SRI GANESH COLLEGE OF ARTS & SCIENCE, SALEM-14. Name of the Staff: V.KESAVAN M.Com.,M. h!"., M#A., G$CA.

, T!t"e of the (a(e): Ma)*et!+, Ma+a,eme+t HO$.% S!,+at/)e: Mea+!+, of 0 )!1e. Price is the exchange value of goods and services in terms of money. It is the amount paid for the value and utility received by the buyers in the form of a product or service. A good pricing policy is significant to have maximum sales revenue. If the prices are reasonable, more persons can be attracted towards the product. The ultimate ob ect of the firm i.e., profit maximi!ation depends upon the pricing decision of the concern. The price of a product influences the price paid for the factors of production namely, land, labour, capital and entrepreneurship. Price can decide the success or failure of a concern. C"a%%:I M.Com &CA' -+!t: IV

O23e1t!4e% of ()!1!+, 5e1!%!o+%:

1. E+%/)!+, ta),et )et/)+%:
"usiness re#uires capital for ma$ing both capital and revenue expenditure. %hen a trader invests capital in a business, he determines the problem return of his investment. Then he fixes the price accordingly. &ost well established firms are fixing the prices the products in terms of '(eturn on Investment) i.e., (.*.I. +ere the target of the firm is determined in terms of investment.

6.

Ma)*et Sha)e:

A good mar$et share is the best indicator of progress. %hen the mar$et share is decreasing, low pricing policy can be adopted because competitors may be discouraged from entering the mar$et and new users may also be attracted. In this way, low pricing policy enables the mar$eting management to increase their mar$et share.

7.

)e4e+t!+, Com(et!t!o+:

&eeting competition is also one of the most important ob ectives of pricing particularly if the product is introduced in a competitive mar$et. In such cases, a low price policy can attract customers and can get a good mar$et share. It will discourage the competitors also. "efore fixing the price, a proper price policy should be formulated having considered the prices of rival products, existing competition, etc., so as to enable the mar$eting department to meet the competition in the mar$et.

4. :.

Ma8!m!9!+, the ()of!t: Sta2!"!9!+, the ()!1e:

,ach business concern is running with an idea of maximi!ing the profits. "esides, profits maximi!ation will create an unhealthy image about the concern.

-ome companies see$ to $eep their prices relatively stable over long periods. A stable price policy can win the confidence of the public. -o, the price should not be allowed to fluctuate very often. ,ven during periods of depression, the prices should not be allowed to fall below a certain level, and in the boom period, the prices should not be allowed to rise beyond a certain level.

;. =.

A2!"!t< of the 1/%tome)%: Re%o/)1e Mo2!"!9at!o+:

-ometimes, price decision may be ta$en according to the ability of the customers to pay for the products. .enerally, this type of policy is adopted by doctors, lawyers, etc. In the case of firms, having resource mobili!ation as one of its pricing ob ectives, the products are priced in such a way to ma$e use of all available resources for the expansion, etc., of the concern.

Fa1to)% I+f"/e+1!+, )!1!+, $e1!%!o+%:

1. O23e1t!4e% of 2/%!+e%%:
The ob ectives of the firm are the real deciding factor. There may be different ob ectives of the firm namely, target return, mar$et share, stabili!ing the price. Thus, the pricing policy of the company should be framed only after having considered the pricing ob ectives of the firm.

6.

Co%t of the ()o5/1t:

/ost of the product is one of the most decisive factors. .enerally, prices will not be less than the cost of its manufacture and it will be fixed in such a way to cover the entire cost of the product and to give a reasonable profit to the manufacturer. *therwise, no business can continue for long.

7.

Ma)*et 5ema+5:

In modern concept of the mar$eting which is consumer oriented, the consumer influence the price. The value of particular product to the buyer is the main consideration. If the consumer feel that the value of the product worth the price, he will buy. *therwise, he will refuse to buy.

4.

)!1e% of 1om(et!to)%:

&anufacturers while fixing prices for their products should first consider the competitive conditions prevalent in the mar$et. +e should also consider the prices fixed and #uality maintained by the competitors for their goods. Then the price should be fixed either e#ual to or lower than the price of the competitors.

