Assignment Question 19-20

Marketing Management-II KMB-208

Unit-1
Q-1. Define marketing mix. What are its elements?
Explain briefly.
Definition:The 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.

Its elements are-

Price:refers to the value that is put for a product. It
depends on costs of production, segment targeted,
ability of the market to pay, supply - demand and a host
of other direct and indirect factors. There can be several
types of pricing strategies, each tied in with an overall
business plan. Pricing can also be used as a
demarcation, to differentiate and enhance the image of
a product.

Product:refers to the item actually being sold. The

product must deliver a minimum level of performance;
otherwise even the best work on the other elements of
the marketing mix won't do any good.

Place:refers to the point of sale. In every industry,

catching the eye of the consumer and making it easy for
her to buy it is the main aim of a good distribution or
'place' strategy. Retailers pay a premium for the right
location. In fact, the mantra of a successful retail
business is 'location, location, location'.

Promotion: this refers to all the activities undertaken to

make the product or service known to the user and
trade. This can include advertising, word of mouth,
press reports, incentives, commissions and awards to
the trade. It can also include consumer schemes, direct
marketing, contests and prizes.

Q-2. Explain the concept and scope of expanded

marketing Mix.
The extended marketing mix is, as the name suggests,
an extension of the marketing mix which was
traditionally for products. The 4P’s are also known as
product marketing mix. As services came more into the
picture it was seen that the 4p’s could not justify the
marketing mix.

There were 3 more elements which were necessary to

actually explain the marketing of services. When
products began offering services, the extended
marketing mix began applying to products as well (like
Maruti service stations where Maruti is a product and
the service station is a service). These are the elements
which were added to the marketing mix to form the
extended marketing mix.

In the above figure, the product marketing mix are the

first four P’s and the next 3 P’s are added to make the
Extended Marketing mix. This extended marketing mix
is also known as the service marketing mix.
The four p’s mainly constituted the following 4 elements
Product
Price
Place
Promotions
The extended Marketing mix was brought forward by
adding the following 3 elements.
Process
Physical evidence
People.

The same are explained below taking restaurants as a

service example

Process in the extended marketing mix

How can you do things perfectly and make a process
which matches customers’ expectations? That is the
sole job of the process element. Let us say that you
were having a restaurant. Then how many tables will be
there? Will you be serving alcohol? If yes then how many
waiters are needed? How many tables per cook? or how
many dishes to divide between cooks? Thus, deciding on
the process which makes the operation easier and faster
is a key role of the extended marketing mix.
To make the process easier, a service blueprint can be
designed which shows how the complete process will
happen, from the customer entering the restaurant to
the customer leaving the restaurant and his table being
cleaned. The restaurant manager's work is to ensure
that the service blueprint is being followed to the letter.

Physical evidence in the extended marketing mix

Physical evidence are the tangible elements that you
add to an otherwise intangible product to differentiate
yourself or your service from others. So, in the above
restaurant example, the restaurant can be a budget
restaurant by keeping bare necessary furniture and
hiring minimum people. Or it can be a high budget
restaurant where if you are serving alcohol, you can
keep a bar, add good lighting and ambiance, play some
good music, have exotic dishes, have excellent cutlery,
so on and so forth. Imagine a McDonald’s vs pizza hut
and the difference in their ambiance as McDonald’s is
more like a budget fast food chain when compared with
pizza hut.
People in the extended marketing mix
Probably the most important element of the extended
marketing mix. The fifth P that is people is nowadays
added in the product as well as the services marketing
mix. This is because managers know that a business
cannot go forward without the right people in the right
place.
In the above example of restaurants, imagine your
favourite restaurant and the serving people there. One
restaurant might have a good cook who makes excellent
and tasty dishes and another will have an average cook
who makes average food. Which restaurant Will you
visit? It is likely that your favourite restaurant will have
a cook as well as serving waiters whom you like a lot
and you give your orders only to them. Thus, the right
people make a solid difference to your business.
Overall, the extended marketing mix can be applied to
products as well as services because process, people
and physical evidence are nowadays very important for
businesses to define their marketing mix.
 
Q-3. Marketing mix is a mix of mixes; explain the
components of marketing Mix.
Marketing mix is the term used to describe the
combination of the four inputs which constitute the core
of a company’s marketing system, the product, the price
structure, the promotional activities and the distribution
system.
Marketing mix refers to the culmination of the various
marketing elements. Every business enterprise is
interested in arriving at the most appropriate marketing
mix to yield optimum results.
There are various ingredients or elements of marketing
mix. But “Four P’s” were popularised by E.I. McCarthy
which are universally accepted. They are product, price,
promotion and place (physical distribution). These
ingredients of the marketing mix are so interrelated to
one another that changes in one ingredient affect the
others.
Each of these ingredients contains a number of
variables. From these variables, management tries to
adopt a specific combination of mixes in such a way that
the resultant marketing mix can adopt best to the
environment of the marketing system and lead to an
optimum performance. Marketing mix decisions
constitute a large part of marketing management.
Marketing mix offers an optimum (least cost)
combination of all marketing ingredients so that we can
have realisation of company goals such as profit, return
on investment, sales volume, and market share and so
on. It is a profitable formula of our marketing
operations.
The marketing mix will naturally be changing according
to changing marketing conditions and also with
changing environmental factors (technical, social,
economic and political) affecting each market. It is, of
course, based on marketing research and marketing
information.
It must be fully related to customer demand,
competition as well as other aforesaid environmental
forces. In the simplest manner, the basic marketing mix
is the blending of four inputs or sub- mixes which form
the core of the marketing system, namely, product,
price, promotion and place (physical distribution) and
are discussed below.

