Marketing Management Project

Name: Suyash Bajpai

Roll No: 215701

Pricing
Pricing is important due to the following factors:

Factor # 1. Flexible Element of Marketing Mix:

Price is the most adjustable aspect of the marketing mix. Prices can be
changed rapidly, as compared to other elements like product, place or
promotion. Changes in product design or distribution system would take a
long time to be implemented.
Bringing about changes in advertisements or promotional activities is also a
time consuming task. But price is very flexible and can be changed according
to the needs of the situation. Therefore it is a very important component of
marketing mix.

Factor # 2. Right Level Pricing:

The wrong price decision can bring about the downfall of a company. It is
extremely significant to fix prices at the right level after sufficient market
research and evaluation of factors like competitors’ strategies, market
conditions, cost of production, etc.
Low prices may attract customers in the initial stages, but it would be very
hard for the company to raise prices on a future date. Similarly, a very high
price will ensure more profit margins, but lesser sales. So in order to maintain
balance between profitability and volume of sales, it is important to fix the
right price.

Factor # 3. Price Creates First Impression:

Often price is the first factor a customer notices about a product. While the
customer may base his final buying decision on the overall benefits offered by
the product, he is likely to compare the price with the perceived value of the
product to evaluate it. After learning about the price, the customers try to
learn more about the product qualities.
If a product is priced too high, then the customer may lose interest in knowing
more. But if he thinks that a product is affordable, then he would try to get
more information about it. Therefore price is a critical factor that influences a
buyer’s decision.

Factor # 4. Vital Element of Sales Promotion:

Being the most flexible component of marketing mix, price is the most
important part of the sales promotion. In order to encourage more sales, the
marketing manager may reduce the price. In case of goods whose demand is
price sensitive, even a small reduction in price will lead to higher sales volume.
However prices should not be fluctuated too frequently to stimulate sales.

Pricing is one of the significant elements of

the marketing mix, if late, it has come to
occupy the centre stage in marketing wars:
The reasons for this are as follows:

1. Firm Now Finds Itself in a Dilemma:

In case it passes the increase in input costs to the customer in the form of a
price increase, and there are equally attractive alternatives at lower prices
available to him, the firm may lose the customer. And if it doesn’t increase the
price, it incurs a loss. The challenge of price management is also higher when
the firm realises that there are other firms in the industry that operate at a
more efficient level in an inflationary economy.

2. Inflation in the Economy:

It turns in the cast of inflationary economy. Inflation affects pricing
in two ways:
(i) It lowers the purchasing power of the customer and hence a search for low
priced substitutes.

(ii) It increases a firm’s cost because of the inputs costing more, thus forcing
the price of the product upwards.

3. Mature Products and Markets:

At the time of entering the maturity stage the products, and the markets are
mature, the only way to differentiate the various offers is on the basis of
augmented service or price cuts.

4. Customer’s Value Perception:

The customer’s perception of the product’s current and potential value is
another factor contributing to the importance of pricing decisions. To a
customer, price always represents the product’s value. Many time, the
customer’s perception of the product value may not necessarily be in line with
its price.

There are instances in which the product is overpriced when its value
perception is lower than the price tag on it, and vice-versa. For a marketer, it is
important that products are priced at the right level.

5. Inter-Firm Rivalry:
As the entry and exit barriers in the industry are lowered the intensity in inter-
firm rivalry increases. With an increase in this rivalry, marketers find that a
firm’s cost of operation also increases, as it now has to spend more money to
lure customers and middlemen. It has also invest money in new product
development.

6. Product Differentiation Getting Blunted:

The differentiation among firms on the basis of the product is going to get
blunted when technologies get standardised. More products and brands will
transcend to a commodity situation. This is an unhealthy sign as commodities
are always subject to price fluctuations and price wars. For, at this stage, the
only way to differentiate between brands is the price.

