MBA – 202
MARKETING MANAGEMENT
UNIT – 4
Q1. Define Price? Discuss the
objectives of Pricing ?
Ans.
Price : A value that will purchase a finite quantity,
weight, or other measure of a good or service. As the consideration given in
exchange for transfer of ownership, price forms the esssential basis of
commercial transactions. It may be fixed by a contract, left to be determined
by an agreed upon formula at a future date, or discovered or negotiated during
the course of dealings between the parties involved. In commerce, price is
determined by what (1) a buyer is willing to pay, (2) a seller is willing to
accept and (3) the competition is allowing to be charged. With product,
promotion and place of marketing mix, it is one of the business variables over
which organisations can exercise some degree of control. It is a criminal
offence to manipulate prices in collusion with other suppliers and to give a
misleading indication of price such as charging for items that are reasonably
expected to be included in the advertised, list or quoted price. Also called
sale price or selling price.
Objectives
of Pricing :
A firm seeks to meet a
number of objectives through pricing
Profit, optimum or
maximum, long term or current, cannot be the only objective of pricing. A
multiplicity or mix of objectives is inevitably involved in pricing. Each firm
seeks to meet a community of interests through its price policy. The interest
may be vary from firm to firm. Accordingly, pricing policy may also vary. But
no firm can remain satisfied with a single objective in pricing. The various
objectives sought to be realized through pricing are listed below :
·
Profit maximization in the short term
·
Profit maximization in the long term
·
A minimum return ( or target return) on
investment
·
A minimum return on sales turnover
·
Target sales volume
·
Target market share
·
Deeper penetration of the market
·
Entering new markets
·
Target profit on the entire product line
irrespective of profit level in individual products
·
Keeping competition out, or keeping it
under check
·
Keeping parity with competition
·
Fast turn around and early cash recovery
·
Stabilising prices and margins in the
market
·
Providing commodities at prices affordable
by weaker sections
·
Providing commodities/services at prices
that will stimulate economic development
Of
the basket of objectives different permutations apply to different firms :
Obviously, all the
objectives of pricing mentioned above may not be relevant in all the cases. For
example, the last two objectives in the list are relevant only to public
utility services, infrastructure items and essential commodities distributed
through the public distributed system. As regards the vast majority of products
and services that are produced and marketed by commercial firms, these
considerations enter the pricing decisions only in a subdued manner; their
pricing cannot be principally based on societal consideration.
Q2.
Describe various methods and strategies of Pricing?
Ans.
The
two methods of pricing are as follows:
A.
COST
ORIENTED METHOD B. MARKET ORIENTED
METHOD
There are several
methods of pricing products in the market. While selecting the method of fixing
prices, a marketer must consider the factors affecting pricing. The pricing
methods can be broadly divided into two groups – cost oriented method and
market oriented method.
A.
Cost-Oriented
Method :
Because
cost provides the base for a possible price range, some firms may consider
cost-oriented methods to fix the price.
Cost
– oriented methods or pricing are as follows :
1.
Cost
plus pricing :
It involves adding a certain percentage
to cost in order to fix the price. For instance, if the cost of a product is
Rs.200 per unit and the marketer expects 10% profit on costs, then the selling price will be Rs.220. the
difference between the selling price and the cost is the profit. This method is
simpler as marketers can easily determine the costs and add a certain percentage
to arrive at the selling price.
2.
Mark-up
pricing :
Mark up pricing is a variation of cost
pricing. In this case, mark-ups are calculated as a percentage of the selling
price and not as a percentage of the cost price. Firms that use cost-oriented
methods use mark-up pricing.
Since only the cost and the desired
percentage markup on the selling price are known, the following formula is used
to determine the selling price:
Average unit cost/selling price
3.
Break
–even pricing :
In this case, the firm determines the
level of sales needed to cover all the relevant fixed and variable costs. The
break-even price is the price at which the sales revenue is equal to the cost
of goods sold. In other words, there is neither profit nor loss.
For instance, if the fixed cost is Rs.
2,00,000; the variable cost per unit is Rs.10, and the selling price is Rs.15,
then the firm needes to sell 40,000 units to break-even. Therefore, the firm
will plan to sell more than 40,000 units to make a profit. If the firm is not
in a position to sell 40,000 limits, then it has to increase the selling price.
The following formula is used to
calculate the break-even point :
Contribution = selling price – variable
cost per unit
4.
Target
return pricing :
In this case, the firm sets prices in
order to achieve a particular level of return on investment (ROI)
The target return price can be
calculated by the following formula :
Target return price = total costs + ( desired
ROI investment)/total sales in units
For instance, if the total investment is
Rs. 10,000; the desired ROI is 20%, the total cost is Rs.5,000 and the total
sales expected are 1,000 units, then the target return price will be Rs.7/ unit
as shown below :
5,000 + (20% * 10,000)/7000
Target return price = 7
The limitation of this method (like
other cost- oriented methods) is that prices are derived from costs without
considering market factors such as competition, demand and consumers’ perceived
value. However, this method helps to enusre that prices exceed all costs and
therefore contribute to profit.