:.

$!%t)!2/t!o+ 1ha++e"%:

Another factor which influences pricing decision is distribution channel policy. 0ormally, the prices fixed will be higher if the company chooses lengthy distribution channel because compensation for the services rendered by each such middleman in the distribution channel must be included in the ultimate price.

;.

Go4e)+me+t (o"!1<:

-ometimes, government may announce a general policy regarding pricing of goods or enact legislations to arrest the inflationary trend in prices of certain products. In such cases, management should follow the public policy strictly while fixing prices for its products.

=.

E1o+om!1 e+4!)o+me+t:

Pricing decision is also affected by the economic environment of the country. 1uring depression periods, the prices are reduced so as to maintain the sales level and during periods of boom, the prices are increased to cover the higher cost of manufacture selling. etc.,

>.

()o5/1t 5!ffe)e+t!at!o+:

in order to attract the customers, different characteristics are added to the product, such as #uality, si!e, colour, attractive pac$age, etc. generally customers pay more price for the product which is of the new style, fashion, better pac$age etc.

)o1e%% of the ()!1e 5ete)m!+at!o+ of a ()o5/1t:

The price determination procedure can be divided into six steps2

1. E%t!mat!+, the 5ema+5 fo) the ()o5/1t:

The mar$eter has to ma$e out estimation for his product. In the normal case, demand and price are inversely related, i.e., higher the price, lower the demand. There are two practical steps in demand estimation. They are, first, to determine whether there is a price which the mar$ets expect and second, to estimate the sales volume at different prices.

6. A+t!1!(at!+, 1om(et!t!o+:
*nce the demand is estimated, the next step is anticipating competition. The study of competition can be done in two angles2 a3 /ompetition from the producers of similar product, and b3 /ompetition from the substitutes of the product. (eactions and activities of both types of competitors should be made extensively. ,stimating the future competitive situation is more important.

7. $ete)m!+!+, e8(e1te5 %ha)e of ma)*et:

The next step is to determine the mar$et share which a company will try to capture. It depends on various factors such as present production capacity, cost of extension programmers, cost of production and competition, etc. The mar$et share should not be fixed beyond the production capacity of the plant.

4. Se"e1t!+, a S/!ta2"e ()!1e %t)ate,<:

There are various price strategies that can be adopted such as 4 a3 -$imming the cream pricing strategy. b3 5ow penetration pricing strategy. c3 1iscouraging potential competitors. d3 6ollow the competition.

:. Ma)*et!+, (o"!1!e% of the 1om(a+<:

The mar$eting policies regarding production, channels of distribution, promotion, etc., should be considered as a next step. The nature of the product, i.e., whether it is a new or old product, perishable or durable product, consumer or industrial product etc., should also be considered. Product mix is also one of the considerations.

;. F!8!+, the ()!1e:

+aving completed all the above said steps, the next and final step is fixing the price. %hile fixing the price for any product, interest of various parties namely, producer, middlemen and consumer should be considered.. /onsultation with the various concerned department such as production, finance, mar$eting, etc., is also essential while ta$ing any pricing decision.