The outputs are optimum productivity and satisfaction.

1. Product:
The product itself (i.e. the benefits the consumer is
offered by the product) constitutes the most important
element of the marketing mix. The product mix has
three dimensions of width, depth and consistency which
call for specific managerial attention in any sound
marketing management. The width of the product mix
refers to how many different product lines are found
within the company.
It depends on the definitions established for product
line boundaries. The depth of the product mix refers to
the average number of items (or length) offered by the
company within each product line. The consistency of
the product mix refers to how closely relate the various
product lines are in end use, production requirements,
distribution channels, or in some other way.
All three dimensions of the product mix have a market
rationale. Through increasing the width of the product
mix, the company hopes to capitalise on its goods
reputation and skills in present markets.
Through increasing the depth of its product mix, the
company hopes to entice the patronage of buyers of
widely differing tastes and needs. Through increasing
the consistency of its product mix, the company hopes
to acquire an unparalleled reputation in a particular
area of endeavour.
Closely tied to the product are its packaging and
branding as a product along with its packaging and
branding create a particular image in the customer’s
mind. In short, product planning and development
involves decision about (i) volume of production, (ii)
quality of the product, (iii) size of the product, (iv)
design of the product, (v) packaging, (vi) branding, (vii)
warranties and after sale service, (viii) product testing,
(ix) product range, etc.

2. Price:
An important consideration that would make the
enterprise successful is the price. It is one of the most
difficult tasks of the management to fix the right price.
Management has to decide the right base price of the
company’s products along with appropriate pricing
policies and strategies to be followed in different
market segments.
Price component of the marketing mix also involves
establishing policies regarding credit and discount. The
variables that are taken into consideration while fixing
prices are demand for the product in question, its cost,
actual and likely competition, and government
regulation.
Pricing decisions and policies have direct bearing on the
total sales and profits of the enterprise. Price,
therefore, is a vital element in the marketing mix. Right
price can be determined through pricing research and
by following test marketing techniques.
Pricing is complicated when it is realised that various
products in a line typically have important demand
and/or cost inter- relationships. Then the objective is to
develop a set of mutual prices that maximize the profits
on the whole line.
Most companies develop tentative prices for the
products in the line by marking up full costs or
incremental costs or conversion costs and then
modifying these prices by individual demand and
competitive factors.

3. Promotion:
Promotion is the persuasive communication about the
product by the offer to the prospective customer. It
covers advertising, personal selling, sales promotion,
publicity, public relations, exhibition and
demonstrations used in promotion.
Largely it deals, with non-price competition. Advertising
and personal selling are important tools to promote the
sale of product of a firm. The use of promotional
activities like contests, free distribution of samples, etc.
is also significant to fight competition in the market.
Thus, the elements of promotion mix are advertising,
personal selling and sales promotion.
Advertisement is primarily concerned with popularising
a manufacturer’s product and boosting its sale by
adopting different advertisement media viz.
newspapers, magazines, radio, television, etc.
Marketing managers are faced with the necessity of
making numerous decisions with regard to advertising
such as: (i) How much should be spent on the
programme (money)? (ii) What message should be used?
(iii) What media should be used? Many enterprises
utilise the services of advertising agencies or specialists
in creating campaigns and individual advertisements.
Sales promotion includes all the methods of
communicating with the consumers except advertising
and personal selling. Among the more popular ones are
coupons, premiums and contests for consumer markets;
buying allowances, co-operative advertising allowances
and free goods for distributors and dealers; discounts,
gifts and extra benefits for industrial users; and sales
contests and special bonuses for members of the sales
force.
Most promotional campaigns comprise a combination of
two or more promotional methods as no single method
of promotion is effective alone. This is because of large
scale competition and widening of market.
However, there is no ideal promotional mix that suits all
situations. Forces like nature of product, kind of
customer, stage of demand and promotional budget
influence the inputs that should be considered while
making a promotional plan.

4. Physical Distribution:
Distribution is the delivery of the product and right to
consume it. It includes channels of distribution,
transportation, and warehousing and inventory control.
The distribution mix calls for selecting channels and
outlets through which products reach into the hands of
customers and arranging their physical movement to
different market segments.
The basic object of the manufacturer in selecting and
developing distribution channels in conjunction with
other elements of the marketing mix is to maximize the
degree of attainment of company goals including profit,
stability and long-term growth.
It should be emphasized that marketing channel policies
are an integral part of the marketing mix and must be
considered on the basis of other marketing decisions.
The marketing channel decision is affected by
production and financial considerations.
In some cases, the manufacturers may even own the
retail outlet. For example, there are oil companies that
own stations distributing their petroleum products.
Many manufacturers also sell directly to consumer by
opening the’/ own retail shops in mill’s premises, by
mail, through house to house selling by engaging
salesmen or by employing mechanical devices.
Whatever may be channel selected, the marketing
managers are also responsible for measuring channel
performance and making alterations when performance
falls short of fixed goals. In addition, he has to find a
system of handling and transporting the products
through these channels.
Will the product be transported to middlemen by rail or
by truck? If by trucks, should the company purchase its
own trucks or avail the services of a transporter to do
the transporting? What is the best route over which the
goods should be moved? These are some of the
decisions which the marketing managers have to make
in the field of physical distribution.