5. Early cash recovery pricing :
Some firms may fix a price to realize
early recovery of investment involved, when market forecasts suggest that the
life of the market is likely to be short, such as in the case of
fashion-related profucts or technology-sensitive products.
Such pricing can also be used when a
firm anticipates that a large firm may enter the market in the near future with
its lower prices, forcing existing firms to exit. In such situations, firms may
fix a price level, which would maximize short term revenues and reduce the firm’s
medium term risk.
B. Market- oriented methods :
1.
Perceived
value pricing :
A good number of firms fix the price of
their goods and services on the basis of customer’s perceived value. They
consider customer’s perceived value as the primary factor for fixing prices and
the firm’s costs as the secondary.
The customer’s perception can be
influenced by several factors, such as advertising, sales on techniques,
effective sales force and after sale service staff. If customers perceive a
higher value, then the price fixed will be high and vice versa. Market research
is needed to establish the customer’s perceived value as a guide to effective
pricing.
2.
Going-rate
pricing :
In this case, the benchmark for setting
prices is the price set by major competitors. If a major competitor change its
price, then the smaller firms may also change their price, irrespective of
their costs or demand.
The going-rate pricing can be
further divided into three sub-methods :
a.
Competitor’s
parity method : A firm may set the same price as that of
the major competitors.
b.
Premium
pricing : A firm may
charge a little higher if its products have some additional special features as
compared to major competitors.
c.
Discount
pricing : A firm may charge a little lower price if its
products lack certain features as compared to major competitors.
The going-rate method is very popular
because it tends to reduce the livelihood of price wars emerging in the market.
It also reflects the industry’s coactive wisdom relating to the price that
would generate a fair return.
3.
Sealed-bid
pricing :
This pricing is adopted in the case of
large orders or contracts, especially those of industrial buyers or government
departments. The firms submit sealed bids fo jobs in response to an
advertisement.
In this case, the buyer expects the
lowest possible price and the seller is expected to provide the best possible
quotation or tender. If a firm wants to win a contract, then it has to submit a
lower price bid. For this purpose, the firm has to anticipate the pricing
policy of the competitors and decide the price offer.
4.
Differentiated
pricing :
Firms may charge different prices for
the same product or service.
The following are some the types of
differentiated pricing:
a.
Customer
segment pricing :
Here different customer groups are
charged different prices for the same product or service depending on the size
of the order, payment terms and so on.
b.
Time
pricing :
Here different prices are charged for
the same product or service at different
timings or season. It includes off-peak pricing, where low prices are charged
during low demand timings or season.
c.
Area
pricing :
Here different prices are charged for
the same product in different market areas. For instance, a firm may charge a
lower price in a new market to attract customers.
d.
Product
form pricing :
Here different versions of the product
are priced differently but not proportionately to their respective costs. For
instance, soft drinks of 200, 300, 500ml, etc., are priced according to this
strategy.
Q4.
What do you mean by Distribution Channel? What are the different types of
Distribution Channel . explain each with suitable examples ?
Ans.
Distribution Channel : The path through which goods and
services travel from the vendor to the consumer or payments for those products
travel from the consumer to the vendor. A distribution channel can be as short
as a direct transaction from the vendor to the consumer, or may include several
interconnected intermediaries along the way such as wholesalers, distributers,
agents and retailers. Each intermediary receives the item at one pricing point
and movies it to the next higher pricing point until it reaches the final buyer.
Coffee does not reach the consumer before first going through a channel
involving the farmer, exporter, importer, distributor and the retailer.
A distribution channel
is the chain of businesses or intermediaries through which a good or service
passes until it reaches the end consumer. A distribution channel can include
wholesalers, retailers, distributors and even the internet. Channels are broken
into direct and indirect forms, with a "direct" channel allowing the
consumer to buy the good from the manufacturer and an "indirect"
channel allowing the consumer to buy the good from a wholesaler. Direct
channels are considered "shorter" than "indirect" ones.
Types
of Distribution Channel :
distribution channels
are the ways that goods and services are made available for use by the
consumers. All goods go through channels of distribution, and your marketing
will depend on the way your goods are distributed. The route that the product
takes on its way from production to the consumer is important because a
marketer must decide which route or channel is best for his particular product.
1.
Manufacturer
to Customer :
Manufacturer makes the goods and
sells them to the consumer directly with no intermediary, such as a wholesaler,
agent or retailer. Goods come from the manufacturer to the user without an
intermediary. For example, a farmer may sell some produce directly to
customers. For example, a bakery may sell cakes and pies directly to customers.
It is also known as direct distribution.
2. Manufacturer to Retailer to
Consumer :
Purchases
are made by the retailer from the manufacturer and then the retailer sells the
merchandise to the consumer. This channel is used by manufacturers that
specialize in producing shopping goods. For example, clothes, shoes, furniture
and fine china. This merchandise may not be needed immediately and the consumer
may take her time and try on the items before making a buying decision.
Manufacturers that specialize in producing shopping goods prefer this method of
distribution.
3.