K!+5% of ()!1!+,:
1. O55 ()!1!+,:
*dd pricing refers to a price ending in an odd number or a price ust under a round number. 6or example, "ata shoe company, priced on of its products at (s.78.879:. This type of pricing the products is generally adopted in the case of specialty or convenience good. *dd prices by psychology may bring more sales. 6. %<1ho"o,!1a" )!1!+,: %hen the price of a product is a round number, such a method of pricing is $nown as psychological pricing. 6or example, a product may be priced (s.;< or (s.;=. -uch a method is preferred by those mar$eters who do not believe in the techni#ue of odd pricing. 7. )!1e 2a%e5 o+ the ()e4a!"!+, o) )/"!+, ()!1e -uch a method is followed by those mar$eters who want to fall in line with their competitors. They $eep the same price as decided already by their rivals. ,xample2 &anufacturers of cement follow a uniform priced policy >*ligopoly mar$et3. 4. )e%t!,e )!1!+, This method is followed by those who deal in luxury goods. -uch mar$eters, generally, $eep the price of goods high for they thin$ that customers will udge #uality by the price. E8am("e: Those who sell cosmetic items, leather goods, electronic items, etc., follow prestige pricing. :. C/%toma)< ()!1!+, The customers are familiar with the rates and mar$et condition. The prices are fixed to suit local conditions. &anufacturers cannot control the price. "y custom or convention, certain products are sold almost at the same price by different mar$eters. ,xample2 &il$, butter, coffee powder, etc. ;. FO# &F)ee o+ #oa)5' )!1!+, -uch a pricing has relevance when goods are to be transported to the buyers place. In case of 6*" origin, the buyer will bear the transit charges himself and in the case if 6*" destination, he need not pay the transit charges. =. CIF &Co%t, I+%/)a+1e a+5 F)e!,ht' )!1e In the case of /I6 price #uotation, the price paid by the buyer >may be an importer3 is inclusive of cost, insurance and freight charges. >. $/a" ()!1!+, It refers to the practice of some mar$eters who #uote two different prices for the same product? one may be for bul$ buyers and one for small #uantity buyers. If a manufacturer sells the same product at two or more different prices is termed as dual pricing.

?. e+et)at!o+ ()!1!+,:
Penetrating pricing is intended to help the product penetrate into mar$ets to hold a position. This is done by adopting low prices in the initial stages. 1ue to the low prices, sales volume goes up, competition falls down.

1@. S*!mm!+, ()!1!+,:

@nder this method, a very high price is fixed for a new product initially and later the price is reduced gradually when competitors enter the mar$et. This type of pricing is called as '-$im 4the creamApricing

11. )!1e L!+!+,:

This $ind of pricing is generally followed by the retailers. @nder this method, pricing decisions are made only initially and remain constant for a long period of time. Any changes in the mar$et conditions are met by ma$ing ad ustments in the #uality of the product rather than the price of the product.

16. E8(e1te5 ()!1!+,:

+ere, the price which will be accepted by the consumers is found out. The customers response to the price is analy!ed and then a price is fixed.

17. Ne,ot!ate5 ()!1!+,:

+ere, the price is not fixed. The price to be paid on sale depends upon bargaining in some cases, the goods may be produced on the basis of specification by the buyer. In such cases, the price has to be negotiated and then fixed. This $ind of pricing is adopted by industrial suppliers. It is also called as variable pricing. 14. A5m!+!%te)e5 )!1!+, The price determined by a mar$eter based mainly on personal considerations is $nown as administered pricing. 6actors li$e cost, demand and competition are ignored. 1:. Mo+o(o"< )!1!+, The price fixed by a mar$eter who has no competition in the mar$et is $nown as monopoly pricing. 1;. Sea"e5 Te+5e) )!1!+, In case of contracts involving heavy outlay, e.g., construction contracts, sealed tenders will be invited from interested parties. The wor$ is then assigned to the one who has #uoted the minimum price.

#ASIC RICING OLICIES

The following are the basic policies recogni!ed for pricing2 ;. /ost 4oriented pricing policy B. 1emandAoriented pricing policy 7. /ompetitionAoriented pricing policy.

1. Co%t-o)!e+te5 ()!1!+, (o"!1<: Carious methods adopted under cost 4 oriented pricing are 4i3 /ost plus pricing. ii3. Target pricing. iii3. "rea$Aeven pricing.

!'Co%t ("/% ()!1!+,:

@nder this method, the price covers entire cost incurred and so it assures that there will not be any loss to the products. This method is totally based on cost A consent. /ost of a product is ta$en as a starting point and then a fixed percentage is added to it

so as to fix price for that product. @nder this method, tentative price can be fixed easily.

!!' Ta),et ()!1!+,:

Another common method adopted under costAoriented pricing is $nown as target pricing. Target pricing is invariably followed by manufactures who fix a target returns on the total cost.

!!!'#)ea*-e4e+ ()!1!+,:
"rea$ 4 even analysis refers to this system of determining the level of operations where total revenues e#ual total expenses i.e., the point of !ero profit. This is a sophisticated pricing techni#ue which ta$es into account both the fixed costs and the variable costs.