Determining the Marketing Mix:

The objective of determining the marketing mix (or
marketing decision making) is to meet the requirements
of the customers in the most effective and efficient
manner. With the passage of time, the needs of the
customers change, the marketing mix also changes.
Thus, marketing mix does not remain static. In the
words of Philip Kotler, “Marketing mix represents the
settings of the firm’s marketing decision variables at a
particular point of time.” Determining the optimal
marketing mix is not an easy job. It needs a lot of
information, imagination and judgement.
The marketing manager identifies prospective
customers and studies their desires and requirements in
order to formulate an effective marketing mix-one that
prospective customers will believe to be better than
offered by competitors.
Marketing research, foresightedness and judgement are
used in designing the marketing mix just as they are
employed in finding prospective customers and
identifying their requirements.
For instance, research may show that a combination of
television advertising and low prices is effective in
generating sales and the experience of a marketing
manager may reveal that personal selling is the best
way to introduce new products.
As narrated above, marketing mix is a dynamic concept.
It will alter with the change in the requirements of the
customers and also with the changing environmental
factors. According to Kotler, the firm’s current
marketing mix can be represented by the following
vector:
(P, A, D, R)
Where: P = price.
A = promotion (advertising and sales promotion).
D = place (distribution).
R = product (product-quality rating with 1.00 = average)
If a business enterprise is at present manufacturing a
product priced at Rs. 11, supporting it with promotion
expenditure of Rs 12,000 per annum, distribution
expenditure of Rs 15,000 per annum and the product
quality is rated at 1.20, its marketing mix at the time
will be
Rs. 11, 12,000, 15,000. 1.20
The different proportion of these components will result
in a number of values. An enterprise’s current
marketing mix is selected from a great number of
possibilities. Moreover, these components are not
adjustable in the short run. This makes decision making
complicated.
 
Q-4. Pricing and promotion are the integral elements of
marketing mix of a firm comment.
Product pricing can help your company achieve
profitability, support product positioning, and
complement your marketing mix.
Once your start-up is ready to commercialize its
product, you must determine how much to charge
customers to purchase the product. In other words, it is
time to establish the pricing structure.
Pricing in the marketing mix
Pricing is one of the four main elements of the
marketing mix. Pricing is the only revenue-generating
element in the marketing mix (the other three elements
are cost centres—that is, they add to a company’s cost).
Pricing is strongly linked to the business model.
The business model is a conceptual representation of
the company’s revenue streams. Any significant
changes in the price will affect the viability of a
particular business model.
A well-chosen price should accomplish three goals:

 achieve the company’s financial goals (profitability)

 fit within the realities of the marketplace
(customers are willing and able to pay the set price)
 support a product’s positioning and be consistent
with the other variables in the marketing mix
(product quality, distribution issues, promotion
challenges)

 
Promotion is the communication aspect of the
marketing mix. It is creating a channel for conversation
with the targeted consumer base. Through promotion,
the company aims to attract the customer’s attention
and give them enough information about the product to
foster enough interest to motivate them to purchase.
The team tasked with these activities will begin by
understanding the dynamics of the target audience and
deciding which modes of promotion are likely to help
meet targets. Once the channel is decided, information
from other elements of the mix is incorporated to
ensure that the message sent corresponds to the actual
product features, benefits and user experience. None of
the elements of the marketing mix work in isolation.
Instead a unified body of information acts as the source
for all activities within these 4P’s. The available
information is filtered to include those areas which will
be most relevant to the target audience.
 
 

Unit-2
Q-1. Explain the relationship between product
differentiation and market segmentation.
In order for a business to be effective and have an
edge against its competitors, it must have a clear idea
of what customers to target and where, what the
business will offer them and how it will sell the
product. This marketing strategy consists of several
exercises that must be done before a company can
bring a product to market. Used hand-in-hand, market
segmentation and product differentiation strategies --
key components of a marketing strategy -- offer a
tremendous advantage to a business and can yield
positive revenue results.

Understanding Market Segmentation

Market segmentation is a great source of competitive

advantage, effectively zeroing in on a target market.
Businesses group potential customers based on
similarities that they share with respect to relevant
dimensions, such as customer needs, channel
preferences, product features or customer profitability.
Market segmentation allows businesses to take a
segment of consumers and group them based on
similarities they all share with respect to the attributes
that define a marketing strategy.
Defining the Target Market

A business can use market segmentation to its

advantage by knowing the basis to segment customers,
such as targeting potential customers with the
greatest profit potential. The potential customers that
fit this demographic for a business become a market
segment. A business can have more than one market
segment for a product, and each market segment is
part of the overall marketing strategy. These targeted
segments can lead to significantly improved marketing
effectiveness.

Understanding Product Differentiation

Product differentiation is the strategy of highlighting a

product’s features and attributes so as to distinguish it
from competitors and from other product offerings.
There are many ways that a product can differentiate
itself, such as innovation, marketing and distribution.
The overall goal of a product differentiation strategy is
to make a product more attractive to a particular target
segment. Focusing on the inherit differences of a
product should lead potential customers to consider it
unique and therefore valuable. A business
communicates these differences through its
advertising, which is the selling proposition.