Manufacturer
to Wholesaler to Customer :
Consumer’s
can buy directly from the wholesaler. The wholesaler breaks down bulk packages
for resale to the consumer. The wholesaler reduces some of the cost to the consumer
such as service cost or sales force cost, which makes the purchase price
cheaper for the consumer. For example, shopping at some of the warehouse clubs,
the customer may have to buy a membership in order to buy directly from the
wholesaler.
4.
Manufacturer
to Agent to Wholesaler to Retailer to Customer :
Distribution
that involves more than one intermediary involves an agent called in to be the
middleman and assist with the sale of the goods. An agent receives a commission
from the producer. Agents are useful when goods need to move quickly into the
market soon after the order is placed. For example, a fishery makes a large
catch of seafood; since fish is perishable it must be disposed of quickly. It
is time consuming for the fishery to contact many wholesalers all over the
country so he contacts an agent. The agent distributes the fish to the
wholesalers. The wholesalers sell to retailers and then retailers sell to
consumers.
Q5.
What factors should be considered while selecting a Distribution Channel ?
Ans.
Some
of the factors to consider while selecting channels of distribution are as
follows:
1. Product
2. Market
3. Middlemen
4. Company
5. Marketing Environment
6. Competitors
7. Customer Characteristics
8. Channel Compensation.
We have to
consider the following factors for the selection of channel of distribution:
1.
Product:
Perishable goods need speedy movement
and shorter route of distribution. For durable and standardized goods, longer
and diversified channel may be necessary. Whereas, for custom made product,
direct distribution to consumer or industrial user may be desirable.
Also, for technical product requiring
specialized selling and serving talent, we have the shortest channel. Products
of high unit value are sold directly by travelling sales force and not through
middlemen.
2.
Market:
(a) For consumer market, retailer is
essential whereas in business market we can eliminate retailing.
(b) For large market size, we have many
channels, whereas, for small market size direct selling may be profitable.
(c) For highly concentrated market,
direct selling is preferred whereas for widely scattered and diffused markets,
we have many channels of distribution.
(d) Size and average frequency of
customer’s orders also influence the channel decision. In the sale of food
products, we need both wholesaler and retailer.
Customer and dealer analysis will
provide information on the number, type, location, buying habits of consumers
and dealers in this case can also influence the choice of channels. For
example, desire for credit, demand for personal service, amount and time and
efforts a customer is willing to spend-are all important factors in channels
choice.
3.
Middlemen:
(a) Middlemen who can provide wanted
marketing services will be given first preference.
(b) The middlemen who can offer maximum
co-operation in promotional services are also preferred.
(c) The channel generating the largest
sales volume at lower unit cost is given top priority.
4.
Company:
(a) The company’s size determines the
size of the market, the size of its larger accounts and its ability to set
middlemen’s co-operation. A large company may have shorter channel.
(b) The company’s product-mix influences
the pattern of channels. The broader the product- line, the shorter will be the
channel.
If the product-mix has greater
specialization, the company can favor selective or exclusive dealership.
(c) A company with substantial financial
resources may not rely on middlemen and can afford to reduce the levels of
distribution. A financially weak company has to depend on middlemen.
(d) New companies rely heavily on
middlemen due to lack of experience.
(e) A company desiring to exercise
greater control over channel will prefer a shorter channel as it will
facilitate better co-ordination, communication and control.
(f) Heavy advertising and sale promotion
can motivate middlemen in the promotional campaign. In such cases, a longer
chain of distribution is profitable.
Thus, quantity and quality of marketing
services provided by the company can influence the channel choice directly.
5.
Marketing
Environment:
During recession or depression, shorter
and cheaper channel is preferred. During prosperity, we have a wider choice of
channel alternatives. The distribution of perishable goods even in distant
markets becomes a reality due to cold storage facilities in transport and
warehousing. Hence, this leads to expanded role of intermediaries in the
distribution of perishable goods.
6.
Competitors:
Marketers closely watch the channels
used by rivals. Many a time, similar channels may be desirables to bring about
distribution of a company’s products. Sometimes, marketers deliberately avoid
channels used by competitors. For example, company may by-pass retail store
channel (used by rivals) and adopt door-to-door sales (where there is no
competition).
7.
Customer Characteristics:
This refers to geographical distribution,
frequency of purchase, average quantity of purchase and numbers of prospective
customers.
8.
Channel Compensation:
This
involves cost-benefit analysis. Major elements of distribution cost apart from
channel compensation are transportation, warehousing, storage insurance,
material handling distribution personnel’s compensation and interest on inventory
carried at different selling points. Distribution Cost Analysis is a fast
growing and perhaps the most rewarding area in marketing
cost analysis and control
Q6.
Define Retailing? Explain the current trends in Retailing?
Ans.
Retailing : Retailing is a distribution channel
function where one organization buys products from supplying firms or
manufactures the product themselves, and then sells these directly to
consumers. A retailer is a reseller (i.e., obtains product from one party in
order to sell to another) from which a consumer purchases products. In the US
alone there are over 1,100,000 retailers according to the 2002 US Census of
Retail Trade. In the majority of
retail situations, the organization from which a consumer makes purchases is a
reseller of products obtained from others and not the product manufacturer.
