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Marketing is the performance of business activities that direct the flow of goods and services from producer to users or consumers Explain this statement in the light of importance of marketing. Marks 2. What are the factors that should always be considered while making pricing decision Explain 5 Marks 3. Channels of distribution used are different for different products Discuss. What are the criterias that can be used for the evaluation of channel members? Illustrate your answer with appropriate examples. Marks 4. In our country, when managers were asked about the meaning of Marketing, 5 the policies and strategies for the same. 5

the majority of them said that the marketing is selling, advertising and public relations. In USA, when college administrators were asked this question 90 percent of them gave a similar replay. Although selling, advertising and public relations form the part of the marketing, it is important to understand that marketing is much more than selling or advertising.

According to American Marketing Association " marketing is the performance of business activities that direct the flow of goods and services from producer to consumer or user".

From this definition we can understand that marketing not only deals with selling but also include other activities that direct the flow of goods and services from producer to consumer.

Modern concept of marketing include a variety of activities. Suppose, if you want to start a business, you should have a product or service to offer. How

do you identify that product or service? You need to go to the market and find out the product or services which will satisfy the need or desire of human being. Once you identified the need or desire of a group of human being, you can decide the product or service which can satisfy that need or desire. All these activities starting from identifying the product to getting the feedback from the consumer comes under the scope of modern marketing.
5. Philip Kotler, a well known marketing author defines marketing as " a

human activity directed at satisfying needs and want through exchange process."The definition given by Kotler explains in detail the different aspects of marketing. All the marketing activities are based on the existence of human needs. Even though people may have endless needs and requirements, the ability to buy the products depend on his economic background. There are a variety of products available in the market. People select those goods which are more satisfying and needed more according to their purchasing power. The purchasing power very according to the class, area and economic background. This need and want converted in to demand for the products. To identify the demand of goods among different class of people according to their economic background comes under the scope of marketing. We can develop a process-oriented definition of Marketing from the above discussion as "the process of ascertaining consumer needs, converting them into products or services and moving the product or service to the final consumer or user to satisfy certain needs and wants of specific consumer segment or segments with emphasis on profitability, ensuring the optimum use of resources available to the organization."

6. Gone are the days of business functions like production, marketing, finance etc., were performed by different departments with their own style and way of thinking. Now the condition is changed that the production department will produce only that goods which is demanded by the customers. Earlier it was like produce goods first and then sell. Now it is like find out the demand and then produce. Finance, marketing and production department now work as a team to sustain in the market. In this scenario, marketing plays a vital role in the business function.

Marketing as a subject of study is now attracting attention from business firms, companies, institutions and even from countries. In history, its origin dates back to the days when the people realized that he should specialize only in the activity to which he was best suited and he found it to be his advantage to utilize the services of others when they could do things better than him. This specialization created the necessity of exchange and thus the foundation of business was started. After Industrial Revolution, there were changes in the techniques, methods and volume of production. Large scale production introduced the new methods of marketing to create demand for products and services. Marketing includes various activities which are involved in the generation of markets and the satisfaction of consumer needs. Marketing is not a single activity nor is it the sum of several activities. It is the result of a balanced interaction of several activities. In this unit we will explain the basic concept of marketing, its nature, scope, importance and the evolution of marketing concepts.


The term Market refers to a place where goods are bought and sold by the buyers and sellers. In wider sense, market includes the whole of any region in which buyers and sellers are brought into contact with one another and by means of which the price of goods tend to be equalized easily and quickly. Basically, goods there e.g. are physical two concepts or spot of market market.

(a) Place Concept: A convenient meeting place of buyers and sellers for exchange of (b) Demand Concept: A market is equated with the total demand. Market means buyers having unmet wants and purchasing power to make their demand effective with the will to spend their income to fulfill those wants. This is a right approach to determine a target market. Demand concept of market assumes unique importance in the marketing concept.


The traditional view of marketing states that marketing is mainly concerned with the physical and ownership transfer of goods and services from the producer to the ultimate consumers. But the modern concept of marketing states that marketing involves the production of the product acceptable to the customers and the activity which helps physical transfer and ownership from the producer to the ultimate consumers. The modern view assumes that marketing means identifying, anticipating and satisfying consumers needs and desires. Thus, marketing creates place utility, time utility and possession utility. Marketing is a human activity directed at satisfying needs and wants through exchange processes.

A need is a state of felt deprivation. Marketers create wants on the basis of needs. For example, food is an essential to satisfy the hunger needs. Marketers produce various types of food such as Pulao, Sweets, Tea, and Coffee etc. to create wants. Creating wants means creating demand for a product by providing an opportunity for choice or selection. Here, the buyers have an opportunity to select out of the four alternatives Pulao, Sweets, Tea or Coffee to satisfy their hunger needs. The exchange process means the transfer or transaction of goods which cannot be made free of cost i.e. it should be on payment basis. The process of marketing starts with the identification of needs and wants through market survey and converting them into products or services and distributing the same to ultimate consumers through buyer oriented channel with suitable sales promotion technique at logical price to make a reasonable profit.

Definition of Marketing

The term marketing has been defined by a number of scholars in a variety of ways. In fact, there are as many definitions as there are popular scholars in marketing. The reason is obvious. The subject is even changing and at every stage of evolution new potentialities are recognized which result in a new definition. We shall describe a few definitions here to realize how dynamic the subject marketing is 1. Marketing is the performance of business activities that direct the flow of goods and services of from the producer to consumer Marketing or user. Committee American Association.