The following points highlight the importance of pricing:

i. The economy – The entire economy depends on the price. It is the price
which decides trade and the economy depends on the trading activity in the
country. Price of a product influences profit, rent, interest, wages which are
the prices paid to the factors of production-entrepreneurship, land, capital and
labour respectively. Thus price acts as a regulator of economy, because it
influences the allocation of the factors of production.
ii. Determinant of profit – Profit is the basic objective of any commercial
undertaking and the profit directly depends on the price.
iii. Beating competition – Price is a very important weapon which a seller can
use to overcome competition. A seller, by fixing a reasonable price and by
offering value for money can overcome competition.

iv. Demand regulator – It is a simple law in Economics that price and demand
are inversely proportional. Thereby a seller can either increase the demand or
decrease the demand for his products by setting a low or a high price.

v. Crucial decision input – Price as a factor constitutes a very important

decision. A company has to price appropriately because several factors depend
on the price such as the demand, the profit, the market share, the competition
etc. Factors such as product place and promotion are causes of expenditure
but price is the only factor that brings in revenue to the seller.

vi. Important Part of Sales Promotion – Many times price adjustments form a
part of sales promotion that a lower price in the short term stimulates interest
in the product.

vii. Trigger of First Impressions – Often, customers’ first perception of a

product is formed as soon as they learn the price

viii. Most Flexible Marketing Mix Variable – For marketers price is the most
adjustable of all marketing decisions. Unlike product and distribution
decisions, which can take months or years to change, or some forms of
promotion which can be time consuming to alter (e.g., television
advertisement), price can be changed very rapidly. The flexibility of pricing
decisions is particularly important in times when the marketer seeks to quickly
stimulate demand or respond to competitor price actions.
ix. Perception of quality – Several customers develop a perception about the
quality of the product based on its price. To such customers, high price is
better quality and vice-versa. Therefore the right price must be fixed for the
product depending on the customer perception desired.

x. Legal aspects – A wrong price may attract legal complications. Therefore a

seller has to consider these factors also while fixing price.
Factors effecting method of price of
products and services
The factors influencing the price can be divided into two heads – Internal
Factors and External Factors.

Internal Factors

Talking about the internal factors means the factors that work from within the
organization. The factors are:

1. Organizational Factors:
Two management levels decide the pricing policy, one is the price range
and the policies are decided by the top-level managers while the distinct
price is fixed by the lower-level staff.
0. Marketing Mix:
For implementing a price, the marketing mix needs to be in sync, without
matching the marketing mix, consumers will not be attracted to the price.
The marketing mix should be decisive for the price range fixed, meaning
the marketing mix needs to maintain the standard of the price of the
product.
0. Product Differentiation:
In today’s market, it is uncommon to find a unique product, hence the
differentiation lies in the nature, feature and characteristic of the product.
The added features like quality, size, colour, packaging, and its utility all
these factors force the customers to pay more price regarding other
products.
0. Cost of the Product:
Cost and Price are closely related. With the cost of the product, the firm
decides its price. The firm makes sure that the price does not fall below
the cost lese they will run on losses. Cost of the price includes the input
cost that a company spends on raw materials, wages for labourers,
advertisement cost, promotion cost and salaries for the employees

External Factors
External factors are not under the control of the firm. These factors affect the
whole industry group uniformly. Yet, a company tries to estimate any upcoming
problems in the external environment and also makes up a backup plan in
advance. This is done by forecasting the market trend.
The factors are:

1. Demand:
The market demand of a product has an impact on the price of the
product, if the demand is inelastic then a higher price can be fixed, if the
demand is highly elastic then less price is to be fixed. When the demand
for the goods is more and the supply of the goods is constant, the price of
the goods can be increased and if the demand for the goods decreases
the price of the goods should be decreased to survive in the market.
0. Competition:
The prices are required to be competitive without any compromise on the
quality of the product. While in a monopolistic market, the prices are fixed
irrespective of the competition. Thus, the manufacturer tries to estimate
the price of his competitor. When the price of the supplementary goods is
high, the customers will buy the manufacturer’s product.
0. Supplies:
If the supplies condition, the easy availing option of the raw materials are
available, then the price of the product can be moderate. Once, the raw
materials supply price heightens then the price also rises.
In the period of recession, price is lowered so that easy purchase is
guaranteed. While in boom periods, prices shoot up high as now they can
earn profit.

Determinants of Price in Marketing

The main determinants that affect the price are:

1. Product Cost
2. The Utility and Demand
3. The extent of Competition in the market
4. Government and Legal Regulations
5. Pricing Objectives
6. Marketing Methods used
These are the particulars of pricing methods justified in the business world.