But as we discussed in
the Distribution Decisions tutorial, some manufacturers also operate their own
retail outlets in a corporate channel arrangement. While consumers are the
retailer’s buyers, a consumer does not always buy from retailers. For instance,
when a consumer purchases from another consumer (e.g., eBay) the consumer
purchase would not be classified as a retail purchase. This distinction can get
confusing but in the US and other countries the dividing line is whether the
one selling to consumers is classified as a business (e.g., legal and tax
purposes) or is selling as a hobby without a legal business standing.
As a reseller,
retailers offer many benefits to suppliers and customers as we discussed in the
Distribution Decisions tutorial. For consumers the most important benefits
relate to the ability to purchase small quantities of a wide assortment of
products at prices that are considered reasonably affordable. For suppliers the
most important benefits relate to offering opportunities to reach their target
market, build product demand through retail promotions, and provide consumer
feedback to the product marketer.
Current
Trends in Retailing :
OVER VIEW / RECENT
TRENDS IN THE INDIAN RETAIL SECTOR
The retail stores are not a new entity, they have been in this world
from the early 50's and in India they have been showing their presence in
various forms like departmental stores, super markets, Discount Stores, Hyper-
mart, Shopping Malls etc.
Indian retailing
Indian Retailing is undergoing a process of evolution and is
poised to undergo dramatic transformation. The traditional formats like
hawkers, grocers and paan shops co-exit with modern formats like Super- markets
and Non-store retailing channels such as multi level marketing and
teleshopping. Modern stores trend to be large, carry more stock keeping units,
have a self-service format and an experiential ambience. The modernization in
retail formats is likely to happen quicker in categories like dry groceries,
electronics, mens' apparel a-nd books. Some reshaping and adaptation may also
happen in fresh groceries, fast food and personal care products. In recent
years there has been a slow spread of retail chains in some formats like super
markets, malls and discount stores. Factors facilitating the spread of chains are the
availability of quality products at lower prices, improved shopping standards,
convenient shopping and display and blending of shopping with entertainment and
the entry of Tatas into retailing. Foreign direct investment in the retail
sector in India, although not yet permitted by the Government is desirable, as
it would improve productivity and increase competitiveness. New stores will
introduce efficiency. The customers would also gain as prices in the new stores
tend to be lover. The consequences of recent modernization in India may be some
what different due to lower purchasing power and the new stores may cater to
only branded products aimed at upper income.
Segments
The Indian retail environment has been witnessing several changes on
the demand side due to increased per capital income, changing lifestyle and
increased product availability. In developed markets, there has been a power
shift with power moving from manufactures towards the retailers. The strategies
used by retailers to wrest power include the development of retailers own
brands and the introduction of slotting allowances which necessitate payments
by manufactures to retailers for providing shelf space for new products. The
recent increased power of retailers has led to the introduction of new tactics
by manufactures such as every day low pricing, partnership with retailers and
increased use of direct marketing methods.
Rural
bias
Nearly two thirds of the stores are located in rural areas. Rural
retail industry has typically two forms: "Haats" and “Melas".
Haats are the weekly markets : serve groups of 10-50 villages and sell
day-to-day necessities. Melas are larger in size and more sophisticated in
terms of the goods sold (like TVs)
Ø The Growth Drivers
The Indian Retail growth can be attributed to the several factors
including
Demography Dynamics: Approximately 60 per cent of Indian population
below 30 years of age.
Double Incomes: Increasing instances of Double Incomes in most
families coupled with the rise in spending power.
Plastic Revolution: Increasing use of credit cards for categories
relating to Apparel, Consumer Durable Goods, Food and Grocery etc.
Urbanisation: increased urbanisation has led to higher customer
density areas thus enabling retailers to use lesser number of stores to target
the same number of customers. Aggregation of demand that occurs due to
urbanization helps a retailer in reaping the economies of scale.
Covering distances has become easier: with increased automobile
penetration and an overall improvement in the transportation infrastructure,
covering distances has become easier than before. Now a customer can travel
miles to reach a particular shop, if he or she sees value in shopping from a
particular location.
Technology in Retail : Over the years as the consumer demand increased
and the retailers geared up to meet this increase, technology evolved rapidly
to support this growth. The hardware and software tools that have now become
almost essential for retailing can be into 3 broad categories.
Customer Interfacing Systems :
Bar Coding and Scanners : Point of sale
systems use scanners and bar coding to identify an item, use pre-stored data to
calculate the cost and generate the total bill for a client. Tunnel Scanning is
a new concept where the consumer pushes the full shopping cart through an
electronic gate to the point of sale. In a matter of seconds, the items in the
cart are hit with laser beams and scanned. All that the consumer has to do is
to pay for the goods.
Payment : Payment through credit cards has become quite widespread and
this enables a fast and easy payment process. Electronic cheque conversion, a
recent development in this area, processes a cheque electronically by
transmitting transaction information to the retailer and consumer's bank.
Rather than manually process a cheque, the retailer voids it and hands it back
to the consumer along with a receipt, having digitally captured and stored the
image of the cheque, which makes the process very fast.
Internet : Internet is also rapidly evolving as a customer interface,
removing the need of a consumer physically visiting the store.
