KADUNA STATE UNIVERSITY

DEPARTMENT OF MANAGEMENT SCIENCES

FIRST SEMESTER 2023/2024 SESSION

CLASS: 100 LEVEL
COURSE: Principles of Management
CODE: AMSCE 101
COURSE OUTLINE
1. Evolution of Management
 Pre-scientific management period.
 Classical Theory

a. Scientific Management of Taylor

b. Administrative Management of Fayol
c. Bureaucratic Model of Max Weber

 Neo-classical Theory or Behavior Approach

 Modern Theory or Systems Approach
2. Concept of Managemnt
 The need for management
 Definintion of management
 Management levels
 Management as an art
 Management as science
 Management as a system
 Universality of management
 Functions of management
3. Functions of management
 Planning
 Organizaing
 Directing
 Coordinating
 Controlling
4. Basic marketing concepts
 Market segmentation
 Product classification
 Marketing mix
5. Finance
 Introduction
 Sources of finance
 Capital budgeting nigeria stock exchange
6. Introductory aspect of human resource management
7. Introduction to organization behaviour

1
Evolution of Management Concept
The origin of Evolution management can be traced back to the days when man started living in groups.
History reveals that strong men organized the masses into groups according to their intelligence, physical
and mental capabilities. Evidence of the use of the well-recognized principles of management is to be found
in the organization of public life in ancient Greece, the organization of the Roman Catholic Church and the
organization of military forces. Thus management in some form or the other has been practiced in the
various parts of the world since the dawn of civilization. With the onset of Industrial Revolution, however,
the position underwent a radical change. The structure of industry became extremely complex. At this stage,
the development of a formal theory of management became absolutely necessary. It was against this
background that the pioneers of modern management thought laid the foundations of modern management
theory and practice.
Evolution of management thought may be divided into four stages
1.Pre-scientific management period.
2. Classical Theory
a. Scientific Management of Taylor
b. Administrative Management of Fayol
c. Bureaucratic Model of Max Weber
3. Neo-classical Theory or Behavior Approach
4. Modern Theory or Systems Approach

2
 Pre-scientific Management Period
The advent of industrial revolution in the middle of the 18th century had its impact on management.
Industrial revolution brought about a complete change in the methods of production, tools and
equipment, organization of labor and methods of raising capital.
Employees went to their work instead of receiving it, and so, the factory system, as it is known
today, become a dominant feature of the economy. Under this system, land and buildings, hired
labour, and capital are made available to the entrepreneur, who strives to combine these factors in
the efficient achievement of a particular goal. All these changes, in turn, brought about changes in
the field of management. Traditional, conventional or customary ideas of management were slowly
given up and management came to be based on scientific principles. In the words of L. F. Urwick-
"Modern management has thrown open a new branch of human knowledge, a fresh universe of
discourse". During the period following the industrial revolution, certain pioneers tried to challenge
the traditional character of management by introducing new ideas and character of management by
introducing new ideas and approaches. The notable contributors of this period are:
a. Professor Charles Babbage (UK 1729 -1871): He was a Professor of Mathematics at Cambridge
University. Prof Babbage found that manufacturers made little use of science and mathematics, and
that they (manufacturers) relied upon opinions instead of investigations and accurate knowledge.
He felt that the methods of science and mathematics could be applied to the solution of methods in
the place of guess work for the solution of business problems. He advocated the use of accurate
observations, measurement and precise knowledge for taking business decisions. He urged the
management of an enterprise, on the basis of accurate data obtained through rigid investigation, the
desirability of finding out the number of times each operation is repeated each hour, the dividing
of work into mental and physical efforts, the determining of the precise cost for every process and
the paying of a bonus to the workers in proportion to his own efficiency and the success of
enterprise.
b. James Watt Junior (UK 1796 - 1848) and Mathew Robinson Boulton(1770 - 1842): James Watt
Junior and Mathew Robinson Boulton contributed to the development of management thought by
following certain management techniques in their engineering factory at Soho in Birmingham.
c. Robert Owens (UK 1771 - 1858): Robert Owens, the promoter of co-operative and trade union
movement in England, emphasized the recognition of human element in industry. He firmly
believed that workers' performance in industry was influenced by the working conditions and
treatment of workers. He introduced new ideas of human relations - shorter working hours, housing
facilities, training of workers in hygiene, education of their children, provision of canteen etc.

3
 Robert Owen, managed a group of textile mills in Lanark, Scotland, where he used his ideas of
human relations. Though his approach was paternalistic, he came to be regarded as the father of
Personnel Management.
d. Henry Robinson Towne (USA 1844 -1924): H.R Towne was the president of the famous lock
manufacturing company "Yale and Town". He urged the combination of engineers and economists
as industrial managers. This combination of qualities, together with at least some skill as an
accountant, is essential to the successful management of industrial workers. He favoured organized
exchange of experience among managers and pleaded for an organized effort to pool the great fund
of accumulated knowledge in the art of workshop management.
e. Seebohm Rowntree (UK 1871- 1954): Rowntree created a public opinion on the need of labour
welfare scheme and improvement in industrial relations. The Industrial Welfare Society, The
Management Research Groups and the Oxford Lecture Conferences in the U.K owed their origin
and progress to the interest and zeal of Rowntree.

Classical Theory
Prof. Charles Babbage, James Watt Junior and Mathew Robinson Boulton, Robert Owen, Henry
Robinson Towne and Rowntree were, no doubt, pioneers of management thought. But, the impact
of their contributions on the industry as a whole was meager. The real beginning of the science of
management did not occur until the last decade of the 19thcentury. During this period, stalwarts
like F.W. Taylor, H.L. Gantt, Emerson, Frank and Lillian Gilberth etc., laid the foundation of
management, which in due course, came to be known as scientific management. This epoch in the
history of management will be remembered as an era in which traditional ways of managing were
challenged, past management experience was scientifically systematized and principles of
management were distilled and propagated. The contributions of the pioneers of this age have had
a profound impact in furthering the management know-how and enriching the store of management
principles.
F.W. Taylor and Henry Fayol are generally regarded as the founders of scientific management and
administrative management and both provided the bases for science and art of management.
Features of Management in the Classical Period:
1. It was closely associated with the industrial revolution and the rise of large-scale enterprise.
2. Classical organization and management theory is based on contributions from a number of sources.
They are scientific management, Administrative management theory, bureaucratic model, and
micro-economics and public administration.

4
 3. Management thought focused on job content division of labour, standardization, simplification and
specialization and scientific approach towards organization.
A. Taylor's Scientific Management: Started as an apprentice machinist in Philadelphia, USA. He rose
to be the chief engineer at the Midvale Engineering Works and later on served with the Bethlehem
Works where he experimented with his ideas and made the contribution to the management theory
for which he is so well known. Frederick Winslow Taylor well-known as the founder of
scientific management was the first to recognize and emphasis the need for adopting a scientific
approach to the task of managing an enterprise. He tried to diagnose the causes of low efficiency
in industry and came to the conclusion that much of waste and inefficiency is due to the lack of
order and system in the methods of management. He found that the management was usually
ignorant of the amount of work that could be done by a worker in a day as also the best method of
doing the job. As a result, it remained largely at the mercy of the workers who deliberately shirked
work.
He therefore, suggested that those responsible for management should adopt a scientific approach
in their work, and make use of "scientific method" for achieving higher efficiency. The scientific
method consists essentially of
a. Observation
b. Measurement
c. Experimentation and
d. Inference.
He advocated a thorough planning of the job by the management and emphasized the necessity of perfect
understanding and co-operation between the management and the workers both for the enlargement of
profits and the use of scientific investigation and knowledge in industrial work. He summed up his approach
in these words:
 Science, not rule of thumb
 Harmony, not discord
 Co-operation, not individualism
 Maximum output, in place of restricted output
 The development of each man to his greatest efficiency and prosperity.
Elements of Scientific Management: The techniques which Taylor regarded as its essential elements or
features may be classified as under:
1. Scientific Task and Rate-setting, work improvement, etc.
2. Planning the Task.
3. Vocational Selection and Training

5
 4. Standardization (of working conditions, material equipment etc.)
5. Specialization
6. Mental Revolution.
1. Scientific Task and Rate-Setting (work study): Work study may be defined as the systematic,
objective and critical examination of all the factors governing the operational efficiency of any
specified activity in order to effect improvement. Work study includes.
a. Methods Study: The management should try to ensure that the plant is laid out in the best
manner and is equipped with the best tools and machinery. The possibilities of eliminating
or combining certain operations may be studied.
b. Motion Study: It is a study of the movement, of an operator (or even of a machine) in
performing an operation with the purpose of eliminating useless motions.
c. Time Study (work measurement): The basic purpose of time study is to determine the
proper time for performing the operation. Such study may be conducted after the motion
study. Both time study and motion study help in determining the best method of doing a
job and the standard time allowed for it.
d. Fatigue Study: If, a standard task is set without providing for measures to eliminate
fatigue, it may either be beyond the workers or the workers may over strain themselves to
attain it. It is necessary, therefore, to regulate the working hours and provide for rest pauses
at scientifically determined intervals.
e. Rate-setting: Taylor recommended the differential piece wage system, under which
workers performing the standard task within prescribed time are paid a much higher rate
per unit than inefficient workers who are not able to come up to the standard set.
2. Planning the Task: Having set the task which an average worker must strive to perform to get
wages at the higher piece-rate, necessary steps have to be taken top lan the production thoroughly
so that there is no bottlenecks and the work goes on systematically.
3. Selection and Training: Scientific Management requires a radical change in the methods and
procedures of selecting workers. It is therefore necessary to entrust the task of selection to a central
personnel department. The procedure of selection will also have to be systematized. Proper
attention has also to be devoted to the training of the workers in the correct methods of work.
4. Standardization: Standardization may be introduced in respect of the following.
a. Tools and equipment: By standardization is meant the process of bringing about
uniformity. The management must select and store standard tools and implements which
will be nearly the best or the best of their kind.