Reducing Direct Competition

Focusing on product differences reduces direct

competition. When companies categorize a product as
different, competition may be based not on price, but
on non-price factors such as design and functionality.
Customers in a target segment have a lower sensitivity
to these non-price factors, and, as a result, the product
differentiation strategy becomes an effective tool for a
business.

Q-2. Define product planning. Distinguish between

product planning and product life cycle.
Product Planning is the ongoing process of identifying
and articulating market requirements that define a
product's feature set. Product planning serves as the
basis for decisions about price, distribution and
promotion. Product planning is the process of creating a
product idea and following through on it until the
product is introduced to the market. Additionally, a
small company must have an exit strategy for its
product in case the product does not sell. Product
planning entails managing the product throughout its
life using various marketing strategies, including
product extensions or improvements, increased
distribution, price changes and promotions.

Difference between product planning

Q-3. What is a product known for? Distinguish between

Industrial and consumer products.

Definition: A product is the item offered for sale. A

product can be a service or an item. It can be physical or
in virtual or cyber form. Every product is made at a cost
and each is sold at a price. The price that can be
charged depends on the market, the quality, the
marketing and the segment that is targeted. Each
product has a useful life after which it needs
replacement, and a life cycle after which it has to be re-
invented. In FMCG parlance, a brand can be revamped,
re-launched or extended to make it more relevant to the
segment and times, often keeping the product almost
the same.

Description: A product needs to be relevant: the users

must have an immediate use for it. A product needs to
be functionally able to do what it is supposed to, and do
it with a good quality.
 A product needs to be communicated: Users and
potential users must know why they need to use it, what
benefits they can derive from it, and what it does
difference it does to their lives. Advertising and 'brand
building' best do this.

A product needs a name: a name that people remember

and relate to. A product with a name becomes a brand.
It helps it stand out from the clutter of products and
names.

Consumer Goods Industrial Goods

The demand for industrial goods is a

1. The demand for consumer 'derived demand'. It is derived from the
goods is a 'direct demand'. demand for consumer goods, which are
made using the industrial goods.

2. The number of buyers is Industrial goods have only limited

large. number of buyers.

3. The demand for consumer Industrial goods have relatively inelastic

goods is elastic. demand.

The buyers are found to be

concentrating in certain regions only.
4. The buyers are found
For example, the buyers of raw cotton,
scattered in different parts
who are the cotton textile mill owners,
of the country / world.
are found in and around Coimbatore in
Tami lnadu.

5. Each purchase will Each purchase involves a very high

generally be of small value. amount (in money terms).

Industrial goods are technically

6. These goods are not
complicated. Such goods cannot be
technically complicated.
assessed by an ordinary buyer

7. Buying is much influenced Buying cannot be influenced by

Consumer Goods Industrial Goods

by emotions. emotions.

Here, buying is always a group process.

8. Any individual can Finance experts, engineers, accountants
undertake buying. and others will have to work together
before taking the purchase decision.

9. After-sale service is After-sale service is of paramount

important in the case of importance in the case of all industrial
consumer durables. goods.

10. There are a number of The manufacturers of industrial goods

middlemen in the market. supply directly to their customers.

11. A buyer of consumer

A buyer of industrial goods must have
goods may not have
complete knowledge of the goods he
thorough knowledge of the
buys and uses.
goods he buys and uses.

12. The reputation of the

seller or manufacturer may The reputation of the manufacturer is
not always be given always important in buying industrial
importance in buying goods.
consumer goods.

13. Inducements to the

buyers in the form of cash
Such inducements may not be common
discounts, free gifts, etc. are
in the marketing of industrial goods.
made always by those
marketing consumer goods.

Leasing arrangements are quite

14. Leasing arrangements common in the marketing of industrial
are not made in the goods. The seller, in view of the high
marketing of consumer cost of the industrial goods, may
goods. provide the facility of leasing to the
buyer.

15. The market for consumer The market for industrial goods is
Consumer Goods Industrial Goods

goods is affected by fashion

affected by technological changes.
and style changes.

Q-4. What is branding and what are the requisites of

Branding?
Branding, by definition, is a marketing practice in which
a company creates a name, symbol or design that is
easily identifiable as belonging to the company. This
helps to identify a product and distinguish it from other
products and services. Branding is important because
not only is it what makes a memorable impression on
consumers but it allows your customers and clients to
know what to expect from your company. It is a way of
distinguishing yourself from the competitors and
clarifying what it is you offer that makes you the better
choice. Your brand is built to be a true representation of
who you are as a business, and how you wish to be
perceived.
Requisites of Branding

1. It should be unique / distinctive (for instance-

Kodak, Mustang)
2. It should be extendable.
3. It should be easy to pronounce, identified and
memorized. (For Instance-Tide)
4. It should give an idea about product’s qualities and
benefits (For instance- Swift, Quickfix, Lipguard).
5. It should be easily convertible into foreign
languages.
6. It should be capable of legal protection and
registration.
 7. It should suggest product/service category (For
instance Newsweek).
8. It should indicate concrete qualities (For instance
Firebird).
9. It should not portray bad/wrong meanings in other
categories. (For instance, NOVA is a poor name for
a car to be sold in Spanish country, because in
Spanish it means “doesn’t go”).