Operation Support Systems
ERP System : Various
ERP vendors have developed retail-specific systems which help in integrating
all the functions from warehousing to distribution, front and back office store
systems and merchandising. An integrated supply chain helps the retailer in
maintaining his stocks, getting his supplies on time, preventing stock-outs and
thus reducing his costs, while servicing the customer better.
CRM Systems : The rise of loyalty programs,
mail order and the Internet has provided retailers with real access to consumer
data. Data warehousing & mining technologies offers retailers the tools
they need to make sense of their consumer data and apply it to business. This,
along with the various available CRM (Customer Relationship Management)
Systems, allows the retailers to study the purchase behavior of consumers in
detail and grow the value of individual consumers to their businesses.
Ø
Advanced Planning and Scheduling Systems :
APS systems can provide
improved control across the supply chain, all the way from raw material
suppliers right through to the retail shelf. These APS packages complement
existing (but often limited) ERP packages. They enable consolidation of
activities such as long term budgeting, monthly forecasting, weekly factory
scheduling and daily distribution scheduling into one overall planning process
using a process using a single set of data.
Ø
Strategic Decision Support Systems :
Store Site Location : Demographics and buying
patterns of residents of an area can be used to compare various possible sites
for opening new stores. Today, software packages are helping retailers not only
in their locational decisions but in decisions regarding store sizing and
floor-spaces as well.
Visual Merchandising :
The decision on how to place & stack items in a store is no more taken on
the gut feel of the store manager. A larger number of visual merchandising
tools are available to him to evaluate the impact of his stacking options. The
SPACEMAN Store Suit from AC Neilsen and ModaCAD are example of products helping
in modeling a retail store design.
Q7.
What do you mean by Promotion Mix?
Explain the objective of promotion mix. Discuss the various elements of
Promotion Mix?
Ans.
A specific combination
of promotional methods used for one product or a family of products. Elements of
a promotion mix may include print or broadcast advertising, direct marketing,
personal selling, point of sale displays, and/or merchandising
Promotion is an
important part of marketing mix of a business enterprise. Once a product is
developed, its price is determined the next problem comes to its sale i.e.,
creating demand for the product. It requires promotional activities. The
activities are technique which bring the special characteristics of the product
and of the producer to the knowledge of prospective customers. Promotion is a
process of communication involving information, persuasion, and influence. The
term ‘selling’ is often used synonymously with promotion. But promotion is
wider that selling. Selling is concerned only with the transfer of title in
goods to the purchaser, whereas promotion includes techniques stimulating
demand. These techniques include advertising, salesmanship or personal selling
and other methods of stimulation demand.
Elements
of Promotion Mix :
There are four elements of promotion mix:
Advertising
Advertising is a
non-personal presentation of goods, services or idea. In advertising existing
and prospective customers are communicated the message through impersonal media
like radio, T.V., newspapers and magazine. It involves transmission of standard
message simultaneously to a large number of people. The message transmitted is
known as advertising.
Personal
Selling
Personal selling is the
process of assisting and persuading the existing and prospective buyer to buy
the goods or services in person. It involves direct and personal contact of the
seller or his representative with the buyer.
Publicity
Publicity is a
non-personal non-paid stimulation of demand of the product or services or
business unit by planning commercially significant news about the services or
business unit by planning commercially significant news about in the print
media or by obtaining a favorable presentation of it upon radio, television or
stage.
Sales
promotion
Sales promotion
consists of all activities other than advertising, personal selling and
publicity, which help in promoting sales of the product. Such activities are
non-repetitive and one time offers. According to American Marketing
Association, sales promotion include, “those marketing activities other than
personal selling, advertising and publicity that stimulate consumer purchasing
and dealer effectiveness, such as point of purchase displays, shows and
exhibitions, demonstrations and various non-recurring selling efforts not in
the ordinary routine.”
The main aim of sales
promotion is to increase sales and profits of the firm but it is quite
different from personal selling and advertising. In personal selling, customer
is persuaded by a sales person face to face. Advertising is a non-personal mass
communication media. Sales promotion, on the other hand, is a non-recurring and
non-routine method. Its main aim is to supplement and coordinate the personal
selling and advertising. It is a supporting and facilitating element of
promotional strategy. Sales promotion bridges the gap of advertising and
personal selling.
Objectives
of Promotion Mix :
Promotional Objectives
There are three main
objectives of a promotional mix:
Increase demand: These
strategies are used during the product life cycle in order to increase sales.
Eventually a product will reach its saturation point, at which time investing
in sales will decrease as the company focuses its attention on a new product.
Present information
about the product: In order for customers and consumers to want the product
they need to understand what the product is and how it benefits them.
Information about the product will differ depending on the specific target
market.
Differentiate a
product: This is especially important if there are multiple competitors in the
same market. For example, Apple was able to differentiate itself in the
computer industry. For many years it was the preferred computer for those who
had advanced computing skills. Then Apple did an advertising campaign to show
general users how easy it is to use. This took advantage of the complaints the
market had over Windows operating software, which came standard with most PCs.
In order for a market
to accept a new product they need to know how it address their pain point.
Information about the product should address the "what's in it for
me" aspect that is inherent in human nature.