6
 b. Speed: There is usually an optimum speed for every machine. If it is exceeded, it is likely
to result in damage to machinery.
c. Conditions of Work: To attain standard performance, the maintenance of standard
conditions of ventilation, heating, cooling, humidity, floor space, safety etc., is very
essential.
d. Materials: The efficiency of a worker depends on the quality of materials and the method
of handling materials.
5. Specialization: Scientific management will not be complete without the introduction of
specialization. Under this plan, the two functions of 'planning' and 'doing' are separated in the
organization of the plant. The `functional foremen' are specialists who join their heads to give
thought to the planning of the performance of operations in the workshop. Taylor suggested eight
functional foremen under his scheme of functional foremanship.
a. The Route Clerk: To lay down the sequence of operations and instruct the workers
concerned about it.
b. The Instruction Card Clerk: To prepare detailed instructions regarding different aspects
of work.
c. The Time and Cost Clerk: To send all information relating to their pay to the workers and
to secure proper returns of work from them.
d. The Shop Disciplinarian: To deal with cases of breach of discipline and absenteeism.
e. The Gang Boss: To assemble and set up tools and machines and to teach the workers to
make all their personal motions in the quickest and best way.
f. The Speed Boss: To ensure that machines are run at their best speeds and proper tools are
used by the workers.
g. The Repair Boss: To ensure that each worker keeps his machine in good order and
maintains cleanliness around him and his machines.
h. strong>The Inspector: To show to the worker how to do the work.
6. Mental Revolution: At present, industry is divided into two groups – management and labour. The
major problem between these two groups is the division of surplus. The management wants the
maximum possible share of the surplus as profit; the workers want, as large share in the form of
wages. Taylor has in mind the enormous gain that arises from higher productivity. Such gains can
be shared both by the management and workers in the form of increased profits and increased
wages.
Benefits of Scientific Management: Taylor's ideas, research and recommendations brought into focus
technological, human and organizational issues in industrial management. Benefits of Taylor's scientific

7
management included wider scope for specialization, accurate planning, timely delivery, standardized
methods, better quality, lesser costs, minimum wastage of materials, time and energy and cordial relations
between management and workers. According to Gilbreths, the main benefits of scientific management are
"conservation and savings, making an adequate use of every one's energy of any type that is expended".
The benefits of scientific management are:-
a. Replacement of traditional rule of thumb method by scientific techniques.
b. Proper selection and training of workers.
c. Incentive wages to the workers for higher production.
d. Elimination of wastes and rationalization of system of control.
e. Standardization of tools, equipment, materials and work methods.
f. Detailed instructions and constant guidance of the workers.
g. Establishment of harmonious relationship between the workers.
h. Better utilization of various resources.
i. Satisfaction of the needs of the customers by providing higher quality products at lower prices.
Criticism
1. Worker's Criticism:
a. Speeding up of workers: Scientific Management is only a device to speed up the workers
without much regard for their health and well-being.
b. Loss of individual worker's initiative: Scientific Management reduces workers to
automatic machine by taking away from them the function of thinking.
c. Problem of monotony: By separating the function of planning and thinking from that of
doing, Scientific Management reduces work to mere routine.
d. Reduction of Employment: Scientific Management creates unemployment and hits the
workers hard.
e. Weakening of Trade Unions: Under Scientific Management, the important issues of wages
and working conditions are decided by the management through scientific investigation
and the trade unions may have little say in the matter.
f. Exploitation of workers: Scientific Management improves productivity through the
agency of workers and yet they are given a very small share of the benefit of such
improvement.
2. Employer's Criticism:
a. Heavy Investment: It requires too heavy an investment. The employer has to meet the extra
cost of the planning department though the foreman in this department do not work in the
workshop and directly contribute towards higher production.

8
 b. Loss due to re-organization: The introduction of Scientific Management requires a virtual
reorganization of the whole set-up of the industrial unit. Work may have to be suspended
to complete such re-organization.
c. Unsuitable for small scale firms: various measures like the establishment of a separate
personnel department and the conducting of time and motion studies are too expensive for
a small or modest size industrial unit.
Contributions of Scientific Management: Chief among these are:
1. Emphasis on rational thinking on the part of management.
2. Focus on the need for better methods of industrial work through systematic study and research.
3. Emphasis on planning and control of production.
4. Development of Cost Accounting.
5. Development of incentive plans of wage payment based on systematic study of work.
6. Focus on need for a separate Personnel Department.
7. Focus on the problem of fatigue and rest in industrial work.
Taylor was the pioneer in introducing scientific reasoning to the discipline of management.
Many of the objections raised were later remedied by the other contributors to scientific management like
Henry L Gantt, Frank and Lillian Gilbreth and Harrington Emerson.
Frank (USA, 1867 - 1924) and Lillian (U.S.A, 1878 - 1912): The ideas of Taylor were also strongly
supported and developed by the famous husband and wife team of Frank and Lillian Gilbreth. They became
interested in wasted motions in work. After meeting Taylor, they combined their ideas with Taylor's to
put scientific management into effect. They made pioneering effort in the field of motion study and laid the
entire foundation of our modern applications of job simplification, meaningful work standards and incentive
wage plans. Mrs. Gilbreth had a unique background in psychology and management and the couple could
embark on a quest for better work methods. Frank Gilbreth is regarded as the father of motion study. He
is responsible for inculcating in the minds of managers the questioning frame of mind and the search for a
better way of doing things.
Gilbreth's contributions to management thought are quite considerable. His main contributions are:
a. The one best way of doing a job is the way which involves the fewest motions performed in an
accessible area and in the most comfortable position. The best way can be found out by the
elimination of inefficient and wasteful motions involved in the work.
b. He emphasized that training should be given to workers from the very beginning so that they
may achieve competence as early as possible.
c. He suggested that each worker should be considered to occupy three positions - (i) the job he held
before promotion to his present position, (ii) his present position, and

9
 d. The next higher position. The part of a worker's time should be spent in teaching the man below
him and learning from the man above him. This would help him qualify for promotion and help to
provide a successor to his current job.
e. Frank and Lillian Gilberth also gave a thought to the welfare of the individuals who work for the
organization.
f. Gilbreth also devised methods for avoiding wasteful and unproductive movements. He laid down
how workers should stand, how his hands should move and so on.
Henry Lawrence Gantt (USA, 1861 - 1819): H.L Gantt was born in 1861. He graduated from John Hopkins
College. For some time, he worked as a draftsman in an iron foundry.
In 1884, he qualified as a mechanical engineer at Stevens Institute. In 1887, he joined the Midvale Steel
Company. Soon, he became an assistant to F.W Taylor. He worked with Taylor from 1887 - 1919 at Midvale
Steel Company. He did much consulting work on scientific selection of workers and the development of
incentive bonus systems. He emphasized the need for developing a mutuality of interest between
management and labour. Gantt made four important contributions to the concepts of management:
1. Gantt chart to compare actual to planned performance. Gantt chart was a daily chart which
graphically presented the process of work by showing machine operations, man hour performance,
deliveries, effected and the work in arrears. This chart was intended to facilitate day-to-day
production planning.
2. Task-and-bonus plan for remunerating workers indicating a more humanitarian approach. This plan
was aimed at providing extra wages for extra work besides guarantee of minimum wages. Under
this system of wage payment, if a worker completes the work laid out for him, he is paid a definite
bonus in addition to his daily minimum wages. On the other hand, if a worker does not complete
his work, he is paid only his daily minimum wages. There was a provision for giving bonus to
supervisors, if workers under him were able to earn such bonus by extra work.
3. Psychology of employee relations indicating management responsibility to teach and train workers.
In his paper "Training Workmen in Habits of Industry and Cooperation", Gantt pleaded for a policy
of preaching and teaching workmen to do their work in the process evolved through pre-thinking
of management.
4. Gantt laid great emphasis on leadership. He considered management as leadership function. He
laid stress on the importance of acceptable leadership as the primary element in the success of any
business. Gantt's contributions were more in the nature of refinements rather than fundamental
concepts. They made scientific management more humanized and meaningful to devotees of
Taylor.

10
Harrington Emerson (USA, 1853 - 1931): Emerson was an American Engineer. He devoted his attention
to efficiency in industry. He was the first to use the term 'efficiency engineering' to describe his brand of
consulting. He called his philosophy "The Gospel of Efficiency". According to him, "efficiency means that
the right thing is done in the right manner, by the right man, at the right place, in the right time".
Emerson laid down the following principles of efficiency to be observed by management:-
1. Ideals
2. Common Sense
3. Competent Counsel
4. Discipline
5. Fair Deal
6. Proper Records
7. Dispatching
8. Standards and Schedules
9. Standard Conditions
10. Standardized Operations
11. Standard practice instructions and
12. Efficiency Reward.
Administrative Management Theory
Henry Fayol was the most important exponent of this theory. The pyramidal form, scalar principle, unity
of command, exception principle, span of control and departmentalization are some of the important
concepts set forth by Fayol and his followers like Mooney and Reiley, Simon, Urwick, Gullick etc.
Henry Fayol (France, 1841 - 1925): Henry Fayol was born in 1941 at Constantinople in France. He
graduated as a mining engineer in 1860 from the National School of Mining. After his graduation, he joined
a French Coal Mining Company as an Engineer. After a couple of years, he was promoted as manager. He
was appointed as General Manager of his company in 1888. At that time, the company suffered heavy losses
and was nearly bankrupt. Henry Fayol succeeded in converting his company from near bankruptcy to a
strong financial position and a record of profits and dividends over a long period.
Concept of Management: Henry Fayol is considered the father of modern theory of general and industrial
management. He divided general and industrial management into six groups:
1. Technical activities - Production, manufacture, adaptation.
2. Commercial activities - buying, selling and exchange.
3. Financial activities - search for and optimum use of capital.
4. Security activities - protection of property and persons.
5. Accounting activities - stock-taking, balance sheet, cost, and statistics.

11
 6. Managerial activities - planning, organization, command, co- ordination and control.
These six functions had to be performed to operate successfully any kind of business. He, however, pointed
out that the last function i.e., ability to manage, was the most important for upper levels of managers.
The process of management as an ongoing managerial cycle involving planning, organizing, directing, co-
ordination, and controlling, is actually based on the analysis of general management by Fayol. Hence, it is
said that Fayol established the pattern of management thought and practice. Even today, management
process has general recognition.
Fayol's Principles of Management: The principles of management are given below:
1. Division of work: Division of work or specialization alone can give maximum productivity and
efficiency. Both technical and managerial activities can be performing the best manner only
through division of labour and specialization.
2. Authority and Responsibility: The right to give order is called authority. The obligation to
accomplish is called responsibility. Authority and Responsibility are the two sides of the
management coin. They exist together. They are complementary and mutually interdependent.
3. Discipline: The objectives, rules and regulations, the policies and procedures must be honored by
each member of an organization. There must be clear and fair agreement on the rules and objectives,
on the policies and procedures. There must be penalties (punishment) for non-obedience or
indiscipline. No organization can work smoothly without discipline - preferably voluntary
discipline.
4. Unity of Command: In order to avoid any possible confusion and conflict, each member of an
organization must receive orders and instructions only from one superior (boss).
5. Unity of Direction: All members of an organization must work together to accomplish common
objectives.
6. Emphasis on Subordination of Personal Interest to General or Common Interest: This is also
called principle of co-operation. Each shall work for all and all for each. General or common
interest must be supreme in any joint enterprise.
7. Remuneration: Fair pay with non-financial rewards can act as the best incentive or motivator for
good performance. Exploitation of employees in any manner must be eliminated. Sound scheme of
remuneration includes adequate financial and nonfinancial incentives.
8. Centralization: There must be a good balance between centralization and decentralization of
authority and power. Extreme centralization and decentralization must be avoided.
9. Scalar Chain: The unity of command brings about a chain or hierarchy of command linking all
members of the organization from the top to the bottom. Scalar denotes steps.