6.

$ema+5 A o)!e+te5 ()!1!+, (o"!1<:

In this method, the demand is the pivotal factor. %hen the demand is greater, a high price is charged and when the demand is low, a low price is charged. -ome pricing experts believe that demand should be the only factor in setting the price.

7.

Com(et!t!o+ A o)!e+te5 ()!1!+, (o"!1<:

&any concerns fix prices only after having considered the competitive price structure. 1eliberate policies may be framed with a view to sell below or above or in line with competition. Its own cost or demand may change but the firm maintains its price. /onversely, the same firm will change its price when the competitors change theirs, even if its own cost or demand has not altered. RICING STRATEGIES This pricing structure changes overtime because products move through their life cycles. The company ad usts product prices so as to reflect changing costs and demand,. And to account for changes in buyers and situations. +ence in this part, we shall discus the ma or dynamic pricing strategies an available to management.

I. NeB ()o5/1t ()!1!+, %t)ate,!e%

@sually, pricing strategy change as the product passes through its life cycle. ,specially, the introductory stage is very challenging. It can be discusses under two heads namely, I. Pricing an innovative Product, and B. Pricing an imitative new product.

1. )!1!+, a+ I++o4at!4e )o5/1t

To price an innovative product, two alternatives are available. They are2

!' Ma)*et S*!mm!+, )!1!+,:

&any companies that invent new products ser high prices in the beginning to 's$im) the mar$et. ,xample2 All electronic goods. After the initial sales down, the price will be lowered.

!!'Ma)*et e+et)at!o+ )!1!+,:

-ome companies set a relatively low price on their innovative product, hoping to attract a large number of buyers and win a large mar$et share.

6. )!1!+, a+ Im!tat!4e )o5/1t

A company that plans to develop an imitative new product faces a productA positioning problem. It must decide where to position the product on #uality and price. 6or this, there are nine possible priceA#uality strategies as shown in the following figure. N!+e Ma)*et!+, M!8 St)ate,!e% o+ )!1eCD/a"!t< )!1e +igh +igh ;. Premium -trategy &edium B. Penetration -trategy =. Average -trategy F. "orax -trategy 5ow 7. -uperbAvalue -trategy E. .oodA value -trategy 8. /heapAvalue -trategy

&edium D. *vercharging -trategy 5ow G. (ipAoff -trategy

The existing mar$et leader may prefer to use cell ; i.e., +igh price and +igh product #uality. The new comer could design a highA#uality product and charge a medium price.

II. RO$-CT A MIE RICING STRATEGIES

%e will discuss four pricing strategies under this head.

1. )o5/1t A L!+e )!1!+,

/ompanies normally develop product lines rather than single products. 6or example, Panasonic offers different color vides sound cameras, ranging from a simple one >weighing D.E pound3 to a compels one >weighing pounds3 that includes automatic focusing, fade control, and twoAspeed !oom lens. ,ach successive camera to the line offers come additional features. &anagement must decide on the price steps to establish between the various cameras. 2. O(t!o+a" A55!t!o+a" Item%:
These additional items or features a customer may or may not choose to add to the main product purchased. The basic strippedAdown product carries a low price, and the margin on additional components is more. 6or example, some computer and auto companies $eep a lower price for the basic model and for additional components such as 5/1 monitor, larger (A&, power windows, or power steering etc. charge additionally.

7. Ca(t!4e )o5/1t )!1!+,:

-ome companies produce products that need the use of ancillary products such as ra!ors and manufacturers of In$ et or 5aser printers. .illette manufactures different types of ra!ors and for each type the company has different blades that fit a particular type of ra!or. The ra!or is priced low but the margins are high on blades. In$ et or 5aser printer manufacturers sell their printers at a low initial price and price their in$ or toner cartridges at a price to earn higher margins.

