The Marketing Mix Elements

Chapter six
Introduction to the Marketing Mix Strategies
Now that you have had a good look at marketing strategy, we will take a deeper look at the marketing
mix- the tactical tools that marketers use to implement their strategies. In this chapter we’ll study how
companies develop and manage products, pricing, distribution and promotion. Product is usually the
first and the most basic marketing consideration. Let’s start with a seemingly simple question: what is
product?
6.1. Product strategy
Product is defined as anything that can be offered to a market for attention, acquisition, use, or
consumption and that might satisfy a want or need. Products include more than just tangible goods.
Broadly defined, products include physical objects, services, events, persons, places, organizations, ideas
or mixes of these entities. Product is a key element in the market offering. Marketing-mix planning
begins with formulating an offering that brings value to target customers and satisfy their needs. This
offering becomes the basis upon which company builds profitable relationship with customers.
6.1.1. Levels of product

Product planners need to think about products at three levels. Each level adds more customer value. The
most basic level is the core product, which addresses the question what is the buyer really buying?
When designing product, marketers must first define the core, problem-solving benefits or services that
consumers seek. At the second level, product planners must turn the core benefit into an actual
product. They need to develop product and service features, design, a quality level, a brand name, and
packaging. Finally, product planners must build an augmented product around the core benefit and
actual product by offering additional customer services and benefits.

6.1.2. Product classification

Products fall into two broad classes based on the types of consumers that use them
 Consumer products and
 Industrial products.
A. Consumer products:
Consumer products are products bought by final consumer for personal consumption. Marketers usually
classify these products and services further based on how consumers go about buying them. Consumer

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products include convenience products, shopping products, specialty products and unsought products.
These products differ in the ways consumers buy them and therefore in how they are marketed.
i. Convenience products: are consumer products that the customer usually buys frequently,
immediately, and with a minimum of comparison and buying effort. Convenience goods can be
further divided into staples, impulse and emergency goods.
a. Staples goods are goods that consumers purchase on a regular basis.
For example, one buyer might routinely purchase bread, soap, and salt.
b. Impulsegoods are purchased on impulse, without any planning or search effort. These
goods are usually displayed widely.
Examples: chewing gums, lottery, and magazines. They are widely distributed
and displayed because shoppers may not have thought of buying them until they
spot them.
c. Emergencygoods are purchased when a need is urgent- umbrellas during rainstorm, and
candles during blackout. Manufactures of emergency goods will place them in many
outlets so as to capture the sale when the customer needs them.
ii. Shopping products: are less-frequently-purchased consumer products that customers compare
carefully on suitability, quality, price, and style. When buying shopping products, consumers spend
much time and effort in gathering information and making comparison.
Examples include furniture, clothing, and major appliances etc.
iii. Specialty products: are consumer products and services with unique characteristics or brand
identification for which a significant group of buyers is willing to make a special purchase effort.
Examples include specific brand and types of fancy goods, cars, stereo
components, and photographic equipment.
 Buyers normally do not compare products. They invest only the time
needed to reach dealers carrying the wanted products.
iv. Unsought productsare consumer products that the consumer either does not know about or knows
about but does not normally think of buying. New products, such as smoke detectors and food
processors, are unsought goods until the consumer is made aware of them through advertising.
The classic examples of known but unsought goods are life insurance, blood
donation and encyclopedias.
 Unsought goods require substantial marketing effort in the form of
advertising and personal selling.
B. Industrial products:
Industrial products are those purchased for further processing or for use in conducting a business. The
distinction between a consumer products and an industrial product is based on the purpose for which the
product is bought. We can distinguish three groups of industrial products:
Materials and parts,
Capital items, and
Supplies and business services
Material and partsare goods that enter the manufacturer’s product completely . They fall into two
classes:
 Raw materials and
 Manufactured materials and parts.
Raw materials fall into two major classes:
o Farm products (e.g. Wheat, cotton, livestock, fruits, and vegetables) and
o Natural products (e.g., fish, crude petroleum, iron ore).
Manufactured materials and parts are divided into two categories:
 Component materials (e.g. iron, cement, yarn, wires) and
 Component parts (e.g. small motors, tires, castings).

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Component materials are usually fabricated further for-example, pig iron is made into steel, and yarn is
woven into cloth. Component parts enter the finished product completely with no further change in form,
as when small motors are put into vacuum cleaners, and tires are put on automobiles.
Capital itemsare industrial products that aid in the buyer’s production or operations, including
installations and accessory equipment.
Installations consist of major purchases such as buildings (factories, offices) and fixed equipment
(generators, drill presses, large computer systems).
Accessory equipment includes portable factory equipment and tools (hand tools, lift trucks) and
office equipment (computers, fax machines, desks).
Supplies and business services : areshort-lasting goods and services that facilitate developing
and or managing the finished products.
Supplies are of two kinds:
o Operating supplies (e.g., lubricants, writing paper, pencils) and maintenance and
o Repair items (paint, nails, brushes).
Supplies are the equivalent of convenience goods in the industrial field; they are usually purchased with
a minimum effort on a straight re-buy basis.
Business services include:
 Maintenance and repair services (e.g., car repair, computer repair) and
 Business advisory services (e.g., legal, management consulting, and advertising).
Maintenance and repair services are usually supplied under contract. Business advisory services are
usually purchased in new task-buying situations, and the industrial buyer will choose the supplier on the
basis of the supplier’s reputation and people.
6.1.3. Product decision