Methods of Pricing
1. Cost-Based Pricing:
In the case of goods, the prices are often based on the cost of production. For
example, the price of petrol or diesel in India is based on the cost of oil in the
international markets. Similarly, in the case of services, the cost-based pricing
serves as the basic or starting point for the services. Cost-based prices are
calculated based on certain accumulation of the accounting data.

The usual components of costs are:

i. Variable cost – Consisting of direct materials and direct labour and

consumables. These are directly attributable to each unit of product or service.
ii. Fixed costs – Employee costs, marketing costs of advertising, and sales
promotion and distribution costs. These are not directly attributable to the
product or service but have to be incurred nonetheless.
iii. Financial costs and profits – Consisting of depreciation, interest, and
return on investment.

The situations under which service prices are based on costs are:
i. When the service is introduced for the first time and there are no other
references for price fixing. For example, when mobile telephony was first
introduced in India, the initial prices were based on the service operator’s
costs, expected number of connections, and the anticipated return on
investment. Thus the cost was the main basis of pricing.

ii. When the number of competitors in market is limited to one or two. Cost-
based pricing allows the competitors to make adequate returns and makes
them hopeful of achieving the target returns. This situation of ‘live and let live’
continues until either fresh competition enters the market place or the
marketers realize that the current pricing policy is not enabling them to grow
and achieve larger returns in the end. The cost-based pricing system continued
in the mobile telephone circles when only two operators were present in each
circle.

iii. In the case of unusual work, or work whose content is difficult to pre-
estimate, the service provider and the client may come to a mutual agreement
on the basis of the cost of the effort made by the service provider.
In the case of supervision of civil or engineering construction work, the
engineering consultants and the client agree to a site supervision fee based on
the man-hours of the personnel required for supervision in lieu of a lump sum
fee. They may agree to different daily rates for the engineer, supervisor,
draughtsman, quantity surveyor, etc. This practice is common in the Indian
consulting business.
However, there are quite a few limitations of this cost-based pricing.

These include:

i. Estimation of variable cost of a service is difficult. For example, in the case of

the service provided to a hotel room occupant or the cost of flying a passenger,
the variable cost is difficult to measure. Without reference to the variable cost,
the total cost estimation may be even more difficult.

ii. The utility of services incurring the same costs may not be the same for the
customer. For example, changing of the zipper of a trouser and changing of the
zipper on a cloth handbag may involve the same amount of effort on the part
of the mender.

However, if charges are Rs. 25 in the case of trouser, the customer would
happily pay this, while in the case of handbag, the customer may think this to
be excessive, because the original cost of the trouser was about Rs. 750 while
that of the handbag was only Rs. 100. Thus the service provider may be able to
charge even Rs. 40 in the case of a trouser but not more than Rs. 15 for a
handbag.

iii. While the service provider may be aware of the cost structure, the
customers may not be aware of it; hence, the customers may be averse to
paying the price. For example, in a city there may be an expensive movie
theatre very near the railway station.
While it costs Rs. 5 to park a car at the railway station, it may cost Rs. 25 to
park the car in the basement of the movie theatre. To the customer, it does not
make sense to pay five times the amount for the same service, while for the
parking lot franchisee, this is the minimum that he can charge in order to pay
the rental to the cinema hall.
iv. Since, most of the service offers are usually not totally comparable, the
utility and cost comparison based on cost-based prices is confusing to the
customers.

While cost-based pricing may be the easiest to implement, the pricing in this
manner is not always practicable to implement.
1. Competition-Based Pricing:

Competition-based pricing is another way in which the prices are set by the
service providers. An example of this in the Indian context is the air-travel
prices between metropolitan cities. When Indian Airlines was the sole service
provider, the prices were quite high and were based on the cost of operations.
Competition between Jet airways, Sahara, and Indian Airlines has forced all of
them to reduce the prices of two-way airfares by as much as 40%. Thus,
competition leads to tremendous benefit for customers. When the American
domestic air travel was deregulated, the prices were no longer based on cost
but became dependent on the level of competition and led to severe price wars.
In the process, the volume of air travel went up enormously and the customers
benefited with lower fares. The service provider also benefited from higher
volumes.