Q8.
Differentiate between Advertising and Publicity. Discuss the role of
advertising in promoting goods and services of a company?
Ans.
Publicity
and advertising both are popular techniques used for market promotion. The key
difference between the terms has been discussed below;
Publicity:
1. It is not a paid
form of communication.
2. Mostly, publicity
can be carried via newspapers, magazines, radio or television.
3. Company has no
control over publicity in terms of message, time, frequency, and medium.
4. It is undertaken for
a wide variety of purposes. They may include promotion of new product,
pollution control efforts, highlighting special achievement of employees,
publicizing new policies, or increasing the sales.
5. It may not be
repeated. It takes place only once.
6. It has a high degree
of credibility or reliability as it comes from mass media independently.
7. It is in forms of
news or reports presented differently than propaganda.
8. Publicity can be
done at a much lower cost than advertising.
9. It is not given by
company or producer. It is given by the third party whose opinion carries more
reliability.
10. Publicity message
is more likely to be read and reacted by audience.
11. It is useful for
society. It has social significance.
Advertising:
1. It is paid by the sponsor who wants to advertise
the product.
2. A large number of media are used. Based on
various factors like cost, type of message, reliability, etc., media are
selected.
3. Company has a complete control over advertising.
Company can design its advertising as per its needs.
4. Sales expansion and promotion of a new product
are immediate and direct objectives of advertising.
5. Its frequency or repetition depends on company’s
need. It can be repeated if company wants.
6. Advertising has less credibility. It is
considered as company’s efforts to increase sales.
7. It is in forms of propaganda and it is presented
more artificially and attractive manner as per producer’s plan.
8. Advertising is the most expensive promotional
tool.
9. It is always sponsored by company or its
representatives.
10. Most of the advertising messages are not given
more attention.
11. It is exclusively useful for company and its
dealers. To some extent, it may be useful to customers.
Role
of Advertising in Promoting goods/services of a company :
The promotional mix is
the blend of methods used by a company to deliver company, brand and product
messages to target customers. Advertising, public relations, direct marketing
and selling are common components of a complete promotional mix. Advertising is
generally one of the most important promotion methods and the one with the
largest budget.
Control
One of the strongest distinctions
between advertising and other forms of promotion is that you pay for ad
messages, buying time or space on a particular medium. Paying for placement
gives you greater control over the design, timing and location of your message.
In public relations, you can have some influence, but media reporters can write
negative stories just as easily as they can positive ones.
Brand
Management
Much of advertising
centers on the development and maintenance of a brand image. Building a brand
image is an important first step for a successful business. Your messages
convey what makes your company, products or service distinct from competitors.
However, some brand messages are more intangible, emphasizing qualities such as
luxury, sophistication, class, social belonging, relaxation and fun.
Create
Value Proposition
Your value proposition
is the mix of product or service benefits and price that you offer a particular
target customer group. You can base your value on top quality, elite service,
organic materials or ingredients, environmentally-responsible behavior, low
price or unique designs. Since you control ad messages, you have a greater
ability to set out for customers why your brand has superior value. PR includes
dealing with negative issues and sales doesn't allow for preplanned message
strategies and development.
Passive
Communication
Unlike direct marketing
and selling, advertising is a one-way, passive form of promotion. You deliver a
commercial or print ad and must research or watch business results to find out
whether the message affected customers. For this reason, much of advertising is
intended to promote brand recall or to persuade customers to buy. If your
business sells complex or expensive goods, you often need sales staff at the
point-of-sale to interact with customers and overcome their concerns or
objections.
Q9.
What do you mean by Sales Promotion? What are the different types of Sales
Promotion? Explain the various tools used for consumer sales promotion?
Ans.
Meaning and Definition:
Sales promotion refers
to ‘those marketing activities that stimulate consumer shows and expositions.
Purchasing and dealer
effectiveness such as displays, demonstration and various non- recurrent
selling efforts not in the ordinary routine.” According to A.H.R. Delens:
“Sales promotion means any steps that are taken for the purpose of obtaining an
increasing sale. Often this term refers specially to selling efforts that are
designed to supplement personal selling and advertising and by co-ordination
helps them to become more effective.”
In the words of Roger
A. Strong, “Sales promotion includes all forms of sponsored communication apart
from activities associated with personal selling. It, thus includes trade shows
and exhibits, combining, sampling, premiums, trade, allowances, sales and
dealer incentives, set of packs, consumer education and demonstration
activities, rebates, bonus, packs, point of purchase material and direct mail.”
Types
of Sales Promotion:
There are three types of sales promotion strategies’. Push,
Pull or a combination of the two.
A push promotional
strategy makes use of*a company’s sales force and trade promotion activities to
create consumer demand for a product. It involves convincing trade intermediary
channel members to push the product through the distribution channels to the
ultimate consumer via promotions and personal selling efforts. The company
promotes the product through a reseller who in turn promotes it to yet another
reseller or the final consumer.
In other words the
producer promotes the product to wholesalers, the wholesalers promote it to
retailers, and the retailers promote it to consumers. Trade- promotion
objectives are to persuade retailors or wholesalers to carry a brand, give a
brand shelf space, promote a brand in advertising, and/or push a brand to final
consumers. Typical tactics employed in push strategy are: allowances, buy-back
guarantees, free trials, contests, specialty advertising items, discounts,
displays, and premiums.