The above figure shows the important decisions in the development and marketing of products. It focuses
on decisions about product attributes, branding, packaging, labeling and product support services.
i. Product attributes: developing a product or service involves defining the benefits that it will
offer. These benefits are communicated and delivered by product attributes such as quality,
features, style and design.
Product quality: product quality is one of the marketer’s major positioning tools. Quality has a
direct impact on product performance; thus it is closely linked to customer value and satisfaction.
Most customer centered companies define quality in terms of customer satisfaction. This
customer-focused definition suggests that quality begins with customer needs and ends
with customer satisfaction.

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Product features: Features are competitive tools for differentiating the company’s product from
competitors’ product. Being the first producer to introduce a needed and valued new feature is
one of the most effective ways to compete.
Product style and design: another way to add customer value is through distinctive product style
and design. Design is a larger concept than style. Style simply describes the appearance of a
product. Style can be eye-catching. A sensational style may grasp attention and produce pleasing
aesthetics, but it does not necessarily make the product perform better. Unlike style, design is
more than skin deep—it goes to the very heart of a product. Good design contributes to a
product’s usefulness as well as to its looks.
ii. Branding: a brand is a name, term, sign, symbol, or design, or a combination of these, intended
to identify the goods or services of one seller or group of sellers and to differentiate them from
those of competitors. Perhaps the most distinctive skill of professional marketers is their ability to
create, maintain, protect, and enhance brands of their products. Consumers view a brand as an
important part of a product, and branding can add value to a product. Branding helps buyers in
many ways. Brand names help consumers:
 Identify product that might benefit them.
 Tell the buyer something about product quality.
Buyers who always buy the same brand know that they will get the same features, benefits, and
quality each time they buy. Branding also gives the seller several advantages. The brand name
becomes the basis on which a whole story can be built about a product’s special qualities.
iii. Packaging: packaging involves designing and producing the container or wrapper for a product
safety. The package includes
o A product’s primary container (the tube holding Colgate total toothpaste).
o It may also include a secondary package that is thrown away when the product is about to
be used (the card-board box containing the tube of Colgate).
o Finally, it can include a shipping package necessary to store, identify, and ship the
product.
In recent times, packaging has become a powerful marketing tool. Well-designed packages can
create convenience value for the consumer and promotional value (sales tax) for the producer.
Companies are realizing the power of good packaging to create instant consumer recognition of
the company or brand.
Innovative packaging can give a company an advantage over competitors. In contrast, poorly
designed packages can cause headaches for consumers and lost sales for the company.
Developing effective packaging may cost lots of money and take from a few months to a year.
The importance of packaging cannot be overemphasized, considering the functions it performs in
attracting and satisfying customer. Companies must pay attention, however, to the growing
environmental and safety concerns about packaging.
iv. Labeling: labeling is a subset of packaging. Labels may range from simple tags attached to
products to complex graphics that are part of the package. The label may be
 a simple tag attached to the product or
 An elaborately designed graphic that is part of the package.
The label might carry:
 Only the brand name or
 A great deal of information.
Even if the seller prefers a simple label, the law may require additional information. At the very
least, the label identifies the product or brand such as the name coca cola is stamped on the bottle.
The label might also describe several things about the product such as:
who made it,
where it was made,
when it was made,

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what are its contents,

how it is to be used, and
how to use it safely.
Finally, the label might promote the product through attractive graphics.
v. Product support service: customer service is another element of product strategy. A
company’s offer to the marketplace usually includes some support services, which can be a minor
or a major part of the total offering. The company should survey customers periodically to assess
the value of current services and to obtain ideas for new ones.
Once the company has assessed the value of various support services to customers, it must next
assess the costs of providing these services. It can then develop a package of services to
customers; it must both satisfy customers and yield profits to the company. Many companies are
now using internet and other modern technologies to provide support services that were not
possible before.
6.2 Pricing strategy
One of the most important and complex decisions a firm has to make relates to pricing its product. Price
is the amount of money charged for a product or service, or the sum of the values that consumers
exchange for the benefits of having or using the product or service. Price is the only element in the
marketing mix that produces revenue; all other elements represent costs. Price is also one of the most
flexible elements in the marketing mix. Unlike product features and channel commitments, price can be
changed quickly. At the same time, pricing and price competition is the number one problem facing
many marketing executives.

6. 2.1. Factors affecting pricing strategy

A company’s pricing decisions are affected by both internal company factors and external environmental
factors.