This definition merely emphasizes one particular aspect i.e. movement of goods and services from producer to consumer. It makes marketing production oriented rather than and American Marketing Association Place utility is created by marketing the goods and services available to the consumer needed. Possession utility is created by transferring the goods to those who need them. This definition expresses the traditional views of marketing and it covers only few aspects of marketing. 3. Marketing is a total system of interacting business activities designed to plan, promote and distribute want satisfying products and services to present and potential consumers W. almost all the J. modern views such Stanton as The above definition given by Stanton appears to be more suitable as it covers at the place where such goods are needed. Time utility is created by making the goods available at the time when they are consumer possession oriented. utilities 2. Marketing is that part of economics which deals with the creation of time, place

(a) (b)

It It

views describes

marketing marketing

as as

total dynamic

concept. process.

(c) It covers all the activities ranging from product planning to distribution. (d) It indicates that marketing is the result of interaction of several activities. (e) It pays importance for satisfying consumers needs and wants. 4. Marketing is the process of discovering and translating consumer wants into product and service specifications and then in turn helping to make it possible for more and more consumers to enjoy more and more of these products and services. Harry L. Harsen 5. Marketing is the business function that identifies customers needs and wants, determines which target markets the organisation can serve best, and designs appropriate products, services, and programmes to serve these markets (Kotler and Armstrong, 1996). This definition has also covered all the activities of marketing starting from identification of needs and wants of consumers, converting than into product and service and making things available to consumers in a manner that they can enjoy more and more.


The success or failure of any organization, profit making or otherwise depends on marketing. As the economy progresses, the importance of marketing also increases.

With the progress of economy, the demand and supply of certain new products and services start increasing and some of the existing products or services start losing their demands. In this ever changing situation marketers are forced to sell the product according to the needs, wants and desires of the customers. The importance of marketing may be studied from both from the point of view of society and producer. Importance of marketing from society point of view:

(I) Marketing improves standard of living: Marketing promotes large scale production and sales which bring down the cost of production and increase the amount of profit. Lower price results in large consumption by large number of consumers which improves the standard of living at large.

(II) Marketing connects the producers and consumers: The producers produce goods and services for the purpose of selling. Therefore, the producers should be in touch with the consumers who require such goods and services. In the absence of marketing process, it would have been extremely difficult for producer to find out what customer want. (III) It provides employment opportunities: Marketing results in large scale production which in turn creates a good number employment in the production process. Thousands of people are employed to manage the retail and wholesale establishments. In our country, the business establishment ranks second to agriculture sector in providing employment opportunities.

(IV) It helps to provide economic stability: Good marketing system enables to maintain the price level stable by equalizing the demand and supply at various places and different period. This is possible by creating time and place utility. (V) It helps to utilize our natural resources: It is marketing which collects needs,

wants desires, preferences etc. of domestic consumers and international consumers and analyze the information to produce goods and services for better satisfaction of consumers. In the process of producing various goods, they are utilizing the national resources up to optimum level. Importance of marketing from producers/firms point of view:

(a) Marketing creates awareness among potential consumers and motivates people to purchase the products and services to satisfy their needs and wants. In this process, the firms generate revenue by selling the goods and services with which the firms further produce and grow.

(b) The marketing organization provides a channel of communication between the firm and the consumers. It is furnishing information about the consumers demands, tastes and preferences to the top managements. This process helps the firm to adjust its production schedule to suit the tastes of the consumers.

(c) It helps the producers to increase the volume of sales which forces large scale production and results more profit. From the above explanation you will be able to realize the importance of marketing in the economic development of a country.


The core concept of marketing is to understand or feel the human needs that denotes the state of felt deprivation. Therefore being the marketers you need not go for inventing these needs. Rather you should try to understand it. The needs are inbuilt in human nature itself and thus naturally existed in the composition of human biology and human condition. When the needs are not satisfied, a person will try to either reduce the need or look for a substitute object that has the ability to satisfy the need. The need for food, clothing, shelter and safety are the basic physical needs and the needs of belongingness and affection are the social needs. The individual needs include the need for knowledge and self expression. WANTS

Human wants are desires for specific satisfaction of deeper needs that means the needs become wants when they are directed to specific object that might satisfy the need. For example, a teenage may need water to quench his thirst but want to have a cold drink. Human needs may be few, but their wants are numerous. These wants are continually shaped and re-shaped by social forces and institutions such as families, collogues, office neighbours etc. Marketers need not to create needs because these needs pre-exist in the market. But they can influence the wants and suggest and inform the consumers about certain products and persuade them to purchase these by stressing the benefits of such products. DEMANDS

People may have almost unlimited wants. But resources are limited in compare to the wants they have. Therefore they have to choose the products that are likely to provide the most value and satisfaction for their money. When backed by purchasing power, wants become demand. Thus, demands are basically wants for specific

products that are linked /associated with the ability and willingness to pay for these products. For example, many desire a car such as Mercedes Benz, Toyota, BMW, Honda etc. but only a few are really willing and able to buy one. Therefore being a marketing executive you must measure how many people would actually be willing and able to buy your companys products than how many of them want the products. PRODUCTS

To satisfy the wants and needs of people the company must offer their products in the market. That means people purchase the products to satisfy their needs and wants. Specifically, a product can be defined as an object, service, activity, person, place, organisation or idea. You can note here that the tangible items are known as product while the intangible items are known as service. The hidden use of a physical objects may be to provide the service. For example a lipstick is bought to supply service (beautify); toothpaste for whiter teeth prevent germs or give fresh breath etc. Therefore it is the job of marketer to sell the service packages associated with the physical products. If you give a thought, you will realise that the importance of a product does not lay not so much in owning them than to use them to satisfy our wants. For example, we do not buy a bed just to admire it, but because it aids resting better. EXCHANGE