A good example of
“push” selling is mobile phones, where the major handset manufacturers such as
Nokia promote their products via retailers such as Car phone Warehouse.
Personal selling and trade promotions are often the most effective promotional
tools for companies such as Nokia – for example offering subsidies on the
handsets to encourage retailers to sell higher volumes.
A pull strategy
attempts to get consumers to “pull” the product from the manufacturer through
the marketing channel. The company focuses its marketing communications efforts
on consumers in the hope that it stimulates interest and demand for the product
at the end-user level. A “pull” selling strategy is one that requires high
spending on advertising and consumer promotion to build up consumer demand for
a product.
This strategy is often
employed if distributors are reluctant to carry a product because it gets as
many consumers as possible to go to retail outlets and request the product,
thus pulling it through the channel. Consumer-promotion objectives are to
entice consumers to try a new product, lure customers away from competitors’
products, get consumers to “load up” on a mature product, hold & reward
loyal customers, and build consumer relationships. If the strategy is
successful, consumers will ask their retailers for the product, the retailers
will ask the wholesalers, and the wholesalers will ask the producers.
Typical tactics
employed in pull strategy are: samples, coupons, cash refunds and rebates,
premiums, advertising specialties, loyalty programs/patronage rewards,
contests, sweepstakes, games, and point- of-purchase (POP) displays.
A good example of a
pull is the heavy advertising and promotion of children’s’ toys – mainly on
television.
Tools
for Sales Promotion :
The two types of sales
promotion tools consumer are as follows: A. Consumer-oriented Promotion Tools
B. Trade-oriented Sales Promotion.
Sales promotion is
generally defined as those marketing activities that provide extra values or
incentives to the sales force, the distributors, or the ultimate consumer and
can stimulate immediate sales. Sales promotion is generally broken into two major
categories—consumer-oriented and trade-oriented activities.
A.
Consumer-oriented Promotion Tools:
The consumer-oriented
promotion tools are aimed at increasing the sales to existing consumers, and to
attract new customers to the firms. It is also called pull strategy. The
consumer can take the benefit of promotion tools either from the manufactures
or from the dealer, or from both.
In general, some of the
commonly used consumer-oriented promotion tools are as follows:
1.
Free samples:
In this case, small
units of free samples are delivered door to door, sent through direct mail,
attached to another product, or given along with the purchase of some other
product (e.g., soaps, soft drinks, detergents or other items). Free samples are
normally provided during the introductory stage of the product.
2.
Coupons:
This involves offering
price reduction or saving to customers on the purchase of a specific product.
The coupons may be mailed or enclosed along with other products, or inserted in
a magazine or newspaper advertisement.
3.
Exchange scheme:
In this case, the
customer exchanges the old product for a new one. The old product’s exchange
value is deducted from the price of the new product. This sales promotion tool
is used by several companies for consumer durables. For instance. Philips came
up with five-in-one offer. The offer consisted of Philips TV, two-in-one, iron,
mixer-grinder, and rice cooker at an attractive price.
4.
Discounts:
It refers to reduction
in price on a particular item during a particular period. It is common during
festival season or during off-season period. It is very stimulating short-term
sales, especially when the discount provided is genuine one. For instance, the
Hawkins pressure cooker manufacturer announced an attractive price reduction,
up to Rs.150 off, on a new Hawkins in exchange for any old pressure cooker. The
advertisement specified that the offer was open only up to a particular date.
5.
Premium offers:
These can be extra
quantities of the same product at the regular price. Premium offers are used by
several firms selling FMCG goods such as detergents, soaps and food items. For
instance, Colgate offered 125 g in a tube for the price of 100 g.
6. Personality
promotions:
This type of promotion
is used to attract the greater number of customers in a store and to promote
sale of a particular item. For instance, a famous sports personality may be
hired to provide autographs to customers visiting a sports shop.
7.
Installment sales:
In this case, consumers
initially pay smaller amount of the price and the balance amount in monthly
installments over a period of time. Many consumer durables such as
refrigerators and cars are sold on installment basis. For example, Washotex
came up with a scheme to pay 20 per cent now and take home Washotex washing
machine. The consumers were offered the facility of paying the balance in 24
equal monthly installments.
B.
Trade-oriented Sales Promotion:
Trade-oriented sales
promotion programmes are directed at the dealer network of the company to
motivate them to the sell more of the company’s brand than other brands. It is
also known as push strategy, which is directed at the dealer network so that
they push the brand to the consumers by giving priority over other competitor
brands.
Some of the important
trade-oriented promotion tools are as follows:
1.
Cash bonuses:
It can be in the form
of one extra case for every five cases ordered, cash discounts or straight cash
payments to encourage volume sales, product display, or in support of a price
reduction to customers.
2.
Stock return:
Some firms take back
partly or wholly the unsold stocks lying with the retailers, and distribute it
to other dealers, where there is a demand for such stocks.
3.