6.2.1.1. Internal factors affecting pricing decisions

Internal factors affecting pricing include the company’s marketing objectives, marketing mix strategy,
costs and organizational consideration.
i. Marketing objectives: common marketing objectives include
À Survival,
À Current profit maximization,
À Market share leadership, and
À Product quality leadership.
Companies set survival as their major objective if they are troubled by too much capacity, heavy
competition, or changing consumer wants. To keep a plant growing, a company may set a
low price, hoping to increase demand. In the long run, however the firm must learn how to
add value that consumers will pay for or face extinction.

Many companies use current profit maximization as their pricing goal. They estimate what
demand and costs will be at different prices and choose the price that will produce the maximum
current profit, cash inflow, or return on investment.
Other companies want to obtain market share leadership. To become the market share leader,
these firms set prices as low as possible. A company might decide that it wants to achieve
product quality leadership. This normally calls for charging a high price to cover higher
performance quality and the high cost of R&D.

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Price - Quality Strategies

Price
Higher Lower

Higher Premium Good-Value

Q u a lity
Strategy Strategy

Overcharging Economy
Lower Strategy Strategy

According to product quality leadership, the organizations have four main quality based pricing strategy.
The first one is premium strategywhen company charges higher price for higher product quality. The
second one is overcharging is a quality based pricing strategy which occurs when organization charges
higher price for low quality products. The third one is good value strategywhich is related with
charging low price for high quality products. And finally the organization may use economy
strategywhich is charging lower price for low quality products.

ii. Marketing mix strategy: price is only one of the marketing mix tools that a company uses to
achieve its marketing objectives. Price decisions must be coordinated with product design,
distribution, and promotion decisions to form a consistent and effective marketing program.
Decisions made for other marketing mix variables may affect pricing decisions.

The decision to position the product on high-performance quality will mean that the seller must charge a
higher price to cover higher costs. Companies often position their product on price and then tailor other
marketing mix decisions to the prices they want to charge. Here, price is a crucial product positioning
factor that defines the product’s market, competition, and design. Thus, marketers must consider the total
marketing mix when setting prices.
If the product is positioned on non-price factors, then decisions about quality, promotion, and
distribution will strongly affect price.
If price is a crucial positioning factor, then price will strongly affect decisions made about the
other marketing mix elements.
iii. Costs:costs set the floor for the price that the company can charge. The company wants to charge a
price that both covers all its costs for producing, distributing and selling the product and delivers a fair
rate of return for its effort and risk. A company’s cost may be an important element in its pricing
strategy. Companies with lower cost can set lower prices that result in greater sales and profit. A
company’s costs take two forms, fixed and variable.
a. Fixed cost (also known as overhead) are costs that do not vary with production or sales
level.
b. Variable costs vary directly with the level of production. Total costs are the sum of the
fixed and variable costs for any given level of production.
Management wants to charge a price that will at least cover the total production costs at a given level of
production. The company must watch its costs carefully. If it costs the company more than
competitors to product and sell its product, the company will have to charge a higher price or make less
profit, putting it at a competitive disadvantage.
iv. Organizational considerations: management must decide who within the organization should set
prices. Companies handle pricing in a variety of ways. In small companies, prices are often set by top
management rather than by the marketing or sales departments. In large companies, pricing is typically

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handled by divisional or product line mangers. Others who have an influence on pricing include sales
managers, production managers, finance managers, and accountants.

6.2.1.2. External factors affecting pricing decisions:

External factors that affect pricing decisions include the nature of the market and demand, competition,
and other environmental external factors.
i. The nature of the market and demand
Whereas costs set the lower limit of prices, the market and demand set the upper limit. Both consumers
and industrial buyers balance the price of a product or service against the benefits of owning it. Thus,
before setting prices, the marketer must understand the relationship between price and demand for its
product. The seller’s pricing freedom varies with different types of markets.
ii. Price elasticity of demand
Marketers also need to know price elasticity—how responsive demand will be to a change in price. Price
elasticity is a measure of consumers’ price sensitivity, which is estimated by dividing relative change in
the quantity sold by the relative changes in price.
 If demand hardly changes with a small change in price, we say the demand is Inelastic.
 If demand changes greatly we say the demand is Elastic.
Buyers are less price sensitive when the product is unique or when it is high in quality, prestige, or
exclusiveness. They are also less price sensitive when substitute products are hard to find or when they
cannot compare the quality of substitutes. If demand is elastic rather than inelastic, sellers will consider
lowering their price. A lower price will product more total revenue. This practice makes sense as long as
the extra costs of producing and selling more do not exceed the extra revenue.
iii. Competitors’ costs, prices, and offers
Another external factor affecting the company’s pricing decision is competitors’ cost, prices and possible
competitors reactions to the company’s own pricing moves. A consumer who is considering the purchase
of specific product will evaluate the product’s price and value against the prices and values of comparable
products made by competitors.
iv. Other external factors
When setting prices, the company also must consider other factors in its external environment.
Economic conditions can have a strong impact on the firm’s pricing strategies. Economic factors
such as boom or recession, inflation, and interest rates affect pricing decisions because they affect both
the costs of producing a product and consumer perceptions of product’s price and value. The company
must also consider what impact its price will have on other parties in its environment. How will
resellersreact to various prices? The company should set prices that give resellers a fair profit, encourage
their support, and help them to sell the product effectively. The government is another important
external influence on pricing decisions. Finally, social concernsmay have to be taken into account.
In setting prices, a company’s short-term sales, market share, and profit goals may have to be tempered
by broader societal considerations.