Similarly, when mobile telephony was introduced in India, due to lack of

competition the customers during 1997-98 paid as much as Rs. 12.50 per
minute for outgoing and Rs. 6 per minute for incoming calls.
The continued competition, including the newest form of competition from the
WLL (Wireless in Local Loop) telephony, has reduced the rates drastically. By
2003, the rates have been reduced up to Rs. 0.40 per minute for the local
outgoing and STD calls within the circle, while incoming calls have become
completely free.

Going rate pricing is another form of competitive pricing. When there are a
large number of service providers, or when a new entrant comes into the
market, usually the price cannot be fixed by the new entrant or any single
provider. For example, there are a large number of Internet cafes in Indian
cities.

The competition is intense and there are very few factors to differentiate the
service. Therefore, the rates for the access fell to as low as Rs. 10 per hour. The
same uniform rates are applicable wherever you go. In order to be able to
charge a rate that is higher than the going rate, it would be necessary to offer
higher speed access, better surroundings with restaurant facilities, or newer
computers to create the differentiation in the service. Improved benefit would
be necessary to justify higher prices.

2. Demand-Based Pricing:
In economics, the demand curve shows the relationship between the price and
the quantity demanded. We are familiar with the general axiom that higher
prices reduce the quantity demanded and vice versa.
Due to the perishable nature of services, whenever the demand exceeds the
supply, due to lack of inventory, it cannot be met. Similarly, when the demand
falls below the available capacity, the capacity is wasted and fails to generate
adequate revenue. Some of the pricing strategies try to take care of this
concern.

i. Time Differential Pricing:

Telephone networks, Internet servers, etc. are quite busy during the office
working time. Business callers tend to call typically during the working hours.
Therefore, the network capacity, while sufficient for the daytime load, remains
idle during the evening and night. To increase usage during non-peak hours,
Bharat Sanchar Nigam Ltd introduced three different rates for inter-town
Subscriber Trunk Dialling.
Thus, there was a full daytime rate (7 am to 7 pm), an evening rate (7 pm to 11
pm) at half to one-third of daytime rate, and a night calling rate (11 pm to 7
am) at one-fourth of the daytime calling rate.
Similarly, a number of business hotels offer very attractive low rates during
the weekends. At business hotels, rooms remain vacant from Friday night until
Monday mornings. The hotels try to offer rooms at special low rates,
introducing special tariffs for couples, families, etc. during the weekends. As
out-of-town customers are unlikely to make use of such tariff, it is mainly
aimed at local residents.

ii. Quantity Differential Pricing:

In line with the principle that the loyal high volume customers should enjoy
greater pricing advantage, a number of service providers have quantity
differential prices.
For local commuter services, Indian Railway offers a monthly pass that allows
unlimited travel on local trains. The price of the monthly offer is equivalent to
about eight to ten return journeys between points of origin and destination.
Similar tariff is offered on long-distance trains up to a distance of about 200
kilometres.
iii. Place Differential Pricing:
During a show of event, the demand to be close to the actors or actresses on
the stage, the singers on dais, or the tennis or cricket players on the grounds is
quite high. The customers feel they are more intimately involved in the action.
Consequently, the organizers try to make use of this demand factor to secure
hefty premium. Thus, the front row seats for a Lata Mangeshkar concert could
be as high as Rs. 5,000 while tickets for the back rows could be as low as Rs.
100 per person.

iv. Seasonal Differential Pricing:

The beach resorts and other hotels in Goa experience a slump during the
monsoon season from June until the end of September. Therefore, to make
best use of the capacity, a number of hotels offer very low off-season rates to
attract different type of clientele. This clientele includes honeymooners and
other people whose idea of holiday is inactivity or who want to make a
pilgrimage to Goa.
The common factor in all these types of pricing is to shift the demand from
peak to off-peak periods. We will deal with this topic in depth under supply
and demand balancing. In addition, this pricing strategy is based on marginal
cost. Marginal cost is the additional cost of serving the additional customer.
Marginal cost is the direct material and labour cost. As long as this cost is
covered, any additional revenue generated contributes towards overheads and
profits.