We have already got that marketing takes place only when people decide to satisfy needs and wants through exchange. So in the process of marketing there is exchange value between the two partys i.e buyer and seller. The value for buyer is to obtain the desired object to satisfy its needs and wants while the value for the seller is generally the profit or the money. For example, hungry people can find food by hunting, fishing or gathering fruits. They could offer money, another food or a service in return for food. Marketing focuses on this last option. Kotler (1984) states that for exchange to take place, it must satisfy five conditions, namely:

(i) (iii) (iv)

There Each Each party party

are is is capable free

at of to

least communication accept or

two and the

parties. delivery. offer.

(ii) Each party has something that might be of value to the other party. reject

(v) Each party believes it is appropriate or desirable to deal with the other party.

Introduction In today's world of marketing, everywhere you go you are being marketed to in one form or another. Marketing is with you each second of your walking life. From morning to night you are exposed to thousands of marketing messages everyday. Marketing is something that affects you even though you may not necessarily be conscious of it. After reading this you'll understand - what exactly the marketing is, different definitions of marketing, and what are the different approaches of marketing. Definition and Meaning of Marketing

According to American Marketing Association (1948) - "Marketing is the

performance of business activities directed toward, and incident to, the flow of goods and services from producer to consumer or user."

AMA (1960) - "Marketing is the performance of business activities that direct the flow of goods and services from producer to consumer or user."

The above definitions are based on the economic approach of marketing. Marketing embraces all the business activities involved in getting goods and services , from the hands of producers into the hands of final consumers. The business steps through which goods progress on their way to final consumers is the concern of marketing. Consumer's Approach of Marketing

According to Star et al. (1977) - "Marketing is that process through which a business enterprise, institution, or organisation 1. selects target customers or constituents, 2. assesses the needs or wants of such target customers, and 3. manages its resources to satisfy those customer needs or wants." The above definition is based on the consumer's approach of marketing. According to this approach marketing consists of four general activities:1. Identifying and selecting the type of customer, understanding their needs and desires; 2. 3. 4. site. Societal society." Approach of Marketing Designing product or services that suits the customers' desires; Persuading customers to buy at the firm's offerings; and Storing, moving, and displaying goods after they leave the production

According to Mazur (1947) - "Marketing is the delivery of a standard of living to

This definition is based on the societal approach of marketing. According to Cunningham and Cunningham (1981) societal marketing performs three essential functions:1. 2. Knowing and understanding the consumer's changing needs and wants; Efficiently and effectively managing the supply and demand of products

and services; and 3. Efficient provision of distribution and payment processing systems.

Managerial or Systems Approach According to Eldridge (1970) - "Marketing is the combination of activities designed to produce profit through ascertaining, creating, stimulating, and satisfying the needs and/or wants of a selected segment of the market." The above definition is based on the managerial or systems approach of marketing. According to this approach the emphasis is on how the individual organisation processes marketing and develops the strategic dimensions of marketing activities. A Broader Approach of Marketing According to Kotler (2000) - "A societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others." According to AMA (2004) - "Marketing is an organisational function and set of processes for creating, communicating and delivering value to customers and for managing relationships in a way that benefits both the organisation and the stakeholder.

Importance of Marketing Marketing is a very important aspect in business since it contributes greatly to the success of the organization. Production and distribution depend largely on marketing. Many people think that sales and marketing are basically the same. These two concepts are different in many aspects. Marketing covers advertising, promotions, public relations, and sales. It is the process of introducing and promoting the product or service into the market and encourages sales from the buying public. Sales refer to the act of buying or the actual transaction of customers purchasing the product or service. Since the goal of marketing is to make the product or service widely known and recognized to the market, marketers must be creative in their marketing activities. In this competitive nature of many businesses, getting the product noticed is not that easy. Strategically, the business must be centered on the customers more than the products. Although good and quality products are also essential, the buying public still has their personal preferences. If you target more of their needs, they will come back again and again and even bring along recruits. If you push more on the product and disregard their wants and the benefits they can get, you will lose your customers in no time. The sad thing is that getting them back is the hardest part. MarketingPromotesProductAwarenessto the Public It has already been mentioned in the previous paragraph that getting the product or service recognized by the market is the primary goal of marketing. No business possibly ever thought of just letting the people find out about the business themselves, unless you have already established a reputation in the

industry. But if you are a start-out company, the only means to be made known is to advertise and promote. Your business may be spending on the advertising and promotional programs but the important thing is that product and company information is disseminated to the buying public. Various types of marketing approaches can be utilized by an organization. All forms of marketing promote product awareness to the market at large. Offline and online marketing make it possible for the people to be educated with the various products and services that they can take advantage of. A company must invest in marketing so as not to miss the opportunity of being discovered. If expense is to be considered, there are cost-effective marketing techniques a company can embark on such as pay-per-click ads and blogging. MarketingHelpsBoostProductSales Apart from public awareness about a companys products and services, marketing helps boost sales and revenue growth. Whatever your business is selling, it will generate sales once the public learns about your product through TV advertisements, radio commercials, newspaper ads, online ads, and other forms of marketing. The more people hear and see more of your advertisements, the more they will be interested to buy. If your company aims to increase the sales percentage and double the production, the marketing department must be able to come up with effective and strategic marketing plans. MarketingBuildsCompanyReputation In order to conquer the general market, marketers aim to create a brand name recognition or product recall. This is a technique for the consumers to easily