4. #<-()o5/1t )!1!+,
If the byAproducts have no value and disposing of them is in fact costly, this will affect the pricing of the main product. The manufacturer will see$ a mar$et for these byAproducts and should accept any price that covers more than the cost of storing and delivering them. III. RICE-A$F-STMENT STRATEGIES

1. $!%1o/+t )!1!+, a+5 a""oBa+1e%

&ost companies will ad ust their basic price to reward customers for certain acts li$e early payment of bills, volume purchases, and buying off season. !'Ca%h $!%1o/+t%: A cash discount must be given reduction to buyers who pay their bills promptly. !!'D/a+t!t< $!%1o/+t%: A #uantity discount is a price reduction to buyers who buy goods in large. These types of discount must be offered to all customers and must not exceed the cost saving to the seller associated with selling large #uantities. !!!'T)a5e $!%1o/+t%: Trade discounts are offered by the manufacturer to trade channel members who perform certain functions li$e selling, storing, and record $eeping. &anufactures may offer different trade discounts to different trade channels on account of the varying services they perform, but manufactures must offer the same trade discounts within each trade channel. !4'Sea%o+a" $!%1o/+t: A seasonal discount is a price reduction to buyers who goods or services out of season. -easonal discounts allow the seller to maintain steadier production during the year. 4'A""oBa+1e%: Allowances are other types of reductions from the list price. 6or example, tradeAin allowances are price reductions granted for turning in an old often when buying a new one.

6. $!%1)!m!+ato)< )!1!+,
/ompanies will often modify their basic to accommodate difference in customers, products, and locations. -uch method is called discriminatory pricing. In discriminatory pricing, the company sells a product or service at two or more prices that do not reflect a proportional difference in costs. 1iscriminatory pricing ta$es several forms. !'C/%tome) #a%!%: @nder the customer basis pricing system, different customers pay different amounts for the same product or service. &useums !oos, etc., will charge a lower admission fee to students and senior citi!ens. !!' )o5/1t-fo)m #a%!%: +ere different versions of the product are price differently but not proportionately to their respective costs.

!!!' "a1e #a%!%: In this basis, different locations are priced differently
even though the cost of offering each location is the same. A cric$et stadium varies its seat prices because of audiences for certain locations. !4'T!me #a%!%: +ere prices are varies seasonally, by the day, and even by the hour. Public utilities vary their prices to commercial users by time of day and wee$ end versus wee$ day.

7. %<1ho"o,!1a" ()!1!+,
Price communicates something about product. As we have stated already, many consumers consider price as an indicator of #uality. -ellers should give due consideration to the psychology of prices and not simply the economics. ,ven small variations in price can communicate product differences to consumers.

4. )omot!o+a" )!1!+,
@nder certain circumstances, companies will temporarily price their products below the list price, and sometimes even below cost. Promotional pricing ta$es several forms. They are2 1. -upermar$ets and departmental stores will price a few products as loss leaders with a view to attract customers to the store with an open that they will buy other things at normal rate. 6. -ellers will also use specialAevent pricing in certain seasons in order to attract more customers. 7. &anufacturers will sometime offer cash rebates to consumers who buy the product from dealers within a specified period.

:. Geo,)a(h!1a" )!1!+,
The company must decide how to price its products to customers located in different parts of the country. -hould the company charge higher prices to distant customers to cover the higher transpiration costs.

Mea+!+, of $!%t)!2/t!o+
1istribution is the act of carrying goods or services form the producer to the consumer. It consists of an operation or series of operations which physically brings the goods from the producer into the hands of the final user. .oods have no value no value if they simply lie in the go down of the manufacturer. They must be made available to the consumers. According to (ichard &./lewelt,) A channel is pipeline through which product flows on its way to the consumer. The manufacturer puts his product in to the pipe line or mar$eting channel and various mar$eting people move it along to the consumer at the other end of the channel.) The !m(o)ta+t 2e+ef!t% of 5!%t)!2/t!o+C!+te)me5!a)!e%Cm!55"eme+ a)e a% fo""oB%: ;. 1istribution has enabled the consumers to satisfy their wants. It has created place, time and possession utilities. B. It has brought into existence the services of the ban$ers and insurers. 7. &eans of communication and transaction have developed.