12
 10. Order: Fayol suggested that there is a place for everything. Order or system alone can create a
sound organization and efficient management.
11. Equity: An organization consists of a group of people involved in joint effort. Hence, equity (i.e.,
justice) must be there. Without equity, we cannot have sustained and adequate joint collaboration.
12. Stability of Tenure: A person needs time to adjust himself with the new work and demonstrate
efficiency in due course. Hence, employees and managers must have job security. Security of
income and employment is a pre-requisite of sound organization and management.
13. Esprit of Co-operation: Esprit de corps is the foundation of a sound organization. Union is
strength. But unity demands co-operation. Pride, loyalty and sense of belonging are responsible for
good performance.
14. Initiative: Creative thinking and capacity to take initiative can give us sound managerial planning
and execution of predetermined plans.
Bureaucratic Model
Max Weber, a German Sociologist developed the bureaucratic model. His model of bureaucracy
include
a. Hierarchy of authority.
b. Division of labour based upon functional specialization.
c. A system of rules.
d. Impersonality of interpersonal relationships.
e. A system of work procedures.
f. Placement of employees based upon technical competence.
g. Legal authority and power.
Bureaucracy provides a rigid model of an organization. It does not account for important human elements.
The features of Bureaucracy are:-
1. Rigidity, impersonality and higher cost of controls.
2. Anxiety due to pressure of conformity to rules and procedure.
3. Dependence on superior.
4. Tendency to forget ultimate goals of the organization.
Bureaucratic Model is preferred where change is not anticipated or where rate of change can be predicated.
It is followed in government departments and in large business organizations.
Neoclassical Theory
Neo-classical Theory is built on the base of classical theory. It modified, improved and extended the
classical theory. Classical theory concentrated on job content and management of physical resources
whereas, neoclassical theory gave greater emphasis to individual and group relationship in the

13
workplace. The neo- classical theory pointed out the role of psychology and sociology in the understanding
of individual and group behaviour in an organization
George Elton Mayo (Australia, 1880 - 1949): Elton Mayo was born in Australia. He was educated in Logic
and Philosophy at St. Peter's College, Adelaide. He led a team of researchers from Harvard University,
which carried out investigation in human problems at the Hawthorne Plant of Western Electrical Company
at Chicago. They conducted some experiments (known as Hawthorne Experiments) and investigated
informal groupings, informal relationships, patterns of communication, patterns of informal leadership etc.
Elton Mayo is generally recognized as the father of Human Relations School. Other prominent contributors
to this school include Roethlisberger, Dickson, Dewey, Lewinetc.
Hawthorne Experiment: In 1927, a group of researchers led by Elton Mayo and Fritz Roethlisberger of the
Harvard Business School were invited to join in the studies at the Hawthorne Works of Western Electric
Company, Chicago. The experiment lasted up to 1932. The Hawthorne Experiments brought out that the
productivity of the employees is not the function of only physical conditions of work and money wages
paid to them. Productivity of employees depends heavily upon the satisfaction of the employees in
their work situation. Mayo's idea was that logical factors were far less important than emotional factors
in determining productivity efficiency. Furthermore, of all the human factors influencing employee
behaviour, the most powerful were those emanating from the worker's participation in social groups. Thus,
Mayo concluded that work arrangements in addition to meeting the objective requirements of production
must at the same time satisfy the employee's subjective requirement of social satisfaction at his work place.

The Hawthorne experiment consists of four parts. These parts are briefly described below:-
1. Illumination Experiment.
2. Relay Assembly Test Room Experiment.
3. Interviewing Programme.
4. Bank Wiring Test Room Experiment.
1. Illumination Experiment: This experiment was conducted to establish relationship between
output and illumination. When the intensity of light was increased, the output also increased. The
output showed an upward trend even when the illumination was gradually brought down to the
normal level. Therefore, it was concluded that there is no consistent relationship between output
of workers and illumination in the factory. There must be some other factor which affected
productivity.
2. Relay Assembly Test Room Experiment: This phase aimed at knowing not only the impact of
illumination on production but also other factors like length of the working day, rest hours,
and other physical conditions. In this experiment, a small homogeneous work-group of six girls

14
 was constituted. These girls were friendly to each other and were asked to work in a very informal
atmosphere under the supervision of a researcher. Productivity and morale increased considerably
during the period of the experiment. Productivity went on increasing and stabilized at a high level
even when all the improvements were taken away and the pre-test conditions were reintroduced.
The researchers concluded that socio-psychological factors such as feeling of being important,
recognition, attention, participation, cohesive work-group, and non-directive supervision
held the key for higher productivity.
3. Mass Interview Programme: The objective of this programme was to make a systematic study of
the employees' attitudes which would reveal the meaning which their "working situation" has for
them. The researchers interviewed a large number of workers with regard to their opinions on work,
working conditions and supervision. Initially, a direct approach was used whereby interviews asked
questions considered important by managers and researchers. The researchers observed that the
replies of the workmen were guarded. Therefore, this approach was replaced by an indirect
technique, where the interviewer simply listened to what the workmen had to say. The findings
confirmed the importance of social factors at work in the total work environment.
4. Bank Wiring Test Room Experiment: This experiment was conducted by Roethlisberger and
Dickson with a view to develop a new method of observation and obtaining more exact information
about social groups within a company and also finding out the causes which restrict output. The
experiment was conducted to study a group of workers under conditions which were as close as
possible to normal. This group comprised of 14 workers. After the experiment, the production
records of this group were compared with their earlier production records. It was observed that the
group evolved its own production norms for each individual worker, which was made lower than
those set by the management. Because of this, workers would produce only that much, thereby
defeating the incentive system. Those workers who tried to produce more than the group norms
were isolated, harassed or punished by the group. The findings of the study are:-
i. Each individual was restricting output.
ii. The group had its own "unofficial" standards of performance.
iii. Individual output remained fairly constant over a period of time.
iv. Informal groups play an important role in the working of an organization.
Contributions of the Hawthorne Experiment: Elton Mayo and his associates conducted their studies in the
Hawthorne plant of the western electrical company, U.S.A., between 1927 and 1930. According to them,
behavioural science methods have many areas of application in management. The important features of the
Hawthorne Experiment are:-
1. A business organization is basically a social system. It is not just a techno-economic system.

15
 2. The employer can be motivated by psychological and social wants because his behaviour is also
influenced by feelings, emotions and attitudes. Thus economic incentives are not the only method
to motivate people.
3. Management must learn to develop co-operative attitudes and not rely merely on command.
4. Participation becomes an important instrument in human relations movement. In order to achieve
participation, effective two-way communication network is essential.
5. Productivity is linked with employee satisfaction in any business organization. Therefore
management must take greater interest in employee satisfaction.
6. Group psychology plays an important role in any business organization. We must therefore rely
more on informal group effort.
7. The neo-classical theory emphasizes that man is a living machine and he is far more important than
the inanimate machine. Hence, the key to higher productivity lies in employee morale. High morale
results in higher output.

Elements of Behavioural Theory: There are three elements of behavioural theory.

1. The Individual: The neoclassical theory emphasized that individual differences must be
recognised. An individual has feelings, emotions, perception and attitude. Each person is unique.
He brings to the job situation certain attitudes, beliefs and ways of life, as well as skills. He has
certain meaning of his job, his supervision, working conditions etc. The inner world of the worker
is more important than the external reality in the determination of productivity. Thus human
relations at work determine the rise or fall in productivity. Therefore human relationists advocate
the adoption of multidimensional model of motivation which is based upon economic, individual
and social factors.>
2. Work Groups: Workers are not isolated; they are social beings and should be treated as such by
management. The existence of informal organization is natural. The neo-classical theory describes
the vital effects of group psychology and behaviour on motivation and productivity.
3. Participative Management: The emergence of participative management is inevitable when
emphasis is laid on individual and work groups. Allowing labour to participate in decision making
primarily to increase productivity was a new form of supervision. Management now welcomes
worker participation in planning job contents and job operations. Neoclassical theory focuses its
attention on workers. Plant layout, machinery, tool etc., must offer employee convenience and
facilities. Therefore, neoclassical approach is trying to satisfy personal security and social needs of
workers.

16
Human relationists made very significant contribution to management thought by bringing into limelight
human and social factors in organizations. But their concepts were carried beyond an appropriate limit.
There are many other factors which influence productivity directly. Modern management thought wants
equal emphasis on man and machine and we can evolve appropriate man- machine system to secure both
goals – productivity and satisfaction.
Limitations of Human Relations Approach:-
1. The human relationists drew conclusions from Hawthorne studies. These conclusions are based on
clinical insight rather than on scientific evidence.
2. The study tends to overemphasize the psychological aspects at the cost of the structural and
technical aspects.
3. It is assumed that all organizational problems are amenable to solutions through human relations.
This assumption does not hold good in practice.
4. The human relationists saw only the human variables as critical and ignored other variables.
5. The human relationists overemphasize the group and group decision-making. But in practice,
groups may create problems and collective decision-making may not be possible.
Modern Theory (System Approach): The systems approach to management indicates the fourth major
theory of management thought called modern theory. Modern theory considers an organization as an
adaptive system which has to adjust to changes in its environment. An organization is now defined as a
structured process in which individuals interact for attaining objectives.
Meaning of "System": The word system is derived from the Greek word meaning to bring together or to
combine. A system is a set of interconnected and inter-related elements or component parts to achieve
certain goals. A system has three significant parts:
1. Every system is goal-oriented and it must have a purpose or objective to be attained.
2. In designing the system we must establish the necessary arrangement of components.
3. Inputs of information, material and energy are allocated for processing as per plan so that the
outputs can achieve the objective of the system.
Systems Approach Applied to an Organization: When systems approach is applied to organization, we
have the following features of an organization as an open adaptive system:-
1. It is a sub-system of its broader environment.
2. It is a goal-oriented – people with a purpose.
3. It is a technical subsystem – using knowledge, techiques, equipment and facilities.
4. It is a structural subsystem – people working together on interrelated activities.
5. It is a psychosocial system – people in social relationships.

17
 6. It is co-ordinate by a managerial sub system, creating, planning, organizing, motivating,
communicating and controlling the overall efforts directed towards set goals.
Characteristics of Modern Management Thought:
1. The Systems Approach: An organization as a system has five basic parts -
1. Input
2. Process
3. Output
4. Feedback and
5. Environment.
It draws upon the environment for inputs to produce certain desirable outputs. The success of these
outputs can be judged by means of feedback. If necessary, we have to modify out mix of inputs to
produce as per changing demands.
2. Dynamic: We have a dynamic process of interaction occurring within the structure of an
organization. The equilibrium of an organization and its structure is itself dynamic or changing.
3. Multilevel and Multidimensional: Systems approach points out complex multilevel and multi-
dimensional character. We have both a micro and macro approach. A company is micro within a
business system. It is macro with respect to its own internal units. Within a company as a system
we have:-
1. Production subsystem
2. Finance subsystem
3. Marketing subsystem
4. Personnel subsystem.
All parts or components are interrelated. Both parts as well as the whole are equally important. At
all levels, organizations interact in many ways.
4. Multimotivated: Classical theory assumed a single objective, for instance, profit.
Systems approach recognizes that there may be several motivations behind our actions and
behavior. Management has to compromise these multiple objectives e.g.: - economic objectives
and social objectives.
5. Multidisciplinary: Systems approach integrates and uses with profit ideas emerging from different
schools of thought. Management freely draws concepts and techniques from many fields of study
such as psychology, social psychology, sociology, ecology, economics, mathematics, etc.
6. Multivariable: It is assumed that there is no simple cause-effect phenomenon. An event may be
the result of so many factors which themselves are interrelated and interdependent. Some factors

18
 are controllable, some uncontrollable. Intelligent planning and control are necessary to face these
variable factors.
7. Adaptive: The survival and growth of an organization in a dynamic environment demands an
adaptive system which can continuously adjust to changing conditions. An organization is an open
system adapting itself through the process of feedback.
8. Probabilistic: Management principles point out only probability and never the certainty of
performance and the consequent results. We have to face so many variables simultaneously. Our
forecasts are mere tendencies. Therefore, intelligent forecasting and planning can reduce the degree
of uncertainty to a considerable extent.
Contingency Theory: Systems approach emphasizes that all sub- systems of an organization along with the
super system of environment are interconnected and interrelated. Contingency approach analysis and
understands these inter relationship so that managerial actions can be adjusted to demands of specific
situations or circumstances.
Thus the contingency approach enables us to evolve practical answers to problems demanding solutions.
Organization design and managerial actions most appropriate to specific situations will have to be adopted
to achieve the best possible result under the given situation. There is no one best way (as advocated by
Taylor) to organize and manage. Thus, Contingency Approach to management emphasizes the fact that
management is a highly practice-oriented discipline. It is the basic function of managers to analyze and
understand the environments in which they function before adopting their techniques, processes and
practices. The application of management principles and practices should therefore be continent upon the
existing circumstances.
Contingency approach guides the manager to be adaptive to environment. It tells the manager to be
pragmatic and open minded. The contingency approach is an improvement over the systems approach. It
not only examines the relationships between sub-systems of the organization, but also the relationship
between the organization and its environment.
However, the contingency approach suffers from two limitations:-
1. It does not recognize the influence of management concepts and techniques on environment.
2. Literature on contingency management is yet not adequate.
What is Management?
Management refers to the art of getting people together on a common platform to make them work towards
a common predefined goal. Management enables the optimum use of resources through meticulous
planning and control at the workplace. Management gives a sense of direction to the employees. The
individuals are well aware of their roles and responsibilities and know what they are supposed to do in the
organization.