6.2.2. Pricing strategies

Let’s consider the major dynamic pricing strategies available to marketers. In turn, we look at:
 New product pricing strategies for products in the introductory stage of the product life cycle,
 Product mix pricing strategies for related products in the product mix, and
 Price adjustment strategies that account for customer differences and changing situations.

6.2.2.1. New product pricing strategies

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Pricing strategies usually change as the product passes through its life cycle. The introductory stage is
especially challenging. Companies bringing out a new product face the challenge of setting prices for the
first time. They can choose between two broad strategies: market-skimming pricing and market-
penetration pricing.

i. Market-skimming pricing: many companies that invent new products initially set high
prices to “skim” revenues layer by layer from the market. Sony Company frequently uses this
strategy. Market skimming pricing is setting a high price for a new product to skim maximum
revenues layer by layer from the segments willing to pay the high prices; the company makes
fewer but more profitable sales. Market skimming makes sense only under certain conditions.
a) The product’s quality and image must support its higher price, and enough buyers must
want the product at that price.
b) The costs of producing a smaller volume cannot be so high that they cancel the advantage of
charging more.
c) Competitors should not be able to enter the market easily and undercut the high price.
ii. Market penetration pricing: rather than setting a high initial price to skim off small but
profitable market segments, some companies use market-penetration pricing. Market penetration
pricing is setting a low price for a new product in order to attract a large number of buyers and
a large market share. They set a low initial price in order to penetrate the market quickly and
deeply—to attract a large number of buyers quickly and win a large market share. The high sales
volume results in falling costs, allowing the company to cut its price even further.Several
conditions must be met for this low price strategy to work.
 First, the market must be highly price sensitive so that a low price produces more market
growth.
 Second, production and distribution costs must fall as sales volume increases.
 Finally, the low price must help keep out the competition, and the penetration price must
maintain its low price position- otherwise the price advantage may be only temporary
6.2.2.2. Product mix pricing strategy
The strategy for setting a product’s price often has to be changed when the product is part of a product
mix. In this case, the firm looks for a set of prices that maximizes the profit of the total product mix.

a. Product line pricing: companies usually develop product lines rather than single products.
Product line pricing is setting the price steps between various products in a product line based on
cost differences between the products, customer evaluations of different features, and
competitors’ prices.
b. Optional-product pricing: many companies use optional-product pricing. It is the pricing of
optional or accessory products along with a main product. For example, a car buyer may choose
to order power windows and cruise control.
c. Captive-product pricing: companies that make products that must be used along with a main
product are using captive product pricing. Captive-product pricing is setting a price for products
that must be used along with a main product, such as blades for a razor and film for a camera.
d. By-product pricing: by-product pricing is a way of setting a price for by-products in order to
make main product’s price more competitive. In producing processed meats, petroleum products,
chemicals, and other products, there are often by-products. If the by-products have no value and
if getting rid of them is costly, this will affect the pricing of the main product. Using by-product
pricing, the manufacturer will seek a market for these by-products and should accept any price
that covers more than the cost of storing and delivering them.

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e. Product bundle pricing: using product bundle pricing, sellers often combine several of their
products and offer the bundle at a reduced price. Thus, hotels sell specially priced packages that
include room, meals, and entertainment; computer makers include attractive software packages
with their personal computers. Price bundling can promote the sales of products consumers
might not otherwise buy, but the combined price must be low enough to get them to buy the
bundle.