4. Value-Based Pricing:
Value is defined as perceived benefits for the total cost of acquisition.
Thus, the value-based pricing can be divided into the following
depending on:
i. Higher value perception due to lower price for the service
ii. Higher value due to higher perceived benefit, which may accrue due to high
quality of the service or other value perceptions.

a. Price Discounting:
To a number of customers, if the same service is offered at a lower price, the
value perception of the service goes up. Thus, using a coupon published in a
health magazine, the customer may avail a discount for the first month’s fee in
a gymnasium.
Similarly, a number of credit card companies offer waiver of the joining or first
year’s fees in order to attract the customer.

b. Odd Pricing:
The prices of the services are set at a price just below the rounded sum. Thus a
large sized pizza may be priced at Rs. 199 instead of Rs. 200. Psychologically,
the customers feel that they have paid much less than Rs. 200.

c. Penetration Pricing:
This is the type of pricing used to build large volumes. Take nose or ear
piercing as the latest fashion. In order to get larger number of customers to do
a trial, the initial introductory offer is based on low price. Once the service
becomes well known, the prices are set back to the normal level. It is necessary
to make customers aware of this deadline date after which discounted prices
will not be available; otherwise the customers may be disappointed.

d. Bundled Pricing:
The typical word used by many marketers is ‘giving more for less’. The Pizza
Hut chain may separately offer medium-sized pizza for Rs. 149, garlic bread
for Rs. 50, and a 500 ml Pepsi for Rs. 13. However, in order to get customers
to buy all, the three may be offered as a combined meal for Rs. 189. This
bundled price lets the customers focus on the benefit of a total meal, instead of
making them nervous about spending well over Rs. 200 for a full meal.
The recent ‘Dhirubhai Ambani Pioneer Offer’ made by Reliance Infocom is a
similar bundled offer. The offer includes a mobile phone, free SMS service,
free incoming calls, 24-hour high speed internet access, 400 minutes of talk
time per month, STD service at local calling rate within the state/circle, and
calling other Reliance phones at local rate irrespective of the location.
The customers are not able to price the individual components of this offer,
and thus it does not let customers dwell on the price but lets them concentrate
on the benefits of such offers.

e. Prestige Pricing:
To some customers, part of the value perception is being different from others.
Those who want to make a statement about their status, wealth, leadership,
innovativeness, etc. are usually prepared to pay for it. Thus, the customers
would be prepared to pay high fee for a new health club or dance class started
by a celebrity, or to have a personal trainer and pay for it, etc.
This type of demand usually does not obey the law of price and demand.
Usually, in this case, the higher the price, the higher the demand. However,
the total size of such a market is usually limited. The moment the service
becomes commonplace, the attraction no longer remains.

f. Segment-Wise Pricing:
A number of software packages, including Microsoft Office and Microsoft
Windows XP, etc., offer different prices in different segments of the market.

(1) For the office users segment, the price is the highest as the companies
would consider the utility of the product rather than the price when making a
decision about purchase. In addition, the companies may consider purchase of
multiple licences or a server version of the software, or even the professional
version.

(2) For individual users, the price is lower than the corporate segment price. It
is usually sold as a personal version rather than professional version.

(3) Students obviously are an important class of customers but are unable to
pay the full cost of such software. However, they are the future users and
decision makers, and must be groomed into using this software from the first
opportunity. Therefore, they are offered a student version of the software at
very attractive prices.

g. Loss Leadership Pricing:

In this type of pricing, the basic or fundamental services are priced at quite a
low level. However, if the client needs higher level or additional services, he
has to pay premium prices.
The home cable industry is likely to undergo a number of changes in the near
future. The pay channels want to charge a fee from the operators while the
government wants to ensure the availability of these channels at low cost to
the consumers. Due to the recent ordinance (of 2003) restricting the cable
operators/channel partners from overcharging, the pricing may undergo a
fundamental change.

Amongst the competing cable connection suppliers, the dominant supplier

may agree to exhibit the free channels package at very low prices. The cable
operator may even lose some money on the base offer. This would attract the
buyers and would secure excellent market share for the customers.
However, the prized channels such as Star Gold, Zee Cinema, etc. may be
offered at prices that are very profitable. Thus, on the whole, the operator may
benefit from larger market share and recover the loss on basic service from the
specially demanded services.