Q-5. Explain Brand Loyalty, Brand Portfolio, Brand

Positioning and Brand Sponsorship.

1. Brand Loyalty

Brand loyalty is a pattern of consumer behaviour

through which consumers tend to get committed to a
specific brand or product and make repeat purchases
over time. Businesses plan different creative marketing
strategies like reward and loyalty programs, incentives,
trials and brand ambassadors to create brand loyalty.
Those who are loyal to a particular brand do not
purchase a substitute brand in case the preferred brand
is unavailable. Loyal customers search multiple stores
for their preferred brands are more likely to forego their
purchase in case the brand is not available.

This buying decision can be either conscious or

unconscious, however, it is based upon trust that the
brand fulfils the consumers. Brand loyalty is based upon
emotional involvement which is created between the
brand and the consumer. It is perceived by the customer
that the brand will fulfil some type of emotional want or
physical need in a unique way and which evokes
emotions during the process of purchasing and using it.

2. Brand Portfolio

The Brand Portfolio refers to an umbrella under which

all the brands or brand lines of a particular firm
functions to serve the needs of different market
segments. In simple words, brand portfolio
encompasses all the brands offered by a single firm for
sale to cater the needs of different groups of people.

Brand portfolio is generally created because each brand

has certain boundary beyond which it cannot fulfil all
the needs of different market segments.

The advantage of having the Brand Portfolio is that

management can keep a check on all the brands as a
whole and frame the policies with a broader
perspective. Also, the resources can be allocated to the
brand that needs the most.

3. Brand Positioning

Brand positioning has been defined by Kotler as “the act

of designing the company’s offering and image to
occupy a distinctive place in the mind of the target
market”. In other words, brand positioning describes
how a brand is different from its competitors and where,
or how, it sits in customers’ minds.

A brand positioning strategy therefore involves creating

brand associations in customers’ minds to make them
perceive the brand in a specific way.

4. Brand Sponsorship

Brand sponsorship is a marketing strategy in which a

brand is supporting an event, activity, person or
organization. Everywhere we go we can witness
sponsorship investments: music festival, football
games, beneficial events and so on. Sponsorship allows
big, medium and small brands to partner with other
companies as well as event agencies in order to
generate a relationship that aims to economically
gratify both the sponsor and the sponsee.

Unit-3
Q-1. Explain the objective of pricing policy of a business
firm. Comment on all 10 pricing strategies.

Five main objectives of pricing are: (i) Achieving a

Target Return on Investments (ii) Price Stability (iii)
Achieving Market Share (iv) Prevention of Competition
and (v) Increased Profits!

Before determining the price of the product, targets of

pricing should be clearly stated.Objectives of a properly
planned pricing policy should be logically related to
overall managerial goals.

(i) Achieving a Target Return on Investments:

This is the most important objective which every
concern wants to achieve. The objective is to achieve a
certain rate of return on investments and frame the
pricing policy in order to achieve that rate. For example,
the concern may have a set target of 20% return on
investment and 10% return on investments after taxes.
The targets may be a short term (usually for a year) or a
long term. It is advisable to have a long-term target.

Sometimes, it is observed that the actual profit rates

may be more than the target return. This is because the
targets already fixed are low and new opportunities and
demand of the product exceeding the return rate
already fixed.

(ii) Price Stability:
This is another important objective of an enterprise.
Stability of prices over a period reflects the efficiency of
a concern. But in practice, on account of changing costs
from time to time, price stability cannot be achieved. In
the market where there are few sellers, every seller
wants to maintain stability in prices. Price is set by one
producer and others follow him. He acts as a leader in
price fixation.

(iii) Achieving Market Share:

Market share refers to the share of the company in the
total sales of the product in the market. Some of the
concerns when introduce their product in the
competitive market want to achieve a certain share in
the market in the initial stages. In the long run the
concern may aim at achieving a sizeable portion of the
market by selling its products at lower prices.

The main objective of achieving larger share in the

market is to enjoy more reputation and goodwill among
the people. The other consideration of widening the
markets by lowering prices is to eliminate competitors
from the market.

It has been observed that companies may not like to

increase the size of their share on account of fear of
Govt, intervention and control. General Motors,
America, capturing about 50% of the automobile
market, passed through this situation. Some companies
like General Electric and Johns-Mauville preferred to
have relatively small market say 20% rather than 50%.

(iv) Prevention of Competition:

Modern industrial set up is confronted with cut throat
competition. Pricing can be used as one of the effective
means to fight against the competition and business
rivalries. Lesser prices are charged by some firms to
keep their competitors out of the market. But a firm
cannot afford to charge fewer prices over a long period
of time.

(v) Increased Profits:

Maximisation of profits is one of the main objectives of a
business enterprise. A firm can adopt such a price policy
which ensures larger profits. However, such enterprises
are also expected to discharge certain social obligations
also.

10 Pricing Strategies

1. Marketing Penetration

The price is set low in order to increase sales and

market share.

2. Marketing Skimming

The price is set high and is gradually lowered as the

product moves through the product life cycle.

3. Psychological Pricing

The price is set just below a whole number in order to

make the product and price more attractive. E.g. setting
price at ₹99 rather than₹100.
4. Premium Pricing

The firm will set a high price. The price set will reflect
the premium quality of the product.