19
The organization and coordination of the activities of a business in order to achieve defined objective. The
act or art of managing : the conducting or supervising of something.

Management is an individual or a group of individuals that accept responsibilities to run an organisation.

They Plan, Organise, Direct and Control all the essential activities of the organisation. Management does
not do the work themselves. They motivate others to do the work and co-ordinate (i.e. bring together) all
the work for achieving the objectives of the organisation.
Management brings together all Six Ms i.e. Men and Women, Money, Machines, Materials, Methods
and Markets. They use these resources for achieving the objectives of the organisation such as high sales,
maximum profits, business expansion, etc.
According to Harold Koontz,
"Management is the art of getting things done through and with people in formally organised groups."
Harold Koontz gave this definition of management in his book "The Management Theory Jungle
According to Henri Fayol,
"To manage is to forecast and to plan, to organise, to command, to co-ordinate and to control. Henri Fayol
gave this definition of management in his book "Industrial and General Administration"
According to Peter Drucker,
"Management is a multi-purpose organ that manages business and manages managers and manages workers
and work. This definition of management was given by Peter Drucker in his book "The Principles of
Management".
According to Mary Parker Follet,
"Management is the art of getting things done through people.

NEED FOR MANAGEMENT

Management is needed in order to facilitate a coordinated effort toward the accomplishment of an
organization's goals.
The need for management development is well accepted in the present business, which is fast changing due
to technological and social developments.
1. Shortage of trained managers: Talented and matured managers are not easily available. It is not
possible to appoint managers from outside for the key managerial posts. The better alternative is to
select talented persons as trainee managers and develop their qualities through special training and
wider exposures. In this way, the organisation can create its own team of talented managers to lead
the whole Organisation.

20
 2. Complexity of management jobs: The jobs of managers are now complicated and more
challenging. They need varied skills for dealing with the complex organizational problems. For
this, talented persons should be selected and proper training should be given to them.
3. Technological and social changes: Rapid technological and social changes are taking place in the
business world. In most developed countries, such developments are fast taking place along with
the liberalization and globalisation of business. Managers should be given proper training and
exposure in computer applications and information technology.
4. Management obsolescence: Executive obsolescence occurs due to mental deterioration and aging
process. This can be corrected by offering self-development opportunities to managers. In fact,
self-development must continue throughout the career of an executive.
5. Complexity of business management: Business management is becoming very complicated due
to government legislations, market competition, social pressures and consciousness among
consumers. Well-trained and matured managers are therefore required. Such managers are not
available easily. The best way is to train existing managers through management development
programmes.
6. Management gives a sense of security and oneness to the employees.
7. An effective management is required for better coordination among various departments.
8. Employees accomplish tasks within the stipulated time frame as a result of effective organization
management.
9. Employees stay loyal towards their job and do not treat work as a burden.
10. Effective organization management leads to a peaceful and positive ambience at the workplace.

LEVELS OF MANAGEMENT
1. Top level / Administrative level
2. Middle level / Executory
3. Low level / Supervisory / Operative / First-line managers
Managers at all these levels perform different functions. The role of managers at all the three levels is
discussed below:

21
LEVELS OF MANAGEMENT
1. Top Level of Management
It consists of board of directors, chief executive or managing director. The top management is the
ultimate source of authority and it manages goals and policies for an enterprise. It devotes more
time on planning and coordinating functions.
The role of the top management can be summarized as follows -
a. Top management lays down the objectives and broad policies of the enterprise.
b. It issues necessary instructions for preparation of department budgets, procedures,
schedules etc.
c. It prepares strategic plans & policies for the enterprise.
d. It appoints the executive for middle level i.e. departmental managers.
e. It controls & coordinates the activities of all the departments.
f. It is also responsible for maintaining a contact with the outside world.
g. It provides guidance and direction.
h. The top management is also responsible towards the shareholders for the performance of
the enterprise.

2. Middle Level of Management

The branch managers and departmental managers constitute middle level. They are responsible to
the top management for the functioning of their department. They devote more time to
organizational and directional functions. In small organization, there is only one layer of middle
level of management but in big enterprises, there may be senior and junior middle level
management. Their role can be emphasized as -

22
 a. They execute the plans of the organization in accordance with the policies and directives
of the top management.
b. They make plans for the sub-units of the organization.
c. They participate in employment & training of lower level management.
d. They interpret and explain policies from top level management to lower level.
e. They are responsible for coordinating the activities within the division or department.
f. It also sends important reports and other important data to top level management.
g. They evaluate performance of junior managers.
h. They are also responsible for inspiring lower level managers towards better performance.

3. Lower Level of Management

Lower level is also known as supervisory / operative level of management. It consists of
supervisors, foreman, section officers, superintendent etc. According to R.C. Davis, “Supervisory
management refers to those executives whose work has to be largely with personal oversight and
direction of operative employees”. In other words, they are concerned with direction and
controlling function of management. Their activities include -
a. Assigning of jobs and tasks to various workers.
b. They guide and instruct workers for day to day activities.
c. They are responsible for the quality as well as quantity of production.
d. They are also entrusted with the responsibility of maintaining good relation in the
organization.
e. They communicate workers problems, suggestions, and recommendatory appeals etc to the
higher level and higher level goals and objectives to the workers.
f. They help to solve the grievances of the workers.
g. They supervise & guide the sub-ordinates.
h. They are responsible for providing training to the workers.
i. They arrange necessary materials, machines, tools etc for getting the things done.
j. They prepare periodical reports about the performance of the workers.
k. They ensure discipline in the enterprise.
l. They motivate workers.
m. They are the image builders of the enterprise because they are in direct contact with the
workers.

23
MANAGEMENT AS AN ART
It is called an art because managing requires certain skills which are personal possessions of managers. Art
implies application of knowledge & skill to trying about desired results. An art may be defined as
personalized application of general theoretical principles for achieving best possible results. Art has the
following characters.
 Practical Knowledge: Every art requires practical knowledge therefore learning of theory
is not sufficient. It is very important to know practical application of theoretical principles.
E.g. to become a good painter, the person may not only be knowing different colour and
brushes but different designs, dimensions, situations etc. to use them appropriately. A
manager can never be successful just by obtaining degree or diploma in management; he
must have also know how to apply various principles in real situations by functioning in
capacity of manager.
 Personal Skill: Although theoretical base may be same for every artist, but each one has
his own style and approach towards his job. That is why the level of success and quality of
performance differs from one person to another. Similarly management as an art is also
personalized. Every manager has his own way of managing things based on his knowledge,
experience and personality, that is why some managers are known as good managers
whereas others as bad.
 Creativity: Every artist has an element of creativity in line. That is why he aims at
producing something that has never existed before which requires combination of
intelligence & imagination. Management is also creative in nature like any other art. It
combines human and non-human resources in useful way so as to achieve desired results.
It tries to produce sweet music by combining chords in an efficient manner.
 Perfection through practice: Practice makes a man perfect. Every artist becomes more
and more proficient through constant practice. Similarly managers learn through an art of
trial and error initially but application of management principles over the years makes them
perfect in the job of managing.
 Goal-Oriented: Every art is result oriented as it seeks to achieve concrete results. In the
same manner, management is also directed towards accomplishment of pre-determined
goals. Managers use various resources like men, money, material, machinery & methods
to promote growth of an organization.

24
MANAGEMENT AS A SCIENCE
Science is a systematic body of knowledge pertaining to a specific field of study that contains general facts
which explains a phenomenon. It establishes cause and effect relationship between two or more variables
and underlines the principles governing their relationship. These principles are developed through scientific
method of observation and verification through testing.
Science is characterized by following main features:
1. Universally acceptance principles - Scientific principles represents basic truth about a particular
field of enquiry. These principles may be applied in all situations, at all time & at all places. E.g. -
law of gravitation which can be applied in all countries irrespective of the time.
Management also contains some fundamental principles which can be applied universally like the
Principle of Unity of Command i.e. one man, one boss. This principle is applicable to all type of
organization - business or non-business.
2. Experimentation & Observation - Scientific principles are derived through scientific
investigation & researching i.e. they are based on logic. E.g. the principle that earth goes round the
sun has been scientifically proved.
Management principles are also based on scientific enquiry & observation and not only on the
opinion of Henry Fayol. They have been developed through experiments & practical experiences
of large no. of managers. E.g. it is observed that fair remuneration to personal helps in creating a
satisfied work force.
3. Cause & Effect Relationship - Principles of science lay down cause and effect relationship
between various variables. E.g. when metals are heated, they are expanded. The cause is heating &
result is expansion.
The same is true for management, therefore it also establishes cause and effect relationship. E.g.
lack of parity (balance) between authority & responsibility will lead to ineffectiveness. If you know
the cause i.e. lack of balance, the effect can be ascertained easily i.e. in effectiveness. Similarly if
workers are given bonuses, fair wages they will work hard but when not treated in fair and just
manner, reduces productivity of organization.
4. Test of Validity & Predictability - Validity of scientific principles can be tested at any time or
any number of times i.e. they stand the test of time. Each time these tests will give same result.
Moreover future events can be predicted with reasonable accuracy by using scientific principles.
E.g. H2 & O2 will always give H2O.
Principles of management can also be tested for validity. E.g. principle of unity of command can
be tested by comparing two persons - one having single boss and one having 2 bosses. The
performance of 1st person will be better than 2nd.

25
MANAGEMENT AS A SYSTEM
Management system is how organizations ensure things get done. If your organization holds regular staff
meetings, those are part of its management system. If you have reminders to yourself on post-it notes strewn
about your desk, those are part of your management system. Taken as a whole, all of the processes, formal
and informal, that enable your organization to deliver its products or services, make up its management
system.
Managerial systems are management structures that companies use to direct actions and activities toward
company goals. These systems ultimately manage resources, policies, production and people. Managerial
systems typically use standard or best practices to organize, establish and implement processes and
production. Standard practices are step-by-step, tested methods or models of operating a business,
managing production, implementing policies and choosing employees to hire and vendors or suppliers to
purchase from.
An organizational department or division with specific systems management responsibilities may be known
as a management information system (MIS). Network management, telecommunications or database
management are systems management components.

UNIVERSALITY OF MANAGEMENT
Universality of management means that the principles of management are applicable to all types of
organizations and organizational levels. It means that the manager uses the same managerial skills and
principles in each managerial position held in various organizations.
The universality of management is an important concept to consider in modern management thought.
When describing management as universal, we refer to the widespread practice of management in all
types of organizations. As noted before, one cannot bring a group of people together, regardless of the
nature of the endeavour, and expect them to accomplish objectives unless their efforts are coordinated.
Among other things, plans must be outlined, task identified, authority relationship specified, lines of
communication established, and leadership exercised. Management, therefore, is required before any
organization can expect to be effective.