associate the brand name with the images, logo, or caption that they hear and see in the advertisements. For example, McDonalds is known for its arch design which attracts people and identifies the image as McDonalds. For some companies, building a reputation to the public may take time but there are those who easily attract the people. With an established name in the industry, a business continues to grow and expand because more and more customers will purchase the products or take advantage of the services from a reputable company. Ads Marketing plays a very essential role in the success of a company. It educates people on the latest market trends, helps boost a companys sales and profit, and develops company reputation. But marketers must be creative and wise enough to promote their products with the proper marketing tactics. Although marketing is important, if it is not conducted and researched well, the company might just be wasting on expenses and time on a failed marketing approach. Understanding the importance of marketing is crucial to the success of a business. Marketing is an extremely complex department because it has to wear many hatsprice fixing, creation of a brand/image, public relations, telemarketing, PPC marketing, SEO marketing, sales dutiesand the responsibilities never seems to end. If your marketing team thinks their job is nothing more than trying to sell a product or service, your company is likely missing out on all of the other great things that can come from a solid marketing department. If you want a social media presence, turn to marketing; if you want a press release, turn to marketing. In other words, marketing is no longer just creating a nice commercial or well written newspaper ad.

With all of the chaos that sometimes comes from the Internet, its hard to miss the importance of marketing. You know that it helps make you money, but for many that is the extent of it. Consider some of the things that make marketing so important, and try to put this kind of pride into each and every campaign: Top 3 Reasons Your Company Should Understand the Importance of Marketing


Marketing Shapes a Company Reputation

Remember how important reputation was when you were in high school? And how horrible it was if, for whatever reason, you found yourself with a bad reputation? Even if you have had a great reputation youre entire life, youve known someone who wasnt looked upon very highly. The get right to the point: reputation does matter, and this does transfer over into the business world. People want to be around a company with a good reputation and want to stay away from those bad apples. It is the job of the marketing department to not only to sell a product or service, but sell an entire company. This is no easy task and often involves a high level of creativity and a knack for planning. Reputation is generally formed for a company through social media, customer reviews, and public appearances.


Marketing Brings in Revenue

It may seem obvious, but marketing is important when it comes to revenue. This is typically what people think about when they think the importance of

marketing, but some still miss the reason this is so important. While it may seem that a marketing department puts the thought into a consumers head and then sales takes over, this isnt always the case. Marketing can, and often does, make a sale all on its own. If marketing is done correctly and successfully, nothing more will be needed to help bring in a sale. Although a sale is usually a combined effort, your marketing team can take pride in knowing that they have the power and control to bring in some serious revenue for the company.


Marketing Keeps a Company Relevant

While every department has its own responsibilities that are crucial to a company, no department is forced to deal with as much change as a marketing department. If this department slacks, the entire company will be stuck in the past. Coming up with marketing campaigns is a way to bring awareness to a brand (slightly different than creating a reputation), and you cannot bring awareness to a brand when your competitors are using more advanced marketing techniques. You have to always be at the top of your game, ready to be innovative and creative. If a new marketing tactic takes off, it is crucial that a company implements this tactic in order to remain on the scene. Its easy to overlook the importance of marketing because it seems so straightforward. Many see PR and sales as completely different aspects of business, but in the end they are all under the umbrella term marketing. This makes marketing extremely important for every company, so whether youre a company owner or someone working in marketing, you deserve to have a sense of pride for what you do every day.

Marketing is no longer about how a firm takes a product to market. Simply focusing on awareness of your product, in the belief that interest and sales would follow automatically, have gone in a fog of choice, over-supply and fragmentation of media.

In todays ultra competitive markets firms have to organise themselves around the needs of the customer, not the needs of the firm. Buying behaviour has changed from focusing on product features to personal value. The task of marketing today is not to interrupt and persuade but to engage, motivate and satisfy . Firms need to make people aware of how they understand and can meet their requirements. Relevance to the individual customer is now the key to generating interest, not awareness. If customers do not find the experience of using the product or service to their tastes they will switch to one of the other providers keen for their business very quickly.

In the Production era marketing was geared around the requirements of the production process, to help promote an affordable product. The planning models based on the 4Ps was internally orientated.

In the Consumer era we now find ourselves in, with the huge explosion in competition and over-supply in most markets, firms need a new approach to marketing. One that goes beyond the initial purchase, and takes account of the whole customer journey. It is why differentiation and customer value is at the heart of modern business planning and marketing has extended beyond adverts and brochures to include people and processes.

To survive and thrive today firms need to recognise that the role of marketing, is not just in setting expectations to win customers, but ensuring the experience matches up to it to retain and develop those relationships.

Marketing planning has switched from looking inwards to looking out at what customers want and finding production and distribution methods that meet those wants. With this change has come a change in planning, replacing the 4Ps with a more customer-centric planning model, to help shape and meet the needs of todays more demanding customers. View details of the new model.

Firms who take no notice of customers needs risk having customers take no notice of them.

Instead of making it harder for firms to prosper, the changes in the market have actually enabled those companies that have embraced the changes to become more profitable and more dominant. Even in the face of greater competition.

Spending more no longer guarantees greater impact. Consumers have become much better at filtering out messages they regard as not relevant to them individually. Interuption marketing is no longer productive. Firms who think smarter, instead of bigger, with an effective engagement marketing strategy can make budgets work much harder and stretch further, generating more customers and maximising customer lifetime value.