5. Bundle Pricing

Products are bundled together and a slightly cheaper

price is charged for buying the bundled item.

6. Value Pricing

Prices are set on products that reflect the value of the

product. If the product has an economy feel then the
price will reflect this fact. Many supermarkets have
introduced value or economy products that reflect this.

7. Captive Pricing

With some products, you have to buy another item in

order to use it. If we look at printers, you need to buy
the ink in order to run that printer. Captive pricing is a
clever strategy, usually the additional items that are
needed will cost more.

8. Cost Plus Pricing

The organisation puts a percentage profit on the cost of

making the product. For example, if the production cost
is ₹200 and the mark up is 20%, the selling price will be
₹240.

9. Optional Pricing

A firm will charge extra for any optional products that

are sold alongside the main product.

10. Competitive Pricing

A firm looks at their competitors and decides to charge

a premium price, an economy price or a mid-range price
for their products, compared to their competitors.
Q-2. What is penetration and skimming of prices?
Explain their advantages and Disadvantages.

Penetration Pricing

Penetration pricing is a marketing strategy used by

businesses to attract customers to a new product or
service by offering a lower price during its initial
offering. The lower price helps a new product or service
penetrate the market and attract customers away from
competitors. Market penetration pricing relies on the
strategy of using low prices initially to make a wide
number of customers aware of a new product.

The goal of a price penetration strategy is to entice

customers to try a new product and build market share
with the hope of keeping the new customers once prices
rise back to normal levels. Penetration pricing examples
include an online news website offering one month free
for a subscription-based service or a bank offering a
free checking account for six months.

Advantages

 High adoption and diffusion: Penetration pricing

allows a product or service to be quickly accepted
and adopted by customers.

 Marketplace dominance: Competitors are typically

caught off guard in a penetration pricing strategy
and are afforded little time to react. The company is
able to utilize the opportunity to switch over as
many customers as possible.

 Economies of scale: The pricing strategy generates

high sales quantity that allows a firm to realize
economies of scale and lower marginal cost.

 Increased goodwill: Customers that are able to find

a bargain in a product or service are likely to return
to the firm in the future. In addition, the increased
goodwill creates positive word of mouth.
  High turnover: Penetration pricing results in an
increased turnover rate, making vertical supply
chain partners, such as retailers and distributors,
happy.

Disadvantages

 Pricing expectation: When a firm uses a penetration

pricing strategy, customers often expect
permanently low prices. If prices gradually
increase, customers will become dissatisfied and
may stop purchasing the product or service.

 Low customer loyalty: Penetration pricing typically

attracts bargain hunters or those with low customer
loyalty. Said customers are likely to switch to
competitors if they find a better deal.

 Damage brand image: It may affect the brand image

and cause customers to perceive the brand as
cheap.

 Price war among competitors: It results in

retaliation from competitors trying to maintain
their market share. Pricing war may decrease
profitability for the overall market.

 Inefficient long-term strategy: It is not a viable

long-term pricing strategy. In many cases, firms
that use the strategy face a loss of profits. In this
case, the firm may not be able to recover its cost if
it uses penetration pricing over an extended
timeframe.

Skimming Pricing

Price skimming is a product pricing strategy by which a

firm charges the highest initial price that customers will
pay and then lowers it over time. As the demand of the
first customers is satisfied and competition enters the
market, the firm lowers the price to attract another,
more price-sensitive segment of the population. The
skimming strategy gets its name from "skimming"
successive layers of cream, or customer segments, as
prices are lowered over time.

Advantages

 Perceived quality: Price skimming helps build a

high-quality image and perception of the product.

 Cost recuperation: It helps a firm quickly recover its

costs of development.

 High profitability: It generates a high profit margin

for the company.

 Vertical supply chain benefits: It helps distributors

earn a higher percentage. The mark-up on a ₹500
product is far more substantial than on a ₹5 item.

Disadvantages

 Deterrence: If the firm is unable to justify its high

price, consumers may not be willing to purchase
the product.

 Limitation of sales volume: A firm may not be able

to utilize economies of scale if a skim price
generates too little sales.
  Inefficient long-term strategy: Price skimming is not
a viable long-term pricing strategy as competitors
will eventually enter the market with rival products
and pricing pressure.

 Consumer loyalty: If a product that costs ₹1,000 at

launch has a follow-on price of ₹200 in a couple of
months, innovators and early adopters may feel
ripped off. Therefore, if the firm has a history of
price skimming, consumers may wait a couple of
months before purchasing the product.

Q-3. Write a critical note on the policy of resale price

maintenance.

RESALE PRICE MAINTENANCE (RPM)

Agreements or concerted Practices between a supplier

and a dealer with the object of directly or indirectly
establishing a fixed or minimum price or price level to
be observed by the dealer when reselling a
product/service to his customers. A provision which
foresees resale price maintenance will generally be
considered to constitute a hard-core restriction. In the
case of contractual provisions or concerted practices
that directly establish the resale price, the restriction is
clear cut. However, resale price maintenance can also
be achieved through indirect means: for example by
fixing the distribution margin or the maximum level of
discount the distributor may grant from a prescribed
price level, by making the supplier’s rebates or his
reimbursement of promotional costs subject to the
observance of a given price level, by linking the
prescribed resale price to the resale prices of
competitors, or by threats, warnings, or even sanctions
against a dealer who does not respect a certain price
level (such as penalties, delay or suspension of
deliveries or termination of contracts).