Although management is universal, we should not assume that all managers are the same; if, for no other
reason, differences exist because no two individuals are alike. However, all managers perform broad
groups of duties that are similar. These groups of duties are the functions of planning, organizing,
actuating, and controlling. Although the responsibilities associated with performing the functions vary

26
among levels of authority, managers at all material resources. Since the management functions must be
performed to some degree in order to achieve desired goals, we can say that there is, indeed, a
universality of management.

The universal nature of management also implies that managerial skills are transferable from one type of
organization to another. If this is the case, a manager should expect to experience few problems in
moving from one industry to another, from the military to business, from business to government, from
education to business, or from one department to another within the same organization. There are
certainly persons who have been successful in making such moves. Other, however, have failed.
THE FOUR FUNCTIONS OF MANAGERS
Management involves far more than just telling others what to do. Before any of you decide that you think
you can do your boss's job, let's take a look into more of what a manager does.
The major functions that a manager completes can be categorized into four different functions known as
planning, organizing, leading, and controlling. For some of us, we only see the final two - leading and
controlling - but you should know that for every managerial behavior you do see, there is an equal amount
that you do not. Behind the manager's closed door, he or she spends a good deal of his or her time planning
and organizing, so that he or she can effectively carry out the functions of leading and controlling.

Now, before you think your boss is different, you should also know that the four functions of management
are standard across industries, whether that be in a manufacturing plant, a home office, a grocery store, a
retail store, a restaurant, a hotel, or even an amusement park. Effective managers understand how planning,
organizing, leading, and controlling are used to achieve organizational success. Unfortunately, I do not have
a rebuttal for those of you who have ineffective managers, but perhaps learning a little more about the four
functions of management will help to identify what steps your ineffective manager needs to take to become
an effective one.

Try to think about the four functions as a process where each step builds on the others. Managers must first
plan, then organize according to that plan, lead others to work towards the plan, and finally evaluate the
effectiveness of the plan. These four functions must be performed properly and, when done well, become
the reason for organizational success.

PLANNING
The first of the managerial functions is planning. In this step, the manager will create a detailed action plan
aimed at some organizational goal.

27
For example, let's say Melissa the marketing manager has a goal of increasing sales during the month of
February. Melissa needs to first spend time mapping out the necessary steps she and her team of sales
representatives must take so that they can increase sales numbers. These steps might include things like
increasing advertisements in a particular region, placing some items on sale, increasing the amount of
required customer-to-sales rep contact, or contacting prior customers to see if they are interested in
purchasing additional products. The steps are then organized into a logical pattern so that Melissa and her
team can follow them.
Planning is an on-going step, and can be highly specialized based on organizational goals, division goals,
departmental goals, and team goals. It is up to the manager to recognize which goals need to be planned
within his or her individual area.

ORGANIZING
The second of the managerial functions is organizing. This step requires Melissa to determine how she will
distribute resources and organize her employees according to the plan. Melissa will need to identify
different roles and ensure that she assigns the right amount of employees to carry out her plan. She will also
need to delegate authority, assign work, and provide direction so that her team of sales representatives can
work towards higher sales numbers without having barriers in their way.

It is the process of bringing together physical, financial and human resources and developing productive
relationship amongst them for achievement of organizational goals. According to Henry Fayol, “To
organize a business is to provide it with everything useful or its functioning i.e. raw material, tools, capital
and personnel’s”. To organize a business involves determining & providing human and non-human
resources to the organizational structure. Organizing as a process involves:
 Identification of activities.
 Classification or grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.

LEADING
The third function of management is leading. In this step, Managers spends time connecting with
employees on an interpersonal level. This goes beyond simply managing tasks; rather, it involves
communicating, motivating, inspiring, and encouraging employees towards a higher level of productivity.
Not all managers are leaders. An employee will follow the directions of a manager because they have to,

28
but an employee will voluntarily follow the directions of a leader because they believe in who he or she is
as a person, what he or she stands for, and for the manner in which they are inspired by the leader.

CONTROLLING
Controlling is the final function of management. Once a plan has been carried out, the manager evaluates
the results against the goals. If a goal is not being met, the manager must also take any necessary corrective
actions to continue to work towards that goal.
It implies measurement of accomplishment against the standards and correction of deviation if any to ensure
achievement of organizational goals. The purpose of controlling is to ensure that everything occurs in
conformities with the standards. An efficient system of control helps to predict deviations before they
actually occur. According to Theo Haimann, Controlling is the process of checking whether or not proper
progress is being made towards the objectives and goals and acting if necessary, to correct any deviation.
According to Koontz & O’Donell “Controlling is the measurement & correction of performance activities
of subordinates in order to make sure that the enterprise objectives and plans desired to obtain them as being
accomplished”. Therefore controlling has following steps:
a. Establishment of standard performance.
b. Measurement of actual performance.
c. Comparison of actual performance with the standards and finding out deviation if any.
d. Corrective action.

DIRECTING
It is that part of managerial function which actuates the organizational methods to work efficiently for
achievement of organizational purposes. It is considered life-spark of the enterprise which sets it in motion
the action of people because planning, organizing and staffing are the mere preparations for doing the work.
Direction is that inert-personnel aspect of management which deals directly with influencing, guiding,
supervising, motivating sub-ordinate for the achievement of organizational goals. Direction has following
elements:
 Supervision
 Motivation
 Leadership
 Communication
Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching &
directing work & workers.

29
Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive,
negative, monetary, non-monetary incentives may be used for this purpose.
Leadership- may be defined as a process by which manager guides and influences the work of subordinates
in desired direction.
Communications- is the process of passing information, experience, opinion etc from one person to
another. It is a bridge of understanding.

STAFFING
It is the function of manning the organization structure and keeping it manned. Staffing has assumed greater
importance in the recent years due to advancement of technology, increase in size of business, complexity
of human behavior etc. The main purpose of staffing is to put right man on right job i.e. square pegs in
square holes and round pegs in round holes. According to Kootz & O’Donell, “Managerial function of
staffing involves manning the organization structure through proper and effective selection, appraisal &
development of personnel to fill the roles designed un the structure”. Staffing involves:
 Manpower Planning (estimating man power in terms of searching, choose the person and giving
the right place).
 Recruitment, Selection & Placement.
 Training & Development.
 Remuneration.
 Performance Appraisal.
 Promotions & Transfer.

MARKET SEGMENTATION

Market segmentation is the process of dividing a market of potential customers into groups, or segments,
based on different characteristics. The segments created are composed of consumers who will respond
similarly to marketing strategies and who share traits such as similar interests, needs, or locations.

The process of defining and subdividing a large homogenous market into clearly identifiable segments
having similar needs, wants, or demand characteristics. Its objective is to design a marketing mix that
precisely matches the expectations of customers in the targeted segment.

30
BASIS OF MARKET SEGMENTATION
 Gender
The marketers divide the market into smaller segments based on gender. Both men and women
have different interests and preferences, and thus the need for segmentation.
Organizations need to have different marketing strategies for men which would obviously not work
in case of females. A woman would not purchase a product meant for males and vice a versa. The
segmentation of the market as per the gender is important in many industries like cosmetics,
footwear, jewellery and apparel industries.
 Age Group
Division on the basis of age group of the target audience is also one of the ways of market
segmentation. The products and marketing strategies for teenagers would obviously be different
than kids.
Age group (0 - 10 years) - Toys, Nappies, Baby Food, Prams
Age Group (10 - 20 years) - Toys, Apparels, Books, School Bags
Age group (20 years and above) - Cosmetics, Anti-Ageing Products, Magazines, apparels and so
on

 Income
Marketers divide the consumers into small segments as per their income. Individuals are classified
into segments according to their monthly earnings. The three categories are:
High income Group
Mid Income Group
Low Income Group
Stores catering to the higher income group would have different range of products and strategies
as compared to stores which target the lower income group.
Apple, Benz, Shopper’s stop target the high income group as compared to Vishal Retail, Reliance
Retail or Big bazaar who cater to the individuals belonging to the lower income segment.
 Marital Status
Market segmentation can also be as per the marital status of the individuals. Travel agencies would
not have similar holiday packages for bachelors and married couples.
 Occupation
Office goers would have different needs as compared to school / college students.

31
 A beach house shirt or a funky T Shirt would have no takers in a Zodiac Store as it caters
specifically to the professionals.
Types of Market Segmentation
 Psychographic segmentation
The basis of such segmentation is the lifestyle of the individuals. The individual’s attitude, interest,
value help the marketers to classify them into small groups. Psychographic segmentation takes into
account the psychological aspects of consumer behavior by dividing markets according to lifestyle,
personality traits, values, opinions, and interests of consumers. Large markets like the fitness
market use psychographic segmentation when they sort their customers into categories of people
who care about healthy living and exercise.
 Behaviouristic Segmentation
The loyalties of the customers towards a particular brand help the marketers to classify them into
smaller groups, each group comprising of individuals loyal towards a particular brand. Behavioral
segmentation divides markets by behaviors and decision-making patterns such as purchase,
consumption, lifestyle, and usage. For instance, younger buyers may tend to purchase body wash,
while older consumer groups may lean towards soap bars. Similarly, young people will always
prefer Dove as a soap, whereas sports enthusiast will use Lifebuoy. Segmenting markets based off
purchase behaviors enables marketers to develop a more targeted approach. This type of market
segmentation divides the population on the basis of their behavior, usage and decision making
pattern.
 Geographic Segmentation
Geographic segmentation refers to the classification of market into various geographical areas. A marketer
can’t have similar strategies for individuals living at different places. Geographic segmentation creates
different target customer groups based on geographical boundaries. Because potential customers have
needs, preferences, and interests that differ according to their geographies, understanding the climates and
geographic regions of customer groups can help determine where to sell and advertise, as well as where to
expand your business.
Nestle promotes Nescafe all through the year in cold states of the country as compared to places which
have well defined summer and winter season. McDonald’s in India does not sell beef products as it is
strictly against the religious beliefs of the countrymen, whereas McDonald’s in US freely sells and
promotes beef products.

32
Demographic Segmentation
Demographic segmentation sorts a market by demographic elements such as age, education, income, family
size, race, gender, occupation, nationality, and more. Demographic segmentation is one of the simplest and
most commonly used forms of segmentation because the products and services we buy, how we use those
products, and how much we are willing to spend on them is most often based on demographic factors. Most
companies use it to get the right population in using their products. Segmentation generally divides a
population based on variables.
IMPORTANCE OF MARKET SEGMENTATION
The importance of market segmentation is that it allows a business to precisely reach a consumer with
specific needs and wants. In the long run, this benefits the company because they are able to use their
corporate resources more effectively and make better strategic marketing decisions.
The Value of Market Segmentation
For the customer:
 Provides greater choice of products/services
 Products/services should more closely match the needs of consumers.
For the company:
 Better marketing planning as reactions to marketing activities can be predicted
 It helps organizations to identify prospects who are most likely to buy
 Marketers will get to know their customers better so that they can provide a better service`
 Budgets can be more closely allocated on the basis of the investment and return needed from
different segments
 Smaller segments may be easier to dominate
 Marketing and sales activity will be closely focused, leading to more sales, lower costs and higher
profitability.
Understand their customers
At the beginning of the design thinking process, the design team need to apply a research phase where they
tend to understand their audience needs and subsequently build a personal that represents the target
audience. The market segmentation helps the design team to define the research scope and subsequently
build a product that meet with the customer’s needs.
Align with the marketing team
When the company aims to establish a new brand in the market. it tends to define the market segment that
need to addressed. This can be in an early stage of product development stages. Both the marketing and
design team should have a clear understanding about the targeted market segment in order to ensure that
both teams are aligning their strategies together.