h. Bid Pricing:
The number of Indian students who join, and travel to, Universities in North
America (USA and Canada) and Great Britain during June to September each
year is quite high. All the competing airlines offering services on this route
including British Airways, KLM, Lufthansa, Alitalia, Delta, etc. want to attract
passengers in order to fill their seats on transatlantic routes, while keeping in
mind that the student travel market is price sensitive.
Airlines offer block bookings to agents who undertake to fill the quota of seats
on each of the flights from Mumbai-Delhi-Chennai during this period. The
agents would typically place the bids for block bookings, and successful travel
agents will be given the exclusive right to book seats in this period.
The agents in turn try to sell this at the best possible price. They would use
tactics such as non-confirmation to entice the buyers to pay extra for
confirmed booking. Due to the bidding, the airline itself has very less control
on the matter. However, the airline would have almost 100% seat occupancy
on the day of travel.

i. Money-Back Guarantees:
A number of software training institutes such as NUT, Aptech, Boston
Software, etc. offer a two or three-year student programme. Once the students
have enrolled, they are very likely to complete the programme due to parental
pressure. In addition, students pay a substantial portion of the fees up front,
with the balance being paid over the period of the training. Thus, it is
important to attract the students in the first instance to promote the sales.
The students are offered the lure of a guaranteed job at the end of the
education; otherwise the institute offers to refund a part of the fee. This is a
type of belated or postponed discounting. In any case, any student who fails to
find a job elsewhere is usually offered the job of an instructor at the same
institute! As we have seen above, the pricing in the case of services is quite
complex, and naturally it is dependent upon the overall marketing strategy.
Placement
Product distribution (or placement) is the process of making a product or
service accessible for use or consumption by a consumer or business user,
using direct means, or using indirect means with intermediaries.

Distribution Types

1. Intensive distribution means the producer's products are stocked in the

majority of outlets. This strategy is common for basic supplies, snack foods,
magazines and soft drink beverages.

2. Selective distribution means that the producer relies on a few

intermediaries to carry their product. This strategy is commonly observed for
more specialized goods that are carried through specialist dealers, for
example, brands of craft tools, or large appliances.

3. Exclusive distribution means that the producer selects only very few
intermediaries. Exclusive distribution is often characterized by exclusive
dealing where the re-seller carries only that producer's products to the
exclusion of all others. This strategy is typical of luxury goods retailers such as
Gucci.

The decision regarding how to distribute a product has, as its foundation,

basic economic concepts, such as utility. Utility represents the advantage or
fulfillment a customer receives from consuming a good or service.
Understanding the utility a consumer expects to receive from a product being
offered can lead marketers to the correct distribution strategy.

Two important functions are performed under this classification viz.,

transportation, and storage and warehousing. These functions create time and
place utilities. It has already been explained that marketing is concerned with
taking the goods from one place to another.
This is attained through the function of transport. Similarly goods are retained
by the producers and wholesalers and released when they are needed. This is
achieved through the function of storage.
These two functions are explained as follows:

(1) Transportation:
Meaning:
Transportation is indispensible function of marketing. Transportation
provides the physical means of carrying goods and persons from one place to
another. In other words, it is concerned with carrying the goods from the
places of production to the places of their consumption.

Transportation creates place utility and regularises supply from one place to
another. Transportation greatly facilitates the performance of marketing
functions like buying, assembling, selling, storage and warehousing etc. The
entire economy and its development is dependent on a well- knit system of
transportation.

Modes of Transportation:
Transport

Importance of Transportation:
It is said that if agriculture and industry are the body and bones of a nation,
transport and communications are its nerves. Modern industrialisation would
have been a dream without a proper system of transportation.

Transportation widens the markets, raises the scale of operations, increases

the mobility of labour and capital, provides growth and distribution of wealth
and encourages specialisation and division of labour.

Following Points Highlight the Importance of Transportation:

(1) Transportation plays significant role in quick industrialisation and

development of agriculture.
(2) It plays important role in the process of stabilisation of prices in different
regions.

(3) It is helpful in increasing internal and foreign trade. The development, of

air and ocean transport has greatly increased foreign trade.

(4) Transportation has greatly helped in increasing standard of living of people

by providing goods even at far flung areas.

(5) Transportation is one of the important considerations to be taken into

account in deciding location of an industrial unit.

(6) Transportation has helped to a great extent in the development and

promotion of industries producing perishable articles like fishing, poultry
farming, dairy farming, etc. Efficient and quick means of transport have made
it possible to carry these goods to far away distances without any deterioration
in their quality.