Price and competitive edge is linked to desirability and not production costs and profitability is linked to maximising lifetime customer value not individual purchases.

In a time of almost limitless choice and more standard production quality, product features have been superceded by brand value as the key differentiator. What sets a 2 and 200 pair of jeans apart in the 21st Century is not the production costs, but the perceived value to the purchaser. Choice has changed consumer behaviour. People are happy to pay more if they believe they are getting more personal value. The price now represents the cost to access the desired benefits.

The value an individual gets is linked to the result gained from the purchase. The result includes satisfying emotional wants, in terms of how they see themselves and want others to see them, as well as the physical needs. Hence the badge on the jeans counts for more than needing a tough pair of trousers. It is like wanting to be friends and associated with the most popular kid at school only now you can buy into that friendship.

Brand personality or image has emerged as the key differentiator as products themselves have become more commoditised. As product differences have shrunk, non product differences, such as the image and personality of the brand or added value aspects that make the product or service more relevant, have replaced them as people have demonstrated their willingness to measure price based on personal worth to them rather than cost (display an affinity for, pay a premium, to be associated with values and an image they aspire to).

They are also a much easier and quicker method for individuals, with limited technical knowledge, to judge on than pouring over complex product specifications. No doubt the 200 jeans used better materials, were better stitched and had nicer detailing. But these elements have no real sway compared to personal value aspects in the buying process. They may help justify the purchase, but would not be a consideration in the motivation for the purchase. Buying behaviour now involves two stages. Cultural fit for individuals is based on the brands they have an affinity with. From this shortlist the final product choice is determined by the best individual fit.

A simple example of this is car buying. People will have a group of manufacturers they regard as acceptable and will not look outside these manufacturers, even though identical style cars will be made by many others, and will often be cheaper. From this group they will then make their final selection based on the test drive, the offers, the specification etc.

Whilst branding plays a less significant part in professional buying behaviour, i.e. B2B markets, it is still a significant factor in achieving standout in overcrowded and building a cultural fit with the target market. Personal value needs will also be less emotional than in B2C purchase decisions, involving elements over and above the product functionality, such as service, communication and guarantees. Even though more based in logic they will still have a major impact in the final buying decision.

ques 2

For the remainder of this tutorial we look at factors that affect how marketers set price. The final price for a product may be influenced by many factors which can be categorized into two main groups: Internal Factors - When setting price, marketers must take into consideration several factors which are the result of company decisions and actions. To a large extent these factors are controllable by the company and, if necessary, can be altered. However, while the organization may have control over these factors making a quick change is not always realistic. For instance, product pricing may depend heavily on the productivity of a manufacturing facility (e.g., how much can be produced within a certain period of time). The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the product's price. But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time.

External Factors - There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market.

In the narrowest sense, price is the amount of money charged for a product or service. More broadly, price is the sum of all 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 of 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 executive. Yet, many companies do not handle pricing well. Factors to Consider When Setting Prices: A companys pricing decisions are affected by both internal and external environmental factors. Internal Factors Affecting Pricing Decisions: Internal factors affecting pricing include the companys marketing objectives, marketing strategy, costs and organizational considerations. 1. Marketing Objectives: Before setting a price, the company must decide on its strategy for the product. If the company has selected its target market and positioning carefully, then its marketing mix strategy, including price, will be fairly straightforward. For example, when Honda and Toyota decided to develop their Acura and Lexus brands to compete with European luxury-performance cars in the higher income segment, this required charging a high price. Pricing strategy, thus, largely determined by decisions on market positioning. At the same time, the company may seek additional objectives. Common objectives include survival, current profit maximization, market share leadership, and product quality leadership . Companies set survival as their major objectives if they are troubled by too much capacity, heavy competition, or changing consumer wants. To keep a plant going, 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 demand and costs will be at different prices and choose the price that will produce the maximum current profit, cash flow, 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 high cost of R&D. Fort example, Caterpillar charges 20 percent to 30 percent more than competitors for its heavy construction equipment based on superior product and service. A company might also use price to attain other, more specific objectives. It can set prices low to prevent competitors from entering the market or set prices at competitors level to stabilize the market. Prices can be set to keep the loyalty and support of resellers or to avoid government intervention. Prices can be reduced temporarily to create excitement for a product or to draw more customers into retail store. One product may be priced to help the sales of other products in the companys line. Thus, pricing may play an important role in helping to accomplish the companys objectives at many levels . Not-for-profit and public organizations may adopt a number of other pricing objectives. A university aims for partial cost recovery, knowing that it must rely on private gifts and public grants, to cover the remaining costs. A not-for-profit hospitals may aim for full cost recovery in its pricing. A not-for-profit theatre company may price its production to fill the maximum number of theatre seats. A social service agency may set a social pricing geared to the varying income situations of different clients. 2. 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. For example, producers using many resellers who are expected to support and promote their products may have to build larger reseller margins into their prices. The decision to position the product on high-performance quality will mean that the seller must charge a higher price to cover higher cost. 3. 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 cost for producing, distributing, and selling the product and delivers a fair rate of return for its effort and risk. A companys costs may be an important element in its pricing strategy. Many companies, such as Southwest Airlines, Wal-Mart, and Union Carbide, work to become the low-cost producers in their industries. Companies with lower costs can set lower price that result in greater sales and profits. 4. 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 then by the marketing or sales departments. In large companies, price is typically handled by divisional or product line managers. In industrial markets, salespeople may be allowed to negotiate with customers with a certain price ranges. Even so, top management sets the pricing objective and policies, and often approves the prices proposed by lower-level-management or salespeople. In industries in which pricing is a key factor (aerospace, steel, railroad, oil companies), companies often have a pricing departments to set the best prices or help others in setting them. This department reports to the marketing department or top management. Others who have an influence on pricing include sales manager, production managers, fianc managers and accountants. External Factors Affecting Pricing Decisions:

External factors that affect pricing decisions include the nature of market and demand, competition, and other environmental factors. 1. The Market and Demand: The sellers freedom varies with different types of markets. Economists recognize four types of markets, each presenting a different pricing challenge.