33
 PRODUCT CLASSIFICATION
Consumer products are often classified as convenience goods, shopping goods, specialty products or
unsought goods. Although these classifications are named as types of products, focusing on how your
customers buy these goods is equally important as you classify products and develop your marketing
campaigns.
CONSUMER AND INDUSTRIAL PRODUCTS
A. CONSUMER PRODUCTS:
Consumer products are the products purchased for ultimate consumption by the consumers for satisfying
their needs. For example soaps, shoes, clothes, tooth pastes etc. 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 for example
soap, toothpaste, shampoo, salt etc. 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. For example TV, refrigerator,
coolers etc. 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 is offered for sale.
For example postal service, service of Doctors, Lawyers, Bankers, hair cutting, tailoring, transportation etc.
Following are the main features of services
(i) Services are intangible in nature.
(ii) Services can’t be stored.
(iii) Services are highly variable in that the quality of service provided by different people is different.
(iv) A service can’t be separated from its source.
2. Shopping Efforts Involved:
Consumer products can be categorized into following parts on the basis of the time and efforts buyers are
willing to spend for the purchase of a product:

34
Convenience Products:
These products require minimum time and effort and are purchased frequently by the customers. For
example bread, medicines, salt, sugar, jam etc.
Those products your customers buy often and without much thought or planning are classified as
convenience goods. Soap, condiments and toothpaste are common examples of convenience goods.
Consumers typically make a choice once on their brand preference for these products and repeat that choice
over many purchases. Making your convenience goods available for impulse or emergency purchases can
be particularly effective. You’ll see this marketing tactic in the placement of candy near the cash register
of your grocery store for impulse buys. Another version is to place umbrellas, boots or snow shovels near
a store exit when sudden weather changes call for them.
FEATURES
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.
Shopping Products
These are the products that require considerable time and effort. For example clothes, jewellery, televisions
etc. Before making final purchase, a consumer compares the quality, price, style etc. at several stores.
Buying decisions are detailed considerations of price, quality and value for products classified as shopping
goods. Think about the amount of time you put into picking out a clothing purchase, a car or appliances.
Successful marketing of your shopping goods can come from positioning as a better buy than your
competitors -- for example, presenting better value with higher quality for the price or vice versa. Products
in the shopping goods classification tend to rely on heavy advertising and even trained salespeople to
influence consumer choices.
FEATURES
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.

35
Specialty Products:
Specialty 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. For example designer clothes, hair styling, antique products, jewellery etc. Goods in the
specialty products classification tend to promote very strong brand identities, often resulting in strong brand
loyalty among consumers. Examples include stereos, computers, cameras and the most high-end brands of
cars and clothing. While used cars are classified as shopping goods, a brand-new Mercedes is classified as
a specialty good. Buyers for your specialty goods generally spend more time seeking the product they want
than on comparing brands or products to make a value decision. Your marketing of specialty goods can be
successful by promoting what you have on hand and where your costumers can find it.
FEATURES
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.
Unsought Goods
The products classified as unsought goods are those that your consumers don’t put much thought into and
generally don’t have compelling impulse to buy. Examples include batteries or life insurance. Your
consumers essentially buy unsought goods when they have to, almost as an inconvenience rather than the
newest, latest, greatest product they can’t wait to purchase. Marketing your unsought goods will likely be
most effective with lots of advertising and salespeople promoting the idea of unresolved need for your
unsought products.
INDUSTRIAL PRODUCTS:
The products which are used as inputs to produce consumer products are known as industrial products. For
example raw material, machinery, tools, lubricants etc. These products are used for non-personal & business
purposes. Manufacturers, transport agencies, banks & insurance companies, 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:
Industrial Products have limited number of buyers as compared to consumer goods.
(ii) Channel Levels:
Since the number of buyers is limited, the sales take place with the help of shorter channels of distribution.

36
(iii) Geographic Concentration:
The demand for industrial products is concentrated at certain fixed geographical locations.
(iv) Derived Demand:
The demand for industrial products depends upon the demand for consumer goods, therefore the demand
for industrial products is known as derived demand. For example demand for cotton fibre increases when
there is increased demand for cotton suits, bed sheets etc.
(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. For example, Tata may buy tyres and
tubes from Ceat which may in turn purchase Tata’s trucks.
(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
Those products that are purchased that are buying for further processing or for use in operating a business
are called industrial products. So the main difference between industrial and consumer product is based on
the purpose of purchase of the product. For example, if a lawn mower product is purchased for use around
the house, then this lawn mower is categorized in the consumer product. But if the same lawn mower is
purchased for use in landscaping business, then this is categorized as an industrial product. Following are
some of the three product classification of industrial products.

 Material & Parts

Raw materials, natural products & manufactured materials are included in the category of material & parts.
Farm products & natural products are included in raw material part like cotton, wheat, vegetables, fruits,
fish, crude petroleum, iron etc. Component materials & component parts are included in the manufactured
area like yarn, wires, cement, iron, tires, small motors etc. Manufactured material & parts are mostly sold
to the industrial users directly. Major marketing factors employed in this category are price & service. The
advertising & branding is not so much important. Also the demand of the industrial products is derived
demand, which is derived from the consumer demand.

37
  Capital Items:
Those industrial products that assist the production & operation of customer are called capital items like
accessory equipment’s & installations. Building & fixed equipment’s are included in the installations.
Office equipment & portable factory equipment are included in the accessory equipment. Accessory
equipment’s have much shorter lifetimes & they are only helpful in the process of production.
 Supplies & Services:
Supplies contain repair & maintenance items and operating supplies like nails, paint, lubricants, pencil,
paper, coal etc. The supplies are regarded as the industrial convenience products because they are purchased
with little effort & time. Business advisory services and repair & maintenance services are included in
business services category. These services are given under some contract.
MARKETING MIX

 Introduction
The businessman needs to: (a) produce or manufacture the product according to consumers’ need;
(b) make available it at a price that the consumers’ find reasonable; (c) supply the product to the
consumers at different outlets they can conveniently approach; and (d) inform the consumers about
the product and its characteristics through the media they have access to. So the marketing manager
concentrates on four major decision areas while planning the marketing activities, namely, (i)
products, (ii) price, (iii) place (distribution) and (iv) promotion. These 4 ‘P’s are called as elements
of marketing and together they constitute the marketing mix. All these are inter-related because a
decision in one area affects decisions in other areas. In this lesson you will learn about the basic
aspects relating to these 4‘P’s viz., product, price, place and promotion.

Marketing Mix Defined

Marketing involves a number of activities. To begin with, an organisation may decide on its target
group of customers to be served. Once the target group is decided, the product is to be placed in
the market by providing the appropriate product, price, distribution and promotional efforts. These
are to be combined or mixed in an appropriate proportion so as to achieve the marketing goal. Such
mix of product, price, distribution and promotional efforts is known as ‘Marketing Mix’

Marketing mix refers to the set of actions, or tactics, that a company uses to promote its brand or
product in the market. The 4Ps make up a typical marketing mix - Price, Product, Promotion and
Place. However, nowadays, the marketing mix increasingly includes several other Ps like
Packaging, Positioning, People and even Politics as vital mix elements.

According to Philip Kotler “ Marketing Mix is the set of controllable variables that the firm can
use to influence the buyer’s response”. The controllable variables in this context refer to the 4 ‘P’s
[product, price, place (distribution) and promotion]. Each firm strives to build up such a
composition of 4‘P’s, which can create highest level of consumer satisfaction and at the same time
meet its organisational objectives. Thus, this mix is assembled keeping in mind the needs of target
customers, and it varies from one organisation to another depending upon its available resources
and marketing objectives.

38
Let us now have a brief idea about the four components of marketing mix.
1. Concept of Product: A product is the basic element of marketing mix. The word ‘Product’
has several meanings. In our day-to-day life, we use many, goods, such as food-grains,
garments, soaps, toothpaste, books, watches, fans, vehicles, stationery, etc. All these goods
are called products. But according to marketing science, the term product includes not only
the goods but also the services, ideas, and several other features of products such as quality,
style, brand, warranties and after-sale services, etc. In order to have a clear understanding
of the term ‘product’, let us study the important definitions of ‘Product’ as under

(1) “A product is anything that can be offered to a market for attention, acquisition, use or
consumption that might satisfy a want or need: it includes physical objects, services,
personalities, organizations and ideas.” (Philip Kotler)

(2) “Product is a bundle of utilities consisting of various features and accompanying

services.” (Alderson)

Thus, from the above definitions, a product can be described as a bundle of utilities that
provide physical comfort and psychological satisfaction to its buyers. The product may be
goods, services, or just an idea. The term product refers to its features, quality, style, brand
name and image, packaging, warranties, after-sale service and other accompanying
attributes.

 To a consumer, the product is anything, which satisfies his needs, starting from
primary needs to esteem needs.
 To a marketer, the product is a bundle of attributes that can bring returns through
satisfaction of needs of market.

Examples of products are:

(1) Goods like food-grains, stationery, garments, scooters, fans, cars, computers, etc.
(2) Services like banking, education, health care, travel, transport, movies, software, etc.
(3) Ideas like insurance plan, shares, mutual funds, etc.

Thus, product is not only a tangible entity. Even intangible services and psychological
attributes such as brand, prestige, image, etc., which consumer looks for and marketers
provide in these tangible items, are also an integral part of a product.

 CONCEPT OF PRODUCT AND ITS CLASSIFICATION

As stated earlier, product refers to the goods and services offered by the organisation for sale. Here
the marketers have to recognise that consumers are not simply interested in the physical features
of a product but a set of tangible and intangible attributes that satisfy their wants. For example,
when a consumer buys a washing machine he is not buying simply a machine but a gadget that
helps him in washing clothes. It also needs to be noted that the term product refers to anything that
can be offered to a market for attention, acquisition, or use. Thus, the term product is defined as
“anything that can be offered to a market to satisfy a want”. It normally includes physical objects

39
and services. In a broader sense, however, it not only includes physical objects and services but
also the supporting services like brand name, packaging accessories, installation, after sales service
etc.
 PRODUCT CLASSIFICATION
Product can be broadly classified on the basis of (1) use, (2) durability, and (3) tangibility. Let us
have a brief idea about the various categories and their exact nature under each head, noting at the
same time that in marketing the terms ‘product’ and ‘goods’ are often used interchangeably.
1. Based on use, the product can be classified as:
(a) Consumer Goods; and (b) Industrial Goods.
(a) Consumer goods: Goods meant for personal consumption by the households or ultimate
consumers are called consumer goods. This includes items like toiletries, groceries, clothes etc.
Based on consumers’ buying behaviour the consumer goods can be further classified as :
(i) Convenience Goods;
(ii) Shopping Goods; and
(iii) Speciality Goods.
(i) Convenience Goods : Do you remember, the last time when did you buy a packet of butter or
a soft drink or a grocery item? Perhaps you don’t remember, or you will say last week or yesterday.
Reason is, these goods belong to the categories of convenience goods which are bought frequently
without much planning or shopping effort and are also consumed quickly. Buying decision in case
of these goods does not involve much pre-planning. Such goods are usually sold at convenient
retail outlets.
(ii) Shopping Goods: These are goods which are purchased less frequently and are used very
slowly like clothes, shoes, household appliances. In case of these goods, consumers make choice
of a product considering its suitability, price, style, quality and products of competitors and
substitutes, if any. In other words, the consumers usually spend a considerable amount of time and
effort to finalise their purchase decision as they lack complete information prior to their shopping
trip. It may be noted that shopping goods involve much more expenses than convenience goods.
((iii) Speciality Goods: Because of some special characteristics of certain categories of goods
people generally put special efforts to buy them. They are ready to buy these goods at prices at
which they are offered and also put in extra time to locate the seller to make the purchase. The
nearest car dealer may be ten kilometres away but the buyer will go there to inspect and purchase
it. In fact, prior to making a trip to buy the product he/she will collect complete information about
the various brands. Examples of speciality goods are cameras, TV sets, new automobiles etc.
(b) Industrial Goods: Goods meant for consumption or use as inputs in production of other
products or provision of some service are termed as ‘industrial goods’. These are meant for non-
personal and commercial use and include (i) raw materials, (ii) machinery, (iii) components, and
(iv) operating supplies (such as lubricants, stationery etc). The buyers of industrial goods are
supposed to be knowledgeable, cost conscious and rational in their purchase and therefore, the
marketeers follow different pricing, distribution and promotional strategies for their sale.