6.2.2.3. Price Adjustment Strategies

Companies usually adjust their basic prices to account for various customer differences and changing
situations. Here we examine the six price adjustment strategies such as discount and
allowancepricing, segmented pricing, psychological pricing, promotional pricing, geographical
pricing and international pricing.
A. Discount and allowance pricing
Most companies adjust their basic price to reward customers for certain responses, such as early payment
of bills, volume purchases, and off-season buying. These price adjustments—called discounts and
allowances – can take many forms. The many forms of discounts include:
A cash discount: - a price reduction to buyers who pay their bills promptly. A typical example is “2/10,
net30” which mean that although payment is due within 30 days, the buyer can deduct 2 percent if the bill
is paid within 10 days.
A quantity discount: - is a price reduction to buyers who buy large volumes. A typical example might
be “$10 per unit for less than 100 units; $9 per unit for 100 or more units.” A functional discount (trade
discount): - is offered by the seller to trade-channel member who perform certain functions, such as
selling, storing, and record keeping. Manufacturers may offer different functional discount to different
trade channels because of the varying services they perform, but manufacturers must offer the same
functional discounts within each trade channel.
A seasonal discount: - is a price reduction to buyers who buy merchandise or services out of season.
For example, hotels and airlines will offer seasonal discounts in their slower selling periods. Seasonal
discount allow the seller to keep production steady during an entire year.
Allowances are another type of reduction from the list price. For example:
Trade-in allowances: -are price reductions given for turning in an old item when buying a new one.
Trade in allowances are most common in the automobile industry but are also given for other durable
goods.
Promotional allowances: - are payments or price reductions to reward dealers for participating in
advertising and sales support programs.
B. Segmented pricing
Companies will often adjust their basic prices to allow for differences in customers, products, and
locations. Segmented pricing is selling a product or service at two or more prices, where the difference in
prices is not based on differences in costs. Segmented pricing takes several forms.
À Customer-segment pricing: - different customers pay different prices for the same product or
service. Museums, for example, will charge a lower admission for students and senior citizens.
À Product-form (version) pricing: - different versions of the product are priced differently but
not according to differences in their cost.
À Location pricing: - a company charges different prices for different locations, even though the
cost of offering each location is the same. For example, theaters vary their seat prices because of
audience preferences for certain locations, and state universities charge higher tuition for out-of-
state students.
À Time pricing: - a firm varies its price by the season, the month, the day and even the hour.
Public utilities vary their prices to commercial users by time of day and weekend versus week
days.

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C. Psychological pricing
Price says something about the product. For example, many consumers use price to judge quality.
Psychological pricing is a pricing approach that considers the psychology of prices and not simply the
economics; the price is used to say something about the product. When buyers can judge the quality
of a product by examining it or by calling on past experience with it, they use price less to judge quality.
But when they can’t judge quality because they lack the information or skill, price becomes an important
quality signal.
D. Promotional pricing
With promotional pricing, companies will temporarily price their products below list price and
sometimes even below cost to create buying excitement and urgency . Promotional pricing takes
several forms.
Supermarkets and department stores will price a few products as loss leaders to attract customers
to the store in the hope that they will buy other items at normal markups.
Sellers will also use special-event pricing in certain seasons to draw more customers.
E. Geographical pricing
A company also must decide how to price its products for customers located in different parts of the
country or world. There are five geographical pricing strategies:
1. FOB-origin pricing: a geographical pricing strategy in which goods are placed free on board a
carrier; the customer pays the freight from the factory board to the destination.
2. Uniform-delivered pricing: a geographical pricing strategy in which the company charges the
same price plus freight to all customers, regardless of their location.
3. Zone pricing: a geographical pricing strategy in which the company sets up two or more zones.
All customers within a zone pay the same total price; the more distant the zone, the higher the
price.
4. Basing point pricing: a geographical pricing strategy in which the seller designates some city
as a basing point and charges all customers the freight cost from that city to the customer.
5. Freight-absorption pricing: a geographical pricing strategy in which the seller absorbs all or
part of the freight charges in order to get the desired business.
F. International pricing
Companies that market their products internationally must decide what prices to charge in the different
countries in which they operate. In some cases, a company can set a uniform worldwide price. For
example, Boeing sells its jetliners at about the same price everywhere, whether in the United States,
Europe, or a third-world country. However, most companies adjust their prices to reflect local market
conditions and cost considerations.
The price that a company should charge in a specific country depends on many factors including
economic conditions, competitive situations, laws and regulations, and development of the
wholesaling and retailing system. Consumer perceptions and preferences also may vary from the
wholesaling and retailing system and also may vary from country to country, calling for different prices.
Or the company may have different marketing objectives in various world markets, which require
changes in pricing strategy.
 For example, Panasonic might introduce a new product into mature markets in highly developed
countries with the goal of quickly gaining mass-market share—this would call for a penetration
pricing strategy. In contrast, it might enter a less developed market by targeting smaller, less
price-sensitive segments; in this case, market skimming pricing makes sense.

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6.3. Distribution Decisions

Our discussions in the product decision part indicated that product decisions may be the most important
of all marketing decisions since these lead directly to the reasons (i.e., offer benefits that satisfy needs)
why customers decide to make a purchase.  But having a strong product does little good if customers are
not able to easily and conveniently obtain it.  Distribution (also known as place) provides different types of
utility. 
Time utility:is offering the product when the customers want to purchase it. 
Place utility: is offering the product where customers want to purchase it. 
Possession utility: facilitates customer ownership of the product.  With this in mind, we turn to the other major
marketing decision area – distribution.

In the business buying behavior, we describe a supply chain as consisting of all parties and their supplied
activities that help marketer create and deliver products to the final customer.  For marketers, the distribution
decision is primarily concerned with the supply chain’s front-end or channels of distribution that are designed to
move the product (goods or services) from the hands of the company to the hands of the customer.  All activities
and organizations helping with the exchange are part of the marketer’s channels of distribution. A distribution
channel (also known as a marketing channel) is a set of interdependent organizations or
intermediaries involved in the process of making a product available for consumption.Activities
involved in the channel are wide and varied though the basic activities revolve around these general tasks:
 Ordering,
 Handling and shipping,
 Storage,
 Display,
 Promotion,
 Selling and
 Information feedback.