Under pure competition, the market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper of financial securities. No single buyer or seller has much effect on the going market price. A seller cannot charge more than the going price, because buyers can obtain as much as they need at the going price. Under monopolistic competition, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Either the physical product can be varied in quality, features, or style or the accompanying services can be varied. Buyers see differences in sellers products and will pay different prices for them. Under oligopolistic competition, the market consists of a few sellers who are highly sensitive to each others pricing and marketing strategies. The product can be uniform (steel, aluminum) or non-uniform (computers, cars). There are few sellers because it is difficult for new sellers to enter the market. Each seller is alert to competitors strategies and moves. If a steel company slashes its price by 10 percent, buyers will quickly switch to this supplier.

In a pure monopoly, the market consists of one seller. The seller may be a government monopoly (the US postal service), a private regulated monopoly (a power company), or a private non-regulated monopoly. Pricing is handled differently in each case. A government monopoly can pursue a variety of pricing objectives. In a regulated monopoly, the government permits the company to set rates that will yield a fair return, one that will let the company maintain and expand its competitors as needed. Nonregulated monopolies are free to price at what the market will bear. However, they do not always charge the full price for a number of reasons; a desire to attract competition, a desire to penetrate the marker faster with a low price, or a fear of government regulation. 2. Consumer Perception of Price and Value: In the end, the consumer will decide whether a products price is right. Pricing decisions, like other marketing mix decisions, must be buyer-oriented. When consumers buy a product, they exchange something of value (the price) to get something of value (the benefits of having or using the product). Effective, buyer-oriented pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that fits this value. 3. Competitors Costs, Prices, and offers: Another external factor affecting the companys pricing decisions is competitors cost and prices and possible competitor reactions to the companys own pricing moves. A consumer who is considering the purchase of a Canon camera will evaluate Canons price and value against the prices and values of comparable products made by Nikon, Minolta, Pentax, and others. If canon follows a high-price, high -margin strategy, it may attract competition. A lowprice, low-margin strategy, however, may stop competitors or drive them out of the market. Canon needs to benchmark its costs against its competitors costs to learn whether it is operating at a cost advantage or disadvantage. It also needs to learn the price and quality of each competitors offer. Once canon is aware of competitors price and offers, it can use them as starting point for its pricing. If Canons cameras are similar to Nikons, it will have to price close to Nikon or lose sales. If Canons cameras are not as good as Nikons, the firm will not be able to charge as much. If Canons products are better than Nikons, it can charge more. Basically, Canon will use price to position its offer to the competition. 4. 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 firms pricing strategies. Economic factors such as boom or recession, inflation, and interest rates affect pricing decisions because they affect both the cost of producing a product and consumer perception of the products price and value. The company must also consider what impact its prices will have on other parties in its environment. How will reseller react 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 concerns may have to be taken into account. In setting prices, a companys short-term sales, market share, and profit goals may have to be tempered by broader social considerations. archive_doc=9723946&metadata=%7B%22page%22%3A%22read %22%2C%22platform%22%3A%22web%22%2C%22logged_in %22%3Atrue%2C%22context%22%3A%22archive%22%2C%22action %22%3A%22download_promo%22%7D