40
It may be noted that the same product may be classified as consumer goods as well as industrial
goods depending upon its end use. Take for example the case of coconut oil. When it is used as
hair oil or cooking oil, it is treated as consumer goods and when used for manufacturing a bath
soap it is termed as industrial goods. However, the way these products are marketed to these two
groups are very different because purchase by industrial buyer is usually large in quantity and
bought either directly from the manufacturer or the local distributor.
2. Based on Durability, the products can be classified as :
(a) Durable Goods; and
(b) Non-durable Goods.
(a) Durable Goods: Durable goods are products which are used for a long period i.e., for months
or years together. Examples of such goods are refrigerator, car, washing machine etc. Such goods
generally require more of personal selling efforts and have high profit margins. In case of these
goods, seller’s reputation and pre sale and after-sale service are important determinants of purchase
decision.
(b) Non-durable Goods: Non-durable goods are products that are normally consumed in one go
or last for a few uses. Examples of such products are soap, salt, pickles, sauce etc. These items are
consumed quickly and we purchase these goods more often. Such items are generally made
available by the producer through large number of convenient retail outlets. Profit margins on such
items are usually kept low and heavy advertising is done to attract people towards their trial and
use.
3. Based on tangibility, the products can be classified as:
(a) Tangible Goods; and
(b) Intangible Goods.
(a) Tangible Goods: Most goods, whether these are consumer goods or industrial goods and
whether these are durable or non-durable, fall in this category as they have a physical form, that
can be touched and seen. Thus, all items like groceries, cars, raw-materials, machinery etc. fall in
the category of tangible goods.
(b) Intangible Goods: Intangible goods refer to services provided to the individual consumers or
to the organisational buyers (industrial, commercial, institutional, government etc.). Services are
essentially intangible activities which provide want or need satisfaction. Medical treatment, postal,
banking and insurance services etc., all fall in this category.
The New-Product Development Process
To create successful new products, a company must understand its consumers, markets, and
competitors and develop products that deliver superior value to customers. It must carry out strong
new-product planning and set up a systematic, customer-driven new product development process
for finding and growing new products.

New product development is the development of original products, product improvements,

product modifications and new brands through the firm’s own product development efforts. New

41
products are essential for the continuation of the company. New products aren’t easy to find. There
are eight major steps in the product development process.

1. Idea generation: the systematic search for new-product ideas. Ideas can be found via
internal sources, but also external idea sources. These can be distributors, suppliers, but
also competitors. Ideas can also be generated through crowdsourcing.
Crowdsourcing means inviting broad communities of people – customers, employees,
independent scientists and researchers and even the public at large – into the new-product
innovation process.
2. Idea screening: screening new-product ideas to spot good ideas and drop poor ones as
soon as possible. Many factors play a part here, these include :

 Company’s strength,
 Company’s weakness,
 Customer needs,
 On-going trends,
 Expected ROI,
 Affordability, etc.

3. Concept development and testing. Attractive idea must be developed into a product
concept. It is important to distinguish between a product idea, a product concept, and a
product image. A product idea is an idea for a possible product that the company can see
itself offering to the market. A product concept is a detailed version of the idea stated in
meaningful consumer terms. A product image is the way consumers perceive an actual or
potential product. Concept testing means testing new product concepts with a group of
target consumers to find out if the concepts have strong consumer appeal.
4. Marketing strategy development: designing an initial marketing strategy for a new
product based on the product concept. It consists of three parts: describing the target market
and value proposition, outlining the budgets and lastly describing the long-term marketing
mix strategy.
5. Business analysis is a review of the sales, cost and profit projections for a new product to
find out whether these factors satisfy the company’s objectives.
6. Product development: developing the product concept into a physical product to ensure
that the product idea can be turned into a workable market offering.
7. Test marketing: the stage of new product development in which the product and its
proposed marketing programme are tested in realistic market settings. This can be done in
both controlled test markets and simulated test markets.
8. Commercialisation: introducing a new product into the market. If the test marketing is
successful, then the company introduces the new product on a large scale, say all over the
country. The company makes a large investment in the new product. It produces and
distributes the new product on a huge scale. It advertises the new product on the mass
media like TV, Radio, Newspapers and Magazines, etc.

The Product Life Cycle (PLC)

42
After launching the new product, management wants that product to enjoy a long and happy life.
Although it does not expect that product to sell forever, the company wants to earn a decent profit
to cover all the effort and risk that went into launching it. Management is aware that each product
will have a life cycle, although its exact shape and length is not known in advance.

The product life cycle (PLC) is the course of product’s sales and profits over its lifetime. It
involves five distinct stages:

1. Product development: development of the idea without any sales.

2. Introduction: slow sales growth when the product is introduced.
3. Growth: period of rapid acceptance.
4. Maturity: period of sale slowdown because of acceptance by most potential buyers.
5. Decline: the period when sales fall and the profit drops.

Every stage has its own distinct features. And the company should change its marketing strategy
every time the product makes its move from one stage to another. Let us take a look at the four
stages.

1] Introduction

As the name suggests this is the stage of introduction of the product to the market.
The introduction stage is the PLC stage in which a new product is first distributed and made
available for purchase. Profits are generally low and the initial strategy must be consistent with
product positioning This stage is categorized by the following features

 The product’s sale is at its lowest and is increasing but very slowly

43
  During the introduction, the promotion expense is very high. Extensive promotions have
to be undertaken to create awareness and demand for the product.
 The products are put in limited outlets. The distribution is also kept limited to a few
channels. The point is to try out the product before expanding distribution.

2] Growth Stage

 This is the second stage of the product lifecycle. Now the sales begin to take off and the
product becomes well known. The growth stage is the stage in which a product’s sales
start climbing quickly. Profits increase and the firm faces a trade-off between high market
share and high current profit.

Some other characteristics are

 The promotion expenses still remain high. Now the focus will be on brand recognition and
brand image. This helps the product maintain and extend its selective demand.
 With a rise in sales, the profits also rise sharply
 This is the stage where new competitors may enter the market with better research and
better products. To keep up with their products, the company may make improvement and
modifications to their products

3] Maturity Stage

In the maturity stage, products sales are growing slowly or level off. The company tries to
increase consumption by finding new consumers, also known as modifying the market. The
company might also try to modify the product by changing characteristics.

 This is the stage where the market saturates and sales growth of the firm slow down and
finally stabilizes at a stage.
 Competition in the market will intensify in this stage. All competitors will want to maintain
a production level to enjoy economies of scale
 This stage may also see a price war in order to keep their market share. Reducing prices
may affect the profit margin of the company.

4] Decline Stage

This the terminal stage of the products, they are no longer relevant in the market. So the end of
this stage is the eventual demise of the product in the market. In the decline stage, the product’s
sales are declining or dropping to zero. Management might decide to maintain the brand, reposition
it or drop a product from the line.

2. PRICE: Price is the amount charged for a product or service. It is the second most
important element in the marketing mix. Fixing the price of the product is a tricky job.
Many factors like demand for a product, cost involved, consumer’s ability to pay, prices

44
 charged by competitors for similar products, government restrictions etc. have to be kept
in mind while fixing the price. In fact, pricing is a very crucial decision area as it has its
effect on demand for the product and also on the profitability of the firm.

 PRICING AND FACTORSAFFECTING PRICING DECISIONS

As stated earlier price is the consideration in terms of money paid by consumers for the bundle of
benefits he/she derives by using the product/ service. In simple terms, it is the exchange value of
goods and services in terms of money. Pricing (determination of price to be charged) is another
important element of marketing mix and it plays a crucial role in the success of a product in the
market. If the price fixed is high, it is likely to have an adverse effect on the sales volume. If, on
the other hand, it is too low, it will adversely affect the profitability. Hence, it has to be fixed after
taking various aspects into consideration.
The factors usually taken into account while determining the price of a product can be
broadly described as follows:
(a) Cost: No business can survive unless it covers its cost of production and distribution. In large
number of products, the retail prices are determined by adding a reasonable profit margin to the
cost. Higher the cost, higher is likely to be the price, lower the cost lower the price.
(b) Demand: Demand also affects the price in a big way. When there is limited supply of a product
and the demand is high, people buy even if high prices are charged by the producer. But how high
the price would be is dependent upon prospective buyers’ capacity and willingness to pay and their
preference for the product. In this context, price elasticity, i.e. responsiveness of demand to
changes in price should also be kept in view.
(c) Competition: The price charged by the competitor for similar product is an important
determinant of price. A marketer would not like to charge a price higher than the competitor for
fear of losing customers. Also, he may avoid charging a price lower than the competitor. Because
it may result in price war which we have recently seen in the case of soft drinks, washing powder,
mobile phone etc.
(d) Marketing Objectives: A firm may have different marketing objectives such as maximisation
of profit, maximisation of sales, bigger market share, survival in the market and so on. The prices
have to be determined accordingly. For example, if the objective is to maximise sales or have a
bigger market share, a low price will be fixed. Recently one brand of washing powder slashed its
prices to half, to grab a bigger share of the market.
(e) Government Regulation: Prices of some essential products are regulated by the government
under the Essential Commodities Act. For example, prior to liberalisation of the economy, cement
and steel prices were decided by the government. Hence, it is essential that the existing statutory
limits, if any, are also kept in view while determining the prices of products by the producers.
 METHODS OF PRICE FIXATION
Methods of fixing the price can be broadly divided into the following categories.
1. Cost based pricing
2. Competition based pricing