A supplier specifying the minimum (or maximum) price

at which the product must be re-sold to customers.
From a competition policy viewpoint, specifying the
minimum price is of concern. It has been argued that
through price maintenance, a supplier can exercise
some control over the product market. This form of
vertical price fixing may prevent the margin from retail
and wholesale prices from being reduced by
competition. However, an alternative argument is that
the supplier may wish to protect the reputation or
image of the product and prevent it from being used by
retailers as a loss leader to attract customers. Also, by
maintaining profit margins through RPM, the retailer
may be provided with incentives to spend greater
outlays on service, invest in inventories, advertise and
engage in other efforts to expand product demand to
the mutual benefit of both the supplier and the retailer.
RPM may also be used to prevent free riding by retailers
on the efforts of other competing retailers who instead
of offering lower prices expend time, money and effort
promoting and explaining the technical complexities or
attributes of the product. For example, one retailer may
not reduce price but explain and demonstrate to
customers the use of a complex product such as a
computer. The customer may after acquiring this
information choose to buy the computer from a retailer
that sells it at a lower price and does not explain or
demonstrate its uses. In many countries, RPM is per se
illegal with few exceptions or exempt products. Many
economists now advocate adopting a less stringent
approach in competition law towards RPM and other
vertical restraints. 

Q-4. What is channel of distribution? Discuss about

different channel available to a businessenterprise.

A distribution channel is a chain of businesses or

intermediaries through which a good or service passes
until it reaches the final buyer or the end consumer.
Distribution channels can include wholesalers, retailers,
distributors, and even the Internet.

Distribution channels are part of the downstream

process, answering the question "How do we get our
product to the consumer?" This is in contrast to the
upstream process, also known as the supply chain,
which answers the question "Who are our suppliers?"
Understanding Distribution Channels

A distribution channel is a path by which all goods and

services must travel to arrive at the intended consumer.
Conversely, it also describes the pathway payments
make from the end consumer to the original vendor.
Distribution channels can be short or long, and depend
on the number of intermediaries required to deliver a
product or service.

Goods and services sometimes make their way to

consumers through multiple channels—a combination of
short and long. Increasing the number of ways a
consumer is able to find a good can increase sales. But
it can also create a complex system that sometimes
makes distributionmanagement difficult. Longer
distribution channels can also mean less profit each
intermediary charges a manufacturer for its service.

Types of Distribution Channels

While a distribution channel may seem endless at times,

there are three main types of channels, all of which
include the combination of a producer, wholesaler,
retailer, and end consumer.

The first channel is the longest because it includes all

four: producer, wholesaler, retailer, and consumer. The
wine and adult beverage industry is a perfect example
of this long distribution channel. In this industry—
thanks to laws born out of prohibition—a winery cannot
sell directly to a retailer. It operates in the three-tier
system, meaning the law requires the winery to first sell
its product to a wholesaler who then sells to a retailer.
The retailer then sells the product to the end consumer.

The second channel cuts out the wholesaler—where the

producer sells directly to a retailer who sells the product
to the end consumer. This means the second channel
contains only one intermediary. Dell, for example, is
large enough to sell its products directly to reputable
retailers such as Best Buy.

The third and final channel is a direct-to-

consumer model where the producer sells its product
directly to the end consumer. Amazon, which uses its
own platform to sell Kindles to its customers, is an
example of a direct model. This is the shortest
distribution channel possible, cutting out both the
wholesaler and the retailer.

Q-5.Explain with examples vertical and horizontal

distribution channels.

Vertical Distribution
An app aimed vertically is for a certain group of people
with special skills or needs, like engineers, marketers,
or managers. They are typically customized to integrate
with particular systems.

Example

Apple is a good example of a company that has gone for

vertical distribution of production. They make the
hardware, the operating systems, the software, and the
apps. Companies like these have more control over their
products and profit more from them, but operations are
more costly as well.

Horizontal Distribution

Horizontal distribution means trying to reach a broad,

diverse audience. The product or content is for
everyone, or almost everyone, and is usually simple and
easy to comprehend or use.

It can also mean focusing on one particular aspect in a

chain of related technologies.

Example
When it comes to mobile apps, there are a number of
components involved the hardware, the operating
system, the program software, and the app itself. A
horizontally-oriented company would focus on one
particular link in this chain, and produce only the
hardware, for instance. These companies become
flexible and learn their craft well, or they don’t last.

Q-6.What do you understand by middle man? Explain

their kinds and functions.

Middlemen are those individuals or business concerns

who specialize in performing the various marketing
functions involved in the purchase and sale of goods as
they are moved from producers to consumers. Our
concern here is within the place in the marketing
processes which the middlemen occupy. There is no
limitation as to the way in which they are organized for
doing business. They may operate as individual
proprietors, partnerships, or cooperative or non-
cooperative corporations. The middlemen of particular
interest in agricultural marketing can be classified as
follows:

1. Merchant middlemen (Retailers, Wholesalers)

2. Agent middlemen (Brokers, Commission men)

3. Processors and manufacturers

 4. Speculative middlemen

5. Facilitative organizations

Kind & Functions of Middlemen

Merchant middlemen

Merchant middlemen normally take title to, and

therefore own, the product they handle. The buy and
sell for their own gain and derive their income from the
margins arising from the sales (i.e. difference between
buying price and selling price). Unlike other classes of
middlemen, they hold uncertainty to a minimum i.e.
know what the buying and selling price in going to be.
They are not risk takers.