Distribution decisions focus on establishing a system that, at its basic level, allows customers to gain access and
purchase the marketer’s product.  However, marketers may find that getting to the point at which a customer can
acquire a product is complicated, time consuming, and expensive.  The bottom line of a marketer’s distribution
system must be both:
Effective (i.e., delivers a good or service to the right place, in the right amount, in the right condition)
and
Efficient (i.e., delivers at the right time and for the right cost).  Yet, as we will see, achieving these goals
takes considerable effort. 
Distribution involves channel of distribution and physical distribution. Channel of distribution consists of
independent organizations that participate in the movement of goods and services where as physical distribution
refers to the set of activities performed in the movement of goods and services.

6.3.1. Distribution strategies

MASS COVERAGE/INTENSIVE DISTRIBUTION - the mass coverage (also known as intensive distribution) strategy
attempts to distribute products widely in nearly all locations in which that type of product is sold.  This level of
distribution is only feasible for relatively low priced products that appeal to very large target markets. Example:
consumer convenience products such as soap, match box, soft drinks etc.Because the most important

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consideration that customers care about is to get the product available in areas where they are in need of on
timely basis with compatible size.  That is why we find these products almost in any “suke” or shop around our
locality. So, companies pursuing this strategy will make their products available in the hands of every possible
intermediary.
 A product such as Coca-Cola and Pepsi cola are a classic example since they are available in a wide
variety of locations including grocery stores, convenience stores, vending machines, hotels and many,
many more even including small kiosks and sukes around our locality. 
SELECTIVE COVERAGE- under selective coverage the marketer deliberately seeks to limit the locations in
which this type of product is sold.  To the non-marketer it may seem strange for a marketer to not want to
distribute their product in every possible location.  However, the logic of this strategy is tied to the size and
nature of the product’s target market.  Products with selective coverage appeal to smaller, more focused target
markets (e.g., consumer shopping products) compared to the size of target markets for mass marketed products. 
Consequently, companies pursuing this approach may not limit the right to distribute their products to only one
or specific intermediary and as well may not allow all possible and potential intermediaries to distribute their
products but limit the right to distribute their products for intermediaries more than one but fewer than all. A
good example might be the way that Ethio telecom is pursuing in distributing simcards in Ethiopia. As we all
know, it uses only some licensed distributors including post office in distributing mobile simcards.
EXCLUSIVE COVERAGE- by contrast, some producers purposefully may limit the number of their
intermediary in a given region to one intermediary in which the intermediary will have the exclusive right to
distribute the company’s products in the specified region. It is normal for us to hear business dealers especially
importers in Ethiopia claiming that they are the only importers and distributors in Ethiopia. For e.g. Ethelco is
the only distributor of Phillips products where assecor Ethiopia stands as the only viable distributor of aftron TVs
and of course glorious for Sony products in Ethiopia.

6.3.2. Direct Distribution System

With a direct distribution system the marketer reaches the intended final user of their product by distributing the
product directly to the customer.  That is, there are no other parties involved in the distribution process that take
ownership of the product.  The direct system can be further divided by the method of communication that takes
place when a sale occurs.  These methods are:
Direct marketing systems – with this system the customer places the order either through information gained
from non-personal contact with the marketer, such as through personal communication with a customer
representative who is not a salesperson, such as through toll-free telephone ordering.
Direct retail systems – this type of system exists when a product marketer also operates their own retail
outlets. For instance, tabor ceramic factory which found around the suburbs of Hawassa has its own distribution
center for end users in Hawassa city.
Personal selling systems – the key to this direct distribution system is that a person whose main
responsibility involves creating and managing sales (e.g., salesperson) is involved in the
distribution process, generally by persuading the buyer to place an order.  While the order
itself may not be handled by the salesperson (e.g., buyer physically places the order online or by phone) the
salesperson plays a role in generating the sales. For instance, St. George beer factory uses this scheme in hawassa
as it has its own sales forces that are responsible for distributing the factory’s products to different customers
such as hotels, groceries and others in the city.
Assisted marketing systems – under the assisted marketing system the marketer relies on others to help
communicate the marketer’s products but handles distribution directly to the customer. 