45
3. Demand based pricing
4. Objective based pricing
1. Cost Based Pricing: Under this method, price of the product is fixed by adding the amount of
desired profit margin to the cost of the product. If a particular soap costs the marketer N 8 and he
desires a profit of 25%, the price of the soap is fixed at N 8 + (8x25/100) =N 10. While calculating
the price in this way, all costs (variable as well as fixed) incurred in manufacturing the product are
taken into consideration.
2. Competition Based Pricing: In case of products where market is highly competitive and there
is negligible difference in quality of competing brands, price is usually fixed closer to the price of
the competing brands. It is called ‘young rate pricing’ and is a very convenient method because
the marketers do not have to worry much about demand and cost and effect the change as per the
changes by the industry leaders.
3. Demand Based Pricing: At times, prices are determined by the demand for the product. Under
this method, without paying much attention to cost and competitors prices, the marketers try to
ascertain the demand for the product. If the demand is high they decide to take advantage and fix
a high price. If the demand is low, they fix low prices for their product. At times they resort to
differential prices and charge different prices from different groups of customers depending upon
their perceived values and capacity to pay. Take the case of cinema halls where the rates of tickets
differ for the different sets of rows in the hall.
4. Objective Based Pricing: This method is applicable to introduction of new (innovative)
products. If, at the introductory stage of the products, the organisation wishes to penetrate the
market i.e., to capture large parts of the market and discourage the prospective competitors to enter
into the fray, it fixes a low price.
Alternatively, the organisation may decide to skim the market i.e., to earn high profit by taking
advantage of a group of customers who give more importance to their status or distinction and are
willing to pay even a higher price for it. In such a situation they fix quite high price at the
introductory stage of their product and market it to only those customers who can afford it.
3. Place: Goods are produced to be sold to the consumers. They must be made available to the
consumers at a place where they can conveniently make purchase. So, it is necessary that the
product is available at shops in your town. This involves a chain of individuals and institutions
like distributors, wholesalers and retailers who constitute firm’s distribution network (also called
a channel of distribution). The organisation has to decide whether to sell directly to the retailer or
through the distributors/wholesaler etc. It can even plan to sell it directly to consumers
 CHANNELS OF DISTRIBUTION
You are aware that while a manufacturer of a product is located at one place, its consumers are
located at innumerable places spread all over the country or the world. The manufacturer has to
ensure the availability of his goods to the consumers at convenient points for their purchase. He
may do so directly or, as stated earlier, through a chain of middlemen like distributors, wholesalers
and retailers. The path or route adopted by him for the purpose is known as channel of distribution.
A channel of distribution thus, refers to the pathway used by the manufacturer for transfer of the

46
ownership of goods and its physical transfer to the consumers and the user/buyers (industrial
buyers).
Stanton has also defined it as “A distribution channel consists of the set of people and firms
involved in the transfer of title to a product as the product moves from producer to ultimate
consumer or business user”. Basically it refers to the vital links connecting the manufacturers and
producers and the ultimate consumers/users. It includes both the producer and the end user and
also the middlemen/agents engaged in the process of transfer of title of goods.

BASIC FUCTIONS OF CHANNEL OF DISTRIBUTION:

(a) It helps in establishing a regular contact with the customers and provides them the necessary
information relating to the goods.
(b) It provides the facility for inspection of goods by the consumers at convenient points to make
their choice.
(c) It facilitates the transfer of ownership as well as the delivery of goods.
(d) It helps in financing by giving credit facility.
(e) It assists the provision of after sales services, if necessary.
(f) It assumes all risks connected with the carrying out the distribution function.

 TYPES OF CHANNELS OF DISTRIBUTION

Generally we do not buy goods directly from the producers. The producers/manufacturers usually
use services of one or more middlemen to supply their goods to the consumers. But sometimes,
they do have direct contact with the customers with no middlemen in between them. This is true
more for industrial goods where the customers are highly knowledgeable and their individual
purchases are large. The various channels used for distribution of consumer goods can be described
as follows:
(a) Zero stage channel of distribution:
Manufacturers – Consumers

Zero stage distribution channels exists where there is direct sale of goods by the producer
to the consumer. This direct contact with the consumer can be made through door-to-door
salesmen, own retail outlets or even through direct mail. Also in case of perishable products
and certain technical household products, door-to-door sale is an easier way of convincing
consumer to make a purchase. Eureka Forbes, for example, sells its water purifiers directly
through their own sales staff.

(b) One stage channel of distribution

Manufacturer – retailer – Consumer

47
 In this case, there is one middleman i.e., the retailer. The manufacturers sell their goods to
retailers who in turn sell it to the consumers. This type of distribution channel is preferred
by manufacturers of consumer durables like refrigerator, air conditioner, washing machine,
etc. where individual purchase involves large amount. It is also used for distribution
through large scale retailers such as departmental stores (Big Bazaar, Spensors) and super
markets.

( c) Two stage channel of distribution

Manufacturer – Wholesaler- retailer – Consumer
This is the most commonly used channel of distribution for the sale of consumer goods. In
this case, there are two middlemen used, namely, wholesaler and retailer. This is applicable
to products where markets are spread over a large area, value of individual purchase is
small and the frequency of purchase is high.
(d) Three stage channel of distribution
Manufacturer – Agent - Wholesaler- retailer – Consumer
When the number of wholesalers used is large and they are scattered throughout the
country, the manufacturers often use the services of mercantile agents who act as a link
between the producer and the wholesaler. They are also known as distributors.

 FACTORSAFFECTING THE CHOICE OF DISTRIBUTION CHANNEL

Choice of an appropriate distribution channel is very important as the pricing as well as promotion
strategy are dependent upon the distribution channel selected. Not only that, the route which the
product follows in its journey from the manufacturer to the consumer also involves certain costs.
This in turn, affects not only the price of the product but also the profits. Choice of inappropriate
channels of distribution may result in lesser profits for the manufacturer and higher price from the
consumer. Hence, the manufacturer has to be careful while finalising the channel of distribution
to be used. He should pay attention to the following factors while making his choice.
(a)Nature of Market: There are many aspects of market which determine the choice of channel
of distribution. Say for example, where the number of buyers is limited, they are concentrated at
few locations and their individual purchases are large as is the case with industrial buyers, direct
sale may be the most preferred choice. But in case where number of buyers is large with small
individual purchase and they are scattered, then need may arise for use of middlemen.
(b) Nature of Product: Nature of the product considerably affects the choice of channel of
distribution. In case the product is of technical nature involving a good amount of pre-sale and
after sale services, the sale is generally done through retailers without involving the wholesalers.
But in most of the consumer goods having small value, bought frequently in small quantities, a
long channel involving agents, wholesalers and retailers is used as the goods need to be stored at
convenient locations. Items like toiletries, groceries, etc. fall in this category. As against this in
case of items like industrial machinery, having large value and involving specialised technical
service and long negotiation period, direct sale is preferred.

48
(c) Nature of the Company: A firm having enough financial resources can afford to its own a
distribution force and retail outlet, both. But most business firms prefer not to create their own
distribution channel and concentrate on manufacturing. The firms who wish to control the
distribution network prefer a shorter channel.
(d) Middlemen Consideration: If right kind of middlemen having the necessary experience,
contacts, financial strength and integrity are available, their use is preferred as they can ensure
success of newly introduced products. Cost factors also have to be kept in view as all middlemen
add their own margin of profit to the price of the products. But from experience it is learnt that
where the volume of sales are adequate, the use of middlemen is often found economical and less
cumbersome as against direct sale.

4. PROMOTION
Promotion refers to the process of informing and persuading the consumers to buy certain product.
By using this process, the marketers convey persuasive message and information to its potential
customers. . Therefore promotion is an important ingredient of marketing mix as it refers to a
process of informing, persuading and influencing a consumer to make choice of the product to be
bought. Promotion is done through means of personal selling, advertising, publicity and sales
promotion. It is done mainly with a view to provide information to prospective consumers about
the availability, characteristics and uses of a product The main objective of promotion is to seek
buyers’ attention towards the product with a view to:
– arouse his interest in the product;
– inform him about its availability;
– inform him as to how it is different from others.
It is thus a persuasive communication and also serves as a reminder. A firm uses different tools for
its promotional activities which are as follows:
– Advertising
– Publicity
– Personal selling
– Sales promotion
These are also termed as four elements of a promotion mix. Let us have a brief idea about
these promotion tools.
1. Advertising: Advertising is the most commonly used tool for informing the present and
prospective consumers about the product, its quality, features, availability, etc. It is a paid form of
non-personal communication through different media about a product, idea, a service or an
organisation by an identified sponsor. It can be done through print media like newspaper,
magazines, billboards, electronic media like radio, television, etc. It is a very flexible and
comparatively low cost tool of promotion.

49
2. Publicity: This is a non-paid process of generating wide range of communication to contribute
a favourable attitude towards the product and the organisation. You may have seen articles in
newspapers about an organisation, its products and policies. The other tools of publicity are press
conference, publication and news in the electronic media etc. It is published or broadcasted without
charging any money from the firm. Marketers often spend a lot of time and effort in getting news
items placed in the media for creation of a favourable image of the company and its products.
3. Personal selling: You must have come across representatives of different companies knocking
at your door and persuading you to buy their product. It is a direct presentation of the product to
the consumers or prospective buyers. It refers to the use of salespersons to persuade the buyers to
act favourably and buy the product. It is most effective promotional tool in case of industrial goods.
4. Sales promotion: This refers to short-term and temporary incentives to purchase or induce
trials of new goods. The tool includes contests, games, gifts, trade shows, discounts, etc. Sales
promotional activities are often carried out at retail levels.
NEW PRODUCT PRICING STRATEGIES
Introduction
Pricing strategies tend to change as a product goes through its product life cycle. One stage is
particularly challenging: the introductory stage. This is called New Product Pricing. When
companies bring out a new product, they face the challenge of setting prices for the very first time.
Two new product pricing strategies are available: Price-Skimming and Market-Penetration
Pricing.
Definition of Penetration Pricing
Penetration Pricing implies a pricing technique in which new product is offered at low price, by
adding a nominal mark-up to its cost of production, to penetrate the market as early as possible. It
aims at maximizing the market share of the product, and once it is achieved, i.e. when the demand
picks up, the firm can increase the price of the product.
Penetration pricing results in lower profits in the short run, however, in the long run, it results in
higher profits because it increases the market base. The reasons behind adopting penetration
pricing are as under:
 New product offered by the firm is already provided by other well-established brands. The
low price will lure customers to switch to the new product, who are already familiar with
other brands.

 It can help in increasing sales of the product in short period.

 It restricts new entrants from entering the market.

Definition of Skimming Pricing

50
The pricing strategy in which high mark-up is charged for the new product, leading to the high
price, so as to skim the cream from the market, is known as Skimming Pricing. It entails fixing a
high price for the new product before other competitors step into the market.
This technique is used in case of new product, which faces no to little competition in the market,
and has a great extent of consumer acceptability. Market skimming pricing is adopted by the
company, due to the following reasons:
 In the early stages, the demand for the product is inelastic, till the product occupies a good
position in the market.

 In the initial phase, the demand for the product is not known, and high price helps in
covering the cost of production.

 In the beginning, there is a huge requirement of capital for producing the product, resulting
in high production cost. Further, a huge amount is invested in the promotional activities,
which also add to its cost. When the product is charged high, it will cover the cost of
production and promotion expenses easily.

Key Differences between Penetration Pricing and Skimming Pricing

The difference between penetration and skimming pricing are presented hereunder:
1. Penetration Pricing can be described as a pricing method adopted by the firm to attract
more and more customers, in which the product is offered at low price at the early stage.
Conversely, skimming pricing is used to mean a pricing technique, in which high price is
charged at the beginning to earn maximum profit.

2. Penetration pricing aims at achieving a greater market share, by offering the product at low
prices. As against the object of using skimming pricing strategy is to earn maximum profit
from the customers, by offering the product at the highest price.

3. Penetration pricing strategy is put into practice when the demand for the product is
relatively elastic. On the other hand, skimming pricing is used when the demand for the
product is inelastic.

4. In case of penetration pricing, the profit margin is low, whereas, in skimming pricing, the
profit margin is very high.

5. As the price of the product is initially low in penetration pricing, huge quantities of product
is sold by the firm. As against, due to high price of the product customer demand small
quantity of the product, in case of skimming pricing.

51