(7) Transportation has greatly benefitted consumers by providing them large

variety of products at lower costs.

(8) Transportation has provided employment to millions of people and

employment opportunities are further increasing with the increased means of
transport.

From the above mentioned points it is clear that transportation is vital and
essential component of an economy. The advancement of a nation is greatly
attributed to its transport system.

(2) Storage and Warehousing:

Meaning Of Storage:
Storage is a process concerned with retaining and preserving the goods.
Usually there is a time gap between production and consumption of goods.
This gap is the concern of the function of storage. Storage makes available the
goods as and when they are required and it ensures continuous and
unrestricted supply and flow of goods in the market. In this manner, it creates
place utility also by holding and retaining of goods at different places.

Importance of Storage:
Storage is an essential function of marketing. Its importance can be studied as
follows:

1. Now-a-days production is carried on in anticipation of demand of the

product in the market. All the goods are not sold off immediately. For the
unsold stock of goods storage is indispensible.

2. Many commodities are seasonal in nature. They are produced during a

particular season. In order to make their availability throughout the year, they
have to be stored. This is usually done in case of agricultural produce.

3. Many products are produced throughout the year, but their demand arises
only during a particular season in the year. In such cases products have to be
stored and released when the season arrives. Wool and woollen garments are
examples of this kind.

4. Storage is important from the point of view of producers as they have to

store the raw material in order to carry production without any obstruction
and delay on account of non-availability of raw material.

5. Storage of goods is necessary from the point of view of wholesalers as well as

retailers. Wholesalers have to supply these goods regularly to retailers and
retailers to consumers.

6. Storage acts as a process of equaliser of prices especially when the prices are
going downward in the market. Farmers therefore can get better prices for
their products because they can store their products in warehouses.
7. In case of perishable goods also, storage plays a significant role.
Commodities like fruits, butter, eggs, vegetables etc., can be stored in cold
storage to ensure their regular supply throughout the year.

8. Certain products which can get higher prices in future are stored for a
longer period such as rice, tobacco, liqour etc.

9. Some goods require subsequent processing in order to bring them in

consumable state, e.g., tea, tobacco, coffee, etc. Certain processes like curing
and blending etc., are to be carried out. These products must be stored before
such processes are carried out.

10. Storage is necessary in case where goods are produced at a distance from
the customers. These goods must be stored near the market, so that
unrestricted supply to be made to consumers. From the above, it is clear that
storage is an integral segment of the marketing process. It tends to adjust the
forces of demand and supply and acts as a stabiliser of prices.

DISTRIBUTION CHANNELS:
Distribution channels are the path products take from their initial
manufacturing stage to selling them to consumers. The main goal of these
channels is to make goods available to final consumers in sales outlets as soon
as possible.

Distribution channels directly impact a company’s sales, so you want to make

them as efficient as possible.

The Three Types of Distribution Channels

There are three ways to make sure a product gets to the final consumer.

1. Direct Channels
With direct channels, the company is fully responsible for delivering products
to consumers. Goods do not go through intermediaries before reaching their
final destination. This model gives manufacturers total control over the
distribution channel.
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This is the case with people who do catalog sales, for example.

Since the manufacturer alone is responsible for delivering products, this

channel generally makes it impossible to have a high number of customers.

At the same time, it’s possible to offer lower prices, since the company does
not have to pay commission to intermediaries.

2. Indirect Channels
With indirect channels products are delivered by intermediaries, not by the
sellers.

Who are these intermediaries? They could be wholesalers, retailers,

distributors, or brokers, for example.

In this case, manufacturers do not have total control over distribution

channels.

The benefit is that this makes it possible to sell larger volumes and sell to a
range of customers. However, products have higher prices due to the
commissions paid to intermediaries.
3. Hybrid Channels
Hybrid channels are a mix of direct and indirect channels.

In this model, the manufacturer has a partnership with intermediaries, but it

still takes control when it comes to contact with customers.

One example is brands that promote products online but don’t deliver them
directly to customers.

Instead, they nominate authorized distributors.

Three Methods for Distribution Channels

There are three different delivery methods for distribution.

Basically, they concern who will be allowed to sell your products.

1. Exclusive Distribution
With exclusive distribution, intermediaries take the company’s products to
specific sales outlets.