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6.3.3. Indirect Distribution System

With an indirect distribution system, the marketer reaches the intended final user with the help of others.   These
resellers generally take ownership of the product, though in some cases they may sell products on a consignment
basis (i.e., only pay the supplying company if the product is sold).  Under this system intermediaries may be
expected to assume many responsibilities to help sell the product.  This may take different forms.
Producer to wholesaler to business : this channel provides the widest variety of marketing functions and
services. A wholesaler or distributor is a commercial establishment that purchases one or more manufacturer’s
product from stock and resells to various business users who are engaged primarily in producing other kinds of
products or to other resellers. It is a full-service institution in buying, selling, storage, transportation,
standardization, financing, risk bearing, and market information and research. Generally this wholesaler handles
fewer lines than consumer products wholesalers and provides greater product and market specialization.
Producer to manufacturer’s agent to business channelis another common business channel.  A
manufacturer’s agent is an individual or firm acting as an intermediary between the manufacturer and the
business product user, usually in a specified territory.  The agent generally handles two or more related though
non-competing lines.  He or she travels freelance, though the manufacturer establishes prices and selling terms
governing sales.  Compensation is generally on a commission or fee basis.  The agent does not take title to or
stock products sold.  The agent’s primary function is selling only.  He or she has thorough knowledge of the
territory, potential users, and products.  The agent is capable of making technical product presentations and
offering engineering assistance.  He or she provides marketing and competitive information feedback and assists
with merchandising problems.  Generally the manufacturer incurs no sales expense unless the sale is made.
Producer to broker to business channel is most often involved in odd-lot sales, surplus, and by-products. 
A broker or commission agent is an individual or firm that brings buyers and sellers together and negotiates
contracts of sale and purchase on a fee or commission basis.  The broker does not take title to, stock, or handle
products involved in the transaction.  He or she may have physical control but not ownership of products.  A
broker brings the buyer and seller together, usually on an intermittent basis.  He or she has technical knowledge
of manufacturer’s product and of marketing conditions, as well as market needs and trends.  Utilization of this
channel is generally limited in the business field.
Producer to retailer to consumer channel is used for many consumer-shopping products.  For example,
automobiles can be sold through this channel.
Producer to wholesaler to retailer to consumer channel is used for many consumer-convenience
products.
6.3.4. Managing Product Movement
In addition to enlisting the assistance of retailers and wholesalers to make products available to customers,
marketers also face additional concerns when trying to meet their distribution objectives.  In this section we
examine the tasks that must be carried out in order to physically move products to customers.  In some cases
the marketer will take on the responsibility of carrying out some functions, while other tasks may be assigned to
distribution service providers. Whether handled by the marketer or contracted to others, these functions are
crucial to having a cost-effective and efficient distribution system.

Logistics is coordinating the flow of goods, services, and information among members of the supply chain.
A major focus of logistics is physical distribution or marketing logistics, the tasks involved in planning,
implementing, and controlling the physical flow of materials, final goods, and related information from points of
origin to points of consumption to meet customer requirements at a profit. Ideally, value is added to goods along
each step of the supply chain through activities like superior product design, quality manufacturing, customer

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service, and efficient delivery.  If managed effectively, physical distribution can increase customer
satisfaction by ensuring reliable, cost-efficient movement of goods through the supply chain.

Having products available when customers want to make purchases may seem like a relatively straightforward
process.  All a seller needs to do is make sure there is product (i.e., inventory) in their possession and ready for
the customer to purchase.  Unfortunately, being prepared for customer purchasing is not always easy.  Having
the right product available when the customer is ready to buy requires a highly coordinated effort involving order
entry and processing systems, forecasting techniques, customer knowledge, strong channel relationships and
efficiency at physically handling product

Order entry and processing system: - this refers to the method chosen by the organization to
receive orders from the customer. The marketer must have a system allowing customers to easily place orders. 
This system can be as simple as a consumer walking to the counter of small food stand to purchase a few
vegetables or as complicated as automated computer systems where an electronic order is triggered from a
retailer to a manufacturer each time a consumer purchases a product at the retailer’s store.  In either case, the
order processing system must be able to meet the purchasing needs of the customer.  In some cases, an
efficient ordering system can be turned into a competitive advantage. 

Forecasting:-inventory management is often an exercise in predicting how customers will respond in the
future.  By predicting purchase behavior the marketer can respond by making sure the right amount of product is
available.  For most large-scale resellers effective inventory forecasting requires the use of sophisticated
statistical tools that look at many variables, such as:
 Past purchase history,
 Amount of promotional effort that triggers an increase in customer ordering, and
 Other market criteria to determine how much of the product will be needed to meet customer demand.

Customer knowledge:inventory management can be fine-tuned to respond to customer’s needs.  As a

marketer learns more about a customer they begin to observe trends in how and when purchases are made. 
Combining customer knowledge with forecasting techniques allows the marketer to better estimate product
demand and inventory requirements. 

Channel relationships:while the marketer who uses channel members to sell consumer products has
access to information for their immediate customers (e.g., resellers) they often do not have access to sales and
customer behavior information controlled by the party selling to the final consumer (e.g., retailer).  Knowing the
demand patterns at the final consumer level can give marketers good insight into how the reseller may order. 
Developing strong relationships with the holder of consumer information can result in the reseller sharing
this information with the marketer. 

Physical product handling:an often overlooked area of inventory management involves the actions
and skills needed to prepare a product to move from one point to another.  Some products require special
attention be given to ensure the product is not damaged during shipment.  Such efforts must be carefully
balanced against increased costs that arise (e.g., stronger packaging) in order to provide greater protection to
products.  Because of this, many marketers will accept the fact that some small level of damage to occur during
the distribution process.

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Product storage: the other important element in physical distribution concerns storing products for future
delivery.  Marketers of tangible products may have storage concerns.  Storage facilities, such as warehouses,
play an important role in the distribution process for a number of reasons including:
Hold wide assortment - as noted above, many resellers allow their customers to purchase small quantities of
many different products.  Yet to obtain the best prices from suppliers, resellers must purchase in large quantities. 
The need, thus, exists for storage facilities that not only hold a large volume of product, but also can hold a wide-
variety of resellers’ inventory.  Additionally, these facilities must be organized in a way that permits resellers to
easily fill orders for their customers.
Meet unanticipated demand - holding products in storage offers a safeguard in cases of unexpected increases in
demand for products.

Needed for large shipping quantities- as we noted in our discussion of transportation,

manufacturers generally prefer to ship in large product quantities in order to more effectively spread
transportation costs.  This often means manufacturers must create storage areas in which the manufactured goods
can build up in the quantities needed for such shipments to occur.
Offer faster response - additional storage facilities, strategically located in different geographical areas, allows a
marketing organization to respond quickly to customers’ needs.  The ability to respond with quick delivery can
be a major value-added feature since it reduces the buyer’s need to maintain large inventory at their own
locations.
Transportation Features and Modes
A key objective of product distribution is to get products into customers’ hands in a timely manner.  This
requires a more careful analysis of delivery options in order to provide an optimal level of customer service.  In
terms of delivering products to customers, there are six distinct modes of transportation: air, digital, pipeline, rail,
truck, and water.  However, not all modes are an option for all marketers.  Each mode offers advantages and
disadvantages on key transportation features that include:
Product options- this feature is concerned with the number of different products that can realistically be
shipped using a certain mode.  Some modes, such as pipeline, are very limited in the type of products that can be
shipped while others, such as truck, can handle a wide-range of products.
Speed of delivery - this refers to how quickly it takes products to move from the shipper’s location to the buyer’s
location.
Accessibility – this transportation feature refers to whether the use of a mode can allow final delivery to
occur at the buyer’s desired location or whether the mode requires delivery to be off-loaded onto other modes
before arriving at the buyer’s destination.  For example, most deliveries made via air must be loaded onto other
transportation modes, often trucks, before they can be delivered to the final customer.
Cost – the cost of shipment is evaluated in terms of the cost per item to cover some distance.   Often for large
shipments of tangible products cost is measured in terms of tons-per-mile or metric-tons-per-kilometer.
Capacity – refers to the amount of product that can be shipped at one time within one transportation unit. 
The higher the capacity the more likely transportation cost can be spread over more individual products leading
to lower transportation cost per-item shipped.

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6.4. Promotion strategies

Modern marketing calls for more than just developing a good product, pricing it attractively, and making
it available to target customers. Companies must also communicate with their customers, and what they
communicate should not be left to chance.
To communicate well, companies often hire:
Advertising agencies to develop effective ads,
Sales promotion specialists to design sales-incentive program,
Direct-marketing specialists to develop databases and interact with customers and prospects by
mail and telephone, and
Public relations firms to develop corporate images.
They train their salespeople to be friendly, helpful and persuasive. For most companies, the question is
not whether to communicate, but how muchto spend and in what ways.

A modern company manages a complex marketing communications system.

 The company communicates with its intermediaries, consumers and various publics.
 Its intermediaries communicate with their consumers and publics.
 Consumers have word-of-mouth communication with each other and with other publics.
o Meanwhile, each group provides feedback to every other group.

A company's total marketing communications mix - called its promotion mix consists of the specific
blend of advertising, personal selling, sales promotion and public relations tools that the company uses to
pursue its advertising and marketing objectives. Let us define the four main promotion tools:
Advertising: any paid form of non-personal presentation and promotion of ideas, goods or services by
an identified sponsor.
Personal selling: oral presentation in a conversation with one or more prospective purchasers for the
purpose of making sales and building customer relationships.
Sales promotion: short-term incentives to encourage the purchase or sale of a product or service.
Public relations: building good relations with the company's various publics by obtaining favorable
publicity, building up a good 'corporate image, and handling or heading off unfavorable rumors, stories
and events in recent years, direct communications with carefully targeted individual consumers to obtain
an immediate response are gaining importance as a communication tool. Unlike a salesperson confronting
a customer face to face, arguably the most direct sort of marketing, and the new direct approaches,
typically
Promotion
Promotion consists blend of Advertising, Personal selling, Sales promotion, Public relation
and Direct marketing that the company uses to pursue its objectives.
Steps in developing effective communication:
1. Identifying target audience
2. Determining the communication objectives
3. Designing message
4. Choosing media
5. Selecting the message source
6. Setting the promotion budget and executing the program
7. Collecting feedback

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Objectives of promotion
 Informing
 Persuasion
 Reminding
Elements of the promotion mix
1. Advertising
2. Sales promotion
3. Personal selling
4. Public relation
5. Direct marketing

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