1. Wholesalers: Any merchant who does not sell to

ultimate consumer in any significant amount. He
therefore can sell to other wholesalers or to
industrial users or retailers. Wholesalers make a
highly heterogeneous group of varying sizes and
characteristics. One of the more numerous groups
of wholesalers are the local buyers or country
assemblers who buy goods in producing areas
directly from farmers and ship the products to the
larger cities where they are sold to other
wholesalers and processors. In this group are grain
elevators, poultry and egg buyers, and local
 livestock buyers. Another group of wholesalers is
located in the large urban centres. This may be full-
line wholesalers who handle many different
products or those who specialise in handling a
limited number of products. They may be cash-and-
carry wholesalers or service wholesalers who will
extend credit and offer delivery and other services.

2. Retailers: Any merchant middlemen who buys

goods / services for resale directly to ultimate
consumers. Represent the most numerous types of
agencies involved in the marketing process. In
terms of undertaking marketing functions their role
in no easier compared to wholesalers. In fact, a
retailer may have to do all the functions of
marketing i.e. his job is complex. Retailer is the
producers’ representative to the consumer.

Agent middlemen

All agent middlemen of marketing don’t own what they

handle i.e. not take title to the goods. Are
agents/representatives of owners of goods? Are
basically hired by their principals or clients e.g. Kenya
Planters Cooperative Union does not own the coffee it
handles. They derive their income from the fees they
are paid by their clients or commissions given. Agent
middlemen in reality sell services to their principals, not
physical goods to customers. There are three categories
of agent middlemen:

 Brokers

 Commission agents

 Auctioneers

Their main stock in trade is their knowledge of market

in which they participate. They use the knowledge in
bringing together potential sellers and buyers. Their
services will be retained either by buyers or the seller
who feels that he / she does not have knowledge or
opportunity to bargain effectively for him / herself.

Commission Agents

The difference between brokers and commissions

agents is one of degree to they are given power to
handle the product that is being sold i.e. discretionary
powers to assist their principals in ensuring that
marketing process is a accomplished. Commission
agents are given more discretionary powers over
physical handling of the product, arrangement for terms
of sale / purchase, collection of revenue from sale e.g.
Coffee Board of Kenya, Kenya Tea Development Agency
are commission agents. They are allowed to deduct their
commission before remitting the difference to their
principals. One must have confidence in the agents.
 1. Brokers: hey are not given any physical control over
the product. They ordinarily follow directions from
their principals. Usually have little power over
terms of sale or revenue collection. Bring seller and
potential buyer together.

2. Auctioneers: They do not own what is handled, may

be involved in a number of activities. Have places
for physical display, space where participants meet,
announce the date of auction, facilitate in price
formation. During the bidding process the main role
of auctioneer is to announce the price offered by
various participants such that it is heard and the
highest bidder gets the good subject to the price
being equal or greater than reserved minimum
price. Prices closely conform to a competitive
market price. Tea and coffee are sold through
auction.

Speculative middlemen

Are those who take title to goods / products with a

major purpose of profiting from price movement. They
are specialized risk takers. They take uncertainty as
given. Is the closest to the futures market usually
speculative middlemen make purchase and sales at
same marketing level e.g. buying grain and selling grain
i.e. have no vertical integration. They are also called
traders, scalpers and spreaders. Important
distinguishing feature is that even though speculative
middlemen involve themselves in movement of goods
that is not their goal. Speculative Middlemen are
interested in short term price fluctuations. Speculators
derive their income from short term price fluctuations in
goods they handle. The emergence and growth of
speculative Middlemen is due to the fact that merchant
middlemen are not willing to engage themselves in
added risk involved in purchasing and storing of goods
for longer period of time. Speculative middlemen play
important role in marketing process in ensuring that
commodities are available from time to time. Their
activities are desirable especially if their expectations
are met / true. Due to their activities we may end up
with more stable market prices.

Processors and manufactures

Their role in marketing in to undertake some action on

the products in order to change their form. Form
changing is basically a marketing service. Manufactures
and processors may take active role in other
institutional aspects of marketing e.g. may act as own
buying agents in the producing areas, wholesaling of
finished products and promotion. Processing and
manufacturing are only part of activities they get
involved in.

Facilitative organizations
Main function into facilitate the activities of the other
middlemen of marketing. Ensure that the activities take
place in smooth manner. Does not directly participate in
marketing process either as merchants, wholesalers etc.
they basically establish the rules that the other
participants have to follow. Others may get involved in
establishing of the terms of sale and standards which
must be followed, assist in grading of the produce,
actual arrangement of payment for the transactions.
Some of the organizations provide physical facilities for
the handling of the product e.g. Nairobi City Council and
other local authorities while others provide premises
where participants come together. Others are involved
in enforcing /policing the practices of their members.
Trade and professional associations fit into this
category. They gather, evaluate and disseminate
information of value to the members – do research of
mutual interest to members and ensure that members
follow ethics. Though not active in the buying and
selling of goods, these organizations have far reaching
effects on nature and organization of markets. Derive
income from fees and assessments of those who use
their facilities e.g. marketing boards, county councils
operate on the commissions and cess got.