensive and whose target audience isn’t limited to a
confined area use two-level channel of distribution.
 c. Three-Level Channel: Three level channel of distribution involves an agent besides the
wholesaler and retailer who assists in selling goods. These agents come handy when goods need to
move quickly into the market soon after the order is placed. They are given the duty to handle the
product distribution of a specified area or district in return of a certain percentage commission.
Manufacturers opt for three-level marketing channel when the userbase is spread all over the
country and the demand of the product is very high.

**( under distribution channels for Industries, Retailers are replaced by Industrial distributors;
Wholesalers are replaced by Manufacturer’s representative)

Advertising:
Advertising is a means of communication with the user of any product or service. Advertising Association of
UK defines advertising as “the messages paid for by those who send them and are intended to inform or
influence people who receive them”.
Goals and Objectives:
1. Brand Positioning: relates to the consumers rationale to purchase your brand in preference to the
others. It makes sure that all brand activity has a common end goal. Brand positioning involves
recognising similarities and differences between various brands in the market to create the right brand
image. Brand positioning is the key to marketing strategy. An ideal brand positioning directs the
marketing strategy by describing the details and distinctive features of the brand. It is the foundation
for providing the required knowledge and information to its customers.
2. Introducing new products: Introducing a new product involves establishing how your product is
different from the competitors. It is significant to determine and advertise a compelling reason for the
customers to stick to the product. The faster you get to your customers, the nearer you are to those
influencing the others.
3. Obtaining outlets: Advertising magnets new customers to a product. The trick is to find an outlet for
advertising that fits into your business, budget and the target clientele. There are plenty of options to
choose from such social, print or any other new media.
4. Drawing attention: Customer attention is the most valuable resource for a business house. It powers
the giant organisations. Attention is a complicated aspect of consciousness. Drawing customer
attention is a short-term goal of advertising. Using clear and readable print, colours, and images in
your ads attract the attention of the users.
5. Prompting immediate action: Media, print and other types of advertising prompt people to act
instantly. There are various strategies to prompt immediate buying action like coupons, free trials, etc.
6. Increasing sales: Advertisements are designed to increase sales and generate profits. Sales can be
increased by focusing on product promotion through the company’s website, or through offline sales
through retail outlets, etc.
7. Maintaining contacts and relationships: Effective client engagement and enhancing relationships is
also one of the advertising objectives. Maintaining contacts and relationships is often the goal of many
social campaigns, which aims at effective interaction with the consumers to enhance their experience
with the brand.
8. Brand switch and switching back: Brand switching objectives fundamentally hold good for those
organizations who want to attach the customers of their competitors to their brands. In brand
switching, the advertiser tries to convince the customers to switch from their existing brand to their
product. Switching back objective holds good for those companies who want to bring back their
customers, who have switched from their brand to their competitors’ brand. The advertisers take
various measures to magnet the customers back like discount sales, reworked packages and also by
coming up with brand new advertisements.
Types of advertising: The ten common types of advertising are: display ads, social media ads, newspapers
and magazines, outdoor advertising, radio and podcasts, direct mail, video ads, product placement, event
marketing and email marketing.
Advertising Budgets:
1. Percentage of Sales Method: It is a commonly used method to set advertising budget. In this method,
the amount for advertising is decided on the basis of sales. Advertising budget is specific per cent of sales.
The sales may be current, or anticipated. Sometimes, the past sales are also used as the base for deciding
on ad budget. This method is based on the notion that sales follow advertising efforts and expenditure. It
is assumed that there is positive correlation between sales and advertising expenditure.
2. Objectives and Task Method: This is the most appropriate ad budget method for any company. It is a
scientific method to set advertising budget. The method considers company’s own environment and
requirement. Objectives and task method guide the manager to develop his promotional budget by (1)
defining specific objectives, (2) determining the task that must be performed to achieve them, and (3)
estimating the costs of performing the task. The sum of these costs is the proposed amount for advertising
budget. The method is based on the relationship between the objectives and the task to achieve these
objectives. The costs of various advertising activities to be performed to achieve marketing objectives
constitute advertising budget.
3. Competitive Parity Method: This method considers the competitors’ advertising activities and costs for
setting advertising budget. The advertising budget is fixed on the basis of advertising strategy adopted by
the competitors. Thus, competitive factor is given more importance in deciding advertising budget.
Marketing/advertising manager should take competitors’ advertising strategy as the base, but should not
follow as it is. The advertising budget must be adjusted to the company’s internal and external situation.
4. Affordable or Fund Available Method: The method is based on the company’s capacity to spend. It is
based on the notion that a company should spend on advertising as per its capacity. Company with a
sound financial position spends more on advertising and vice versa. Under this method, budgetary
allocation is made only after meeting all the expenses. Advertising budget is treated as the residual
decision. If fund is available, the company spends; otherwise the company has to manage without
advertising. Thus, a company’s capacity to afford is the main criterion.
5. Expert Opinion Method: Both internal and external experts are asked to estimate the amount to be
spent for advertisement for a given period. Experts, on the basis of the rich experience on the area, can
determine objectively the amount for advertising. Experts supply their estimate individually or jointly.
Along with the estimates, they also underline certain assumptions. Advertising budget recommended by
external experts is more neutral (bias-free) and, hence, is reliable. Experts considers overall situation and
give their opinion on how much a company should spend.
6. Other Methods:
i. Arbitrary Allocation Method
ii. Profit Maximization Approach
iii. Incremental Method
iv. Sales Force Opinion Method, etc.