Credit terms:
Special credit terms may provide to encourage bulk
orders from retailers or dealers.
4.
Dealer conferences:
A firm may organize
dealer conferences. The dealers may be given information of the company’s
performance, future plans, and so on. The dealers can also provide valuable
suggestions to the company at such conferences.
5.
Dealer trophies:
Some firms may
institute a special trophy to the highest-performing dealer in a particular
period of time. Along with the trophy, the dealer may get a special gift such
as a sponsored tour within or outside the country.
6.
Push incentives:
It is a special incentive given to the dealer in the
form of cash or in kind to push and promote the sale of a product, especially a
newly launched product.
Q10.
Explain the process of Personal Selling?
Ans.
There
are six stages in the process of Personal Selling which are as following below
:
1. Prospecting:
Searching for prospects
is prospecting. Here, prospect is a person or an institution who is likely to
be benefited by the product the salesman wants to sell and can afford to buy
it.
Prospecting is the work of
collecting the names and addresses or persons who are likely to buy the firm’s
products and services. Provide encompasses even the discovery of special needs
and multiplying the sales with existing clientele.
While collecting the
details, ‘suspects’ must be separated from ‘prospects’ to avoid or reduce waste
of time, treasure and talent. There are definite methods of prospecting.
The most popular ones are:
1. Endless chain method,
2. Centre of influence method,
3. Personal observation method,
4. Spotter’s method,
5. Cold-canvas method;
6. Direct mail and
7. Telephone method.
2.
Pre-approach:
Pre-approach is to get
more detailed facts about a specific individual to have effective sales appeals
on him or her. It is a record round effort to get details regarding the
prospect such as his ability, need, authority, accessibility to buy; it is a
closer look of prospects, likes and dislikes, tastes, habits, financial status,
social esteem, material status, family background and the like.
The objectives of
pre-approach are to providing additional qualifying information; to design an
effective approach strategy; to better the planning information; to avoid
serious errors and to build-up confidence.
The sources of
information are his fellow salesmen, customers, local newspapers, special
investigators, sales office, directories, observation and the prospect.
3.
Approach:
Approach means the
meeting of the prospect in person by the salesman where he makes face to face
contact with prospects to understand them better. Approach is such a delicate
and critical stage of the sales process that the sales are either won or lost.
Approach is stepping
stone for sales presentation. It is because of this delicacy that sales are
likened to a chain where break of one link will break it into useless lump of
hooks.
Success follows the
salesman who possesses courage, courtesy and confidence. The objectives of
approach are: To help the salesman to make a favourable impression; to amplify
the detailed information obtained by the salesman at pre-approach level; to
convert the favourable attention of the prospect easily and smoothly into the
sales proposition.
4.
Presentation and demonstration:
Presentation implies an
array and decoration of articles in the shop. It is the heart of selling
process. Effective presentation has the capacity to convince the customer of
his sales proposition. It creates and holds the interest of customers towards
the products. It would be wrong to assume that all those who enter the shop do
buy the products.
Normally, most of the
prospects visit the shop to see prior to their decision to buy. This casual
visit can be a commitment visit provided products are displayed, presented and
demonstrated by the salesmen in an appealing manner. Demonstration is a part of
presentation because, more description is not enough.
Demonstration is the
crucial task of providing the proofs and providing the statements about
quality, utility, performance and service of a product by evidences of
experiment, operation or a test.
The significance of
demonstration lies in reducing the sales talk, facilitating the comparison,
appealing to senses, fortifying the sales talks and convincing the fastidious customers.
Here, A-I-D-A approach works wonders.
5.
Overcoming objections:
For a creative and
persuasive salesman, the process of selling really starts when the prospect
raises objections. In absence of sales resistance the salesman is merely an
order booking clerk. For every action of salesman there is prospect’s
pro-action or reaction that is, approval or disapproval.
Each salesman should
understand the reasons as to why prospects raise objections because; each
objection has its roots in the buying decision. An objection is the expression
of disapproval of an action taken by salesman; it is an adverse reason or an
argument indicating clearly that the prospect is not yet ready to buy.
These objections may be
genuine or mere excuses. Overcoming objections is really a delicate stage that
makes or mars the unbroken chain of selling process.
Being a very crucial
aspect, the experts have a set procedure for overcoming the objections namely,
listen to the prospect cushion the jolt anticipate the objections and prevent
their occurrence. It is the creative task of bringing the customer to the sales
track once again.
6.
Closing:
All the earlier stages
of sales talk namely, prospecting, pre-approach; approach, presentation and
handling the objections have been designed to induce the prospect to make
decision to buy so that a sale can be concluded.
The success in earlier
stages will lead to the last stage of closing the sale and clinch the deal.
Here, ‘close’ means the act of actually getting the prospect’s assent to the
sales proposal or he gets an order.
The underlying point of
closing sale is to persuade the prospect to act right now than postponing or
delaying the action. It is here that the prospect is turned into a customer
desire into demand.
Though it sounds very
easy, it is the most difficult task. It is the positive attitude and
self-confidence that plays a decisive role in converting wish into desire and
desire into demand. A poor closer is a poor salesman and salesman who cannot
close well will have to close the line.
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