This is usually done by a sales representative.

This means that only exclusive retail outlets will be able to sell the items to
consumers.

Depending on the quality of the product, this is a great strategy not only for
manufacturers but also for the retail outlets or chain stores selected.

2. Selective Distribution
With selective distribution, the company allows sales to a specific group of
intermediaries who are responsible for selling items to final customers.
An important factor in how succesful this strategy will be is the reputation of
the intermediaries since they have a direct impact over the company’s
performance.

In this case, the intermediary becomes the real consultant for consumers,
answering questions and recommending appropriate products for their needs.

3. Intensive Distribution
In intensive distribution, the manufacturer tries to place their product in as
many sales outlets as possible.

The manufacturers themselves, sales teams, and commercial representatives

are all involved in this method. They are responsible for distributing products
to sales outlets.

This distribution method is generally used by manufacturers of low-cost

products with a high frequency of consumption.

Distribution Channel Levels

Besides the types and methods of distribution channels, they may also operate
on different levels.

Their levels represent the distance between the manufacturer and the final
consumer.

Level 0 Distribution Channel

In this level, there is a close and direct relationship between the manufacturer
and the client.

For the company, the costs of the relationship with the consumer are higher.
Level 1 Distribution Channel
In level 1, the manufacturer sells the products to the distributor, who might
sell it to consumers via retailers or wholesalers.

The distributor keeps some of the rights to the product, but not all.

The distributor is also responsible for the costs of sales and transportation to
sales outlets.

Level 2 Distribution Channel

Level 2 is similar to level 1.

The difference is that in this case, the distributor delivers products only to
retailers, who sell them to consumers.

Level 3 Distribution Channel

Level 3 channels are a traditional distribution model.

The product’s journey from the manufacturer involves distributor, retailer,

and customer.

The costs relative to sales and marketing are divided between the parties.

The advantage of this model is that it’s possible to reach a larger number of
consumers.

On the other hand, products have a higher price because of the operational
costs of all the parties involved.

The Nine Main Intermediaries in Distribution Channels

After finding out more about operation details, it’s time to see who are the
main intermediaries who take products to consumers.

1. Retailers
Retailers are intermediaries used frequently by companies.

Examples include supermarkets, pharmacies, restaurants, and bars. Each of

these types of businesses has full sales rights.

Generally, product prices are higher in retailers.

2. Wholesalers
Wholesalers are intermediaries that buy and resell products to retailers.
Wholesalers sell to those who are going to put products in their own stores.

These intermediaries generally don’t sell small quantities to final consumers,

though there are exceptions, like supermarkets that sell in the wholesale
model.

Prices are lower because sales involve large quantities.

3. Distributors
Distributors sell, store, and offer technical support to retailers and
wholesalers. Their operations are focused on specific regions.

4. Agents
Agents are legal entities hired to sell a company’s goods to final consumers
and are paid a commission for their sales.

In this case, the relationships between intermediaries and companies are for
the long term.
5. Brokers
Brokers are also hired to sell and receive a commission.

The difference between agents and brokers is that brokers have short term
relationships with the company.

That’s the case with real estate agents and insurance brokers, for example.

6. The Internet
To those who sell tech and software, the internet itself works as the
intermediary of the distribution channel.

The consumer only has to download the material to have access to it.

E-commerce companies also use the internet as a distribution intermediary.

7. Sales Teams
A company can also have its own sales team who are responsible for selling
goods or services.

There is also the possibility of creating more than one team to sell to various
segments and audiences if the company has a wide range of products.

8. Resellers
Resellers are companies or people who buy from manufacturers or retailers to
later sell to consumers in retail.

9. Catalog
Catalog sales, as the name indicates, is when a salesperson is connected to a
company and sells its products using a magazine. Salespeople in this model
also usually earn a commission for their sales.
This type of sales is common in the beauty segment, with brands like Avon and
the Brazilian Natura.

Reverse Distribution Channel

Now you know the types and methods available for products to reach
customers. But what happens when consumers need to return items to
manufacturers?

Consumers need to rely on reverse distribution if they receive defective

products or need to return clothes or shoes they bought online that don’t fit.

In this case, the consumer is responsible for returning the items and needs to
find information from the manufacturer about how to do this. Usually,
consumers find information about returns on the site for the product.