Different types of Marketing channels:

1. Vertical Market System (VMS) is where main members of the distribution channel that is producer,
wholesaler and retailer work together as a unified group in order to achieve customer’s needs, achieve
greater efficiency, eliminate channel conflicts arising due to individual objectives, and achieve economies
of scale. There are 3 types:

a. Corporate Vertical Marketing System– In Corporate VMS, one member of the distribution channel
owns all the other Members of the Channel, thereby having all the elements of production and
distribution channel under a single ownership. For example,: Amway is an American cosmetic
company, which manufactures its own product range and sell these products only through its
authorized Amway stores. Here the ownership of production and distribution is with the company
itself.
b. Contractual Vertical Marketing System– In Contractual VMS, every member in the distribution
channel works independently and integrate their activities on a Contractual Basis to earn more profits
than that are earned when working in isolation. The most common form of Contractual VMS
is Franchising. For example, Mc-Donald’s, Dominos, Pizza Hut, etc. are all forms of the franchise
which are working on a contractual basis.
c. Administered Vertical Marketing System– Under Administered VMS, there is no contract between
the members of production & distribution channel but their activities do get influenced by the Size
and Power of any one of the members. In simple words, any powerful and influential member of the
channel dominate the activities of other channel members. For example, Big brands like HUL, ITC,
 Procter& Gamble, etc. command a high level of cooperation from the retailers in terms of display,
shelf space, pricing policies, and promotional schemes.

2. Horizontal Marketing system is a form of distribution channel wherein two or more companies at the
same level unrelated to each other come together to gain the economies of scale and exploit the market
opportunities. Generally, this type of marketing system is followed by companies who lack in capital,
human resources, production techniques, marketing programs and are afraid of incurring the huge losses.
In order to overcome these limitations, the companies join hands with other companies who are big in size
either in the form of joint venture –that can be temporary or permanent, or mergers to sustain in the
business. E.g. Johnson & Johnson, a health care company, have joined hands with Google, with an
objective of having a robotic-assisted surgical platform. That will help in the integration of advanced
technologies, thereby improving the healthcare services.

3. Multichannel marketing: refers to the practice of interacting with customers using a combination of
indirect and direct communication channels – websites, retail stores, mail order catalogs, direct mail,
email, mobile, etc. – and enabling customers to take action in response – preferably to buy your product or
service – using the channel of their choice. In the most simplistic terms, multichannel marketing is all
about choice. E.g. One of the best examples of brands in Asia that have achieved success in
multichannel retailing is Burberry. Its social media platforms go beyond Facebook, Twitter and
Instagram and include China’s WeChat and Japan’s Line. It has incorporated both of these popular Asian
messaging apps into live-streaming and real-time engagement with its fans. In other markets, Burberry
has experimented with Snapchat and Periscope for real-time engagement. These include collect-in-
store and experimenting with fulfilment of ecommerce orders in both local distribution centres and in-
store to improve stock availability and lower delivery times. Burberry has also invested in improving
its mobile site and payment methods. It has stores on a number of ecommerce platforms, including
Alibaba’s Tmall in China.

Promotions:
Importance:
1. Sales of goods in imperfect markets
2. Filling gaps between the producers and consumers
3. Facing intense competition
4. Large scale selling
5. Higher standards of living
6. More employment
7. Increased trade pressure
8. Effective sales support
9. Increased speed of product acceptance
10. Reinforcement of brand