The only time when price setting is not a problem is when you are a price-taker and have to set prices at the going rate, or else sell nothing at all. This normally only occurs under near-perfect market conditions, where products are almost identical. More usually, pricing decisions are among the most difficult that a business has to make. In considering these decisions it is important to distinguish between pricingstrategy and tactics. Strategy is concerned with setting prices for the first time, either for a new product or for an existing product in a new market; tactics are about changing prices. Changes can be either self-initiated (to improve profitability or as a means of promotion) or in response to outside change (i.e. in costs or the prices of a competitor). Pricing strategy should be an integral part of the market- positioning decision, which in turn depends, to a great extent, on your overall business development strategy and marketing plans. Companies usually do not set a single price, but rather a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, order levels, delivery frequency, guarantees, service contracts, and other factors As a result of discounts, allowances, and promotional support, a company rarely real-izes the same profit from each unit of a product that it sells. Here we will examine sev-eral price-adaptation strategies: geographical pricing, price discounts and allowances, promotional pricing, discriminatory pricing, and product-mix pricing. Geographical pricing (Cash. Counter trade. Barter) Geographical pricing involves the company in deciding how to price its products to different. Customers in different locations and countries. For example, should the company charge higher prices to distant customers to cover the higher shipping costs or a lower price to win additional business? Another issue is how to get paid. This issue is critical when buyers lack sufficient hard currency to pay for their purchases. Many buyers want to offer other items in payment, a practice known as counter trade. American companies are often forced to engage in counter trade if they want the business. Counter trade may account for 15 to 25 percent of world trade and takes several forms: barter, compensation deals, buyback agreements, and offset. Barter - The direct exchange of goods, with no money and no third party involved Compensation deal - The seller receives some percentage of the payment in cash and the rest in products. A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the rest in coffee. Buyback arrangement - The seller sells a plant, equipment, or technology to another country and agrees to accept as partial payment products manufactured with the supplied equipment. A US. Chemical company built a plant for an Indian company and accepted partial payment in cash and the remainder in chemicals manufactured at the plant. Offset - The seller receives full payment in cash but agrees to spend a substantial amount of the money in that country within a stated time period. For example, PepsiCo sells its cola syrup to Russia for rubles and agrees to buy Russian vodka at a certain rate for sale in the United States. Price discounts and allowances The role of discount Offering discounts can be a useful tactic in response to aggressive competition by a competitor. However, discounting can be dangerous unless carefully controlled and conceived as part of your overall marketing strategy. Discounting is common in many industries in some it is so endemic as to render normal price lists practically meaningless. This is not to say that there is anything particularly wrong with price discounting provided that you are getting something specific that you want in return. The trouble is that, all too often, companies get themselves embroiled in a complex structure of cash, quantity and other discounts, whilst getting absolutely nothing in return except a lower profit margin. Let us look briefly at the main types of discounts common today Cash and settlement discounts These are intended to bring payments in faster. However, since such discounts need to be at least 2,5% per month to have any real effect, this means paying your customer an annual rate of interest of 30% just to get in money which is due to you anyway. What is more, customers frequently take all the discounts on offer and still do not pay promptly, so that you lose both ways. Much better, we believe, is either to eliminate these discounts altogether and introduce an efficient credit control system, or change your terms of business so that you can impose a surcharge on overdue accounts instead. Whilst you may lose some business by doing this, these will probably be the worst payers anyway. If some customers will not pay you for months you are probably better off trying to win others who will. Quantity discounts The trouble with these is that, when formalized on a published price list, they become an established part of your pricing structure and as a result their impact can be lost. If you are not very careful, although they may have helped you win the business to start with, in the long run the only effect they have is to spoil your profit margin. As a general rule, only publish the very minimum of quantity discounts your very largest customers will probably try to negotiate something extra anyway. Also

keep quantity discounts small, so that you hold something in reserve for when your customers do something extra for you, such as offering you sole supply, or as part of a special promotion. Promotional discounts These are the best kind of discounts because they enable you to retain the power to be flexible. There may be times when you want to give an extra boost to sales to shift an old product before launching an updated one for example. At times like these special offers or promotional discounts can be useful. But try to think of unusual offers a larger pack size for the same price or a five for the p [rice of four can often stimulate more interest than a straight percentage discount. They also make sure that the end user gets at least some of the benefit, which doesnt always happen with other types of discounts. Two other points to remember are Make sure you retain control over your special promotions, with a specific objective, a beginning and an end point. Be sure to terminate them once they have outlived their usefulness. Ensure that your offers are linked to sales and not simply to orders. Otherwise you may find that orders to you are up for a while, only to be followed by a barren period whilst your customer supplies the end user from his accumulated stocks. Clearly the role of discounts will vary from one type of business to another and not all of the comments above will apply to you. In part your ability to minimize discounts, or eliminate them altogether, will depend on the non-price benefits of your product. But, whatever business you are in, you should always ask yourself what your discounts are supposed to achieve, whether they are effective, and how long they are expected to last. In general, keep standard discounts low to retain maximum flexibility and ensure that they are consistent with your overall marketing and pricing strategy. Promotional Pricing Companies can use several pricing techniques to stimulate early purchase: Loss-leader pricing - Supermarkets and department stores often drop the price on well Known brands to stimulate additional store traffic. This pays if the revenue on the addi-tional sales compensates for the lower margins on the) boss-leader items. Manufacturers of loss-leader brands typically object because this practice can dilute the brand image and bring complaints from retailers who charge the list price. Manufacturers have tried to restrain intermediaries from loss leader pricing through lobbying for retail-price -maintenance laws, but these laws have been revoked. Special-event pricing - Sellers will establish special prices in certain seasons to draw in more customers Cash rebates - Auto companies and other consumer-goods companies offer cash rebates to Encourage purchase of the manufacturers products within a specified time period. Rebates can help clear inventories without cutting the stated list price. Low-interest financing - Instead of cutting its price, the company can offer customers low- interest financing. Automakers have even announced no-interest financing to attract Customers. Longer payment terms - Sellers, especially mortgage banks and auto companies, stretch loans over longer periods and thus lower the monthly payments. Consumers often worry less about the cost (i.e., the interest rate) of a loan and more about whether they can afford the monthly payment. Warranties and service contracts - Companies can promote sales by adding a free or low- cost warranty or service contract. Psychological discounting - This strategy involves setting an artificially high price and then offering the product at substantial savings Promotional-pricing strategies are often a zero-sum game. If they work, competitors Copy them and they lose their effectiveness. If they do not work, they waste money that could have been put into other marketing tools, such as building up product quality and service or strengthening product image through advertising. Discriminatory pricing Companies often adjust their basic price to accommodate differences in customers, products, locations, and so on. Price discrimination occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs. In first-degree price discrimination, the seller charges a separate price to each customer depending on the intensity of his or her demand. In second-degree price discrim-ination, the seller charges less to buyers who buy a larger volume. In third-degree price discrimination, the seller charges different amounts to different classes of buyers, as in the following cases: Customer-segment pricing - Different customer groups are charged different prices for the same product or service. For example, museums often charge a lower admission fee to students and senior citizens. Product-form pricing - Different versions of the product are priced differently but not pro-portionately to their respective costs Image pricing - Some companies price the same product two different levels based on image differences at. A perfume manufacturer can put the perfume in one bottle, give it a name and image, and price it at Rest. 50. It can put the same perfume in another bot-tle with a different name and image and price it at Rs.200. Channel pricing - Coca-Cola carries a different price depending on whether it is purchased ill a fine restaurant, a fast-food restaurant, or a vending machine. Location pricing - The same product is priced differently at different locations even though the cost of offering at each location is the same. A theater varies its seat prices according to audience preferences for different locations.