D. Problems of scarcity and famine in certain areas are solved by effective distribution. =. -copes for speciali!ation and division of labor have enlarged. E. It has offered gainful employment opportunities to millions of persons. G. .rading, pac$aging and branding are made possible. F. Price stability is made possible. 8. They are very important in the modern ever widening mar$et. ;<. &iddlemen concentrate their efforts on mar$eting and distribution of goods. -o manufacturers can concentrate their attention on production.

T<(e% of Cha++e"% of $!%t)!2/t!o+:

/hannels of distribution can be classified into nonAintegrated and integrated.

I. Co+4e+t!o+a" Ma)*et!+, Cha++e" &o)' No+ - I+te,)ate5:

In conventional mar$eting channels there are two types of channels and they are direct channel and indirect channel. In the direct or short channel, the company sells the products to consumers directly. There are no intermediaries. In indirect channel or long channel the company uses intermediaries to channellise its produce to the consumers.

1. Ma+/fa1t/)e) A Co+%/me):
This is the direct channel. Products are transferred directly to consumers by the manufacturers. It is the shortest and simplest channel.

$!)e1t 1ha++e" !% 1o+4e+!e+t"< a5o(te5 /+5e) the fo""oB!+, 1!)1/m%ta+1e%:

;. Producer of perishable goods aims to avoid physical distribution, but tries to sell directly e.g. ba$ery products, ice cream, etc. B. &anufactures of fashion goods enter into direct sales for #uic$ sales, before the fashion disappears. 7. %hen the plant is located near the customers, it is easier to sell the products. D. Articles, which are of technical nature and need demonstration, may be mar$eted directly. =. %hen production is in small #uantity, a direct sale is employed. E. /ertain articles are sold directly, when the goods belong to special segments of customers.

The 5)aB2a1*% of th!% 5!)e1t 1ha++e" a)e

;. It is uneconomical to have a direct contact with the customers, who are countless and scattered all over. B. &anufactures, generally, may not have talent of salesmanship.

The Fo""oB!+, a)e the metho5% /%e5 2< ()o5/1e)%, /+5e) 5!)e1t 1ha++e"
>a3 >b3 >c3 >d3 >e3 *pening sales counter at manufacturer plant. 1oor to door sales -ales by mail order method -ales by opening own shops. -ales through mechanical devices.

&a' o(e+!+, Sa"e% Co/+te) At Ma+/fa1t/)e).% ("a+t:

&anufacturers of nonAdurable goods generally dispose of their products to customers who call on them, for example, ba$ery products, ice cream, cold drin$s etc.

&2' $oo) to $oo) Sa"e%:

-alesmen employed by the manufacturers call at the door of customers. 1ealers may not have $nowledge of the goods or they need a good margin of profit or they do not want to stoc$ un$nown products, for them this system is good.

&1' Sa"e% 2< Ma!" o)5e) metho5:

It is a system by which products are sold to consumers. The postAoffice plays a significant role. This system is also $nown as

&5' Sa"e% 2< o(e+!+, oB+ %ho(%:

It is common that producers of perishable and oneAperishable goods sell their products to customers, by opening their own retail shops. It is also common that manufactures of clothes, footwear, certain electrical e#uipments etc., can push the goods #uic$ly through retail shops and can offer satisfactory service to customers.

&e' Sa"e% th)o/,h me1ha+!1a" $e4!1e%:

In advanced countries li$e .ermany, the @.-.A., Hapan etc. mechanical devices are employed to sell the goods directly to the customers. /ommodities li$e coffee, soft drin$s, newspapers, mil$ etc., are sole by mechanical devices. These devices eliminate sales personnel and economy in space with the help of automatic selling machines? sales are done on cash basis.

6. Ma+/fa1t/)e) AReta!"e) A Co+%/me):

In the channel there is an intermediary retailer. A manufacturer sells goods to consumers through these retailers. There is a gap between the manufacture and the consumer. If the buyers are large, this channel is preferable. 6or perishable articles which need speed in distribution this channel is suitable. 5arge retailers are2 departmental store, supermar$et, coAoperative store etc. It sells its products through the large number of its retail shops. It is established in cities.

7. Ma+/fa1t/)e) A Gho"e%a"e