Time pricing - Prices are varied by season, day, or hour. Public utilities vary energy rates to commercial users by time of day and weekend versus weekday. Restaurants charge less to early bird customers. Hotels charge less on weekends. Hotels and airlines use yield pricing, by which they offer lower rates on unsold inventory just before it expires. Coca-Cola considered raising its vending machine soda prices on hot days using wireless technology, and lowering the price on cold days. However, customers so dis-liked the idea that Coke abandoned it. For price discrimination to work, certain conditions must exist. First, the market must be segment able and the segments must show different intensities of demand. Second, members in the lower-price segment. Must not be able to resell the product to the higher-price segment. Third, competitors must not be able to undersell the firm in the higher-price segment. Fourth, the cost of segmenting and policing the market must not exceed the extra revenue derived from price discrimination. Fifth, the practice must not breed customer resentment and ill will. Sixth, the particular form of price discrimination must not be illegal. As a result of deregulation in several industries, competitors have increased their use of discriminatory pricing. Airlines charge different fares to passengers on the same flight, depending on the seating class; the time of day (morning or night coach); the day of the week (workday or weekend); the season; the persons company, past business, Of status (youth, military, senior citizen); and so on. Airlines are using yield pricing to cap-ture as much revenue as possible. Computer technology is making it easier for sellers to practice discriminatory pric-ing. For instance, they can use software that monitors customers movements over the Web and allows them to customize offers and prices. New software applications, however, are also allowing buyers to discrimi-nate between sellers by comparing prices instantaneously. Product-mix pricing Price-setting logic must be modified when, the product is part of a product mix. In this case, the firm searches for a set of prices that maximizes profits on the total mix. Pricing is difficult because the various products have demand and cost interrelationships and are subject to different degrees of competition. We can distinguish six situations involving product-mix pricing: product-line pricing, optional-feature pricing, captive-product pricing, two-part pricing, by-product pricing, and product-bundling pricing. Product line Pricing - Companies normally develop product lines rather than sin-gle products and introduce price steps. In many lines of trade, sellers use well-established price points for the products in their line. A mens clothing store might carry mens suits at three price levels: Rs800, Rs.1500, and Rs.4500. Customers will associate low-, average-, and high-quality suits with the three price points. The sellers task is to establish perceived-quality differences that justify the price differences. Optional-feature pricing Many companies offer optional products, features, and services along with their main product. The automobile buyer can order electric window controls, defoggers, light dimmers, and an extended warranty. Pricing is a sticky problem; automobiles companies must decide which items to include in the price and which to offer as options. Restaurants face a similar pricing problem. Customers can often order liquor in addition to the meal. Many restaurants price their liquor high and their food low. The food revenue covers costs, and the liquor produces the profit. This explains why servers often press hard to get customers to order drinks. Other restaurants price their liquor low and food high to draw in a drinking crowd. Captive-product pricing Some products requires the use of ancillary, or captive, products. Manufacturers of razors and cameras often price them low and set high markups on razor blades and film, respectively. A cellular service operator may give a cellular phone free if the person commits to buying two years of phone service. Two-part pricing Service firms often engage in two-part pricing, consisting of a fixed fee plus a variable usage fee. Telephone users pay a minimum monthly fee plus charges for calls beyond the minimum number. Amusement parks charge an admission fee plus fees for rides over a certain minimum. The service firm faces a problem sin1ilar to captive -product pricing-namely, how much to charge for the basic service and how much for the variable usage. The fixed fee should be low enough to induce purchase of the ser-vice; the profit can then be made on the usage fees. By-product pricing The production of certain goods- meats, petroleum prod-ucts, and other chemicals-often results in byproducts. If the by-products have value to a customer group, they should be priced on their value. Any income earned on the byproducts will make it easier for the company to charge a lower price on its main product if competition forces it to do so. Product-Bundling pricing Sellers often bundle products and features. Pure bundling occurs when a firm only offers its products as a bundle. In mixed bundling, the seller offers goods both individually and in bun-dles. When offering a mixed bundle, the seller normally charges less for the bundle than if the items were purchased separately. An auto manufacturer might offer an option package at less than the cost of buying all the options separately. A theater company will price a season subscription at less than the cost of buying all the performances sepa-rately. Because customers may not have planned to buy all the components, the savings on the price bundle must be substantial enough to induce them to buy the bundle.

Criteria in selecting channel members. Typically, the most important consideration whether to include a potential channel member is the cost at which he or she can perform the required functions at the needed level of service. For example, it will be much less expensive for a specialty foods manufacturer to have a wholesaler get its products to the retailer. On the other hand, it would not be cost effective for Procter & Gamble and Wal-Mart to involve a third party to move their merchandiseWal-Mart has been able to develop, based on its information systems and huge demand volumes, a more efficient distribution system. Note the important caveat that cost alone is not the only consideration premium furniture must arrive in the store on time in perfect condition, so paying more for a more dependable distributor would be indicated. Further, channels for perishable products are often inefficiently short, but the additional cost is needed in order to ensure that the merchandise moves quickly. Note also that image is importantWal-Mart could very efficiently carry Rolex watches, but this would destroy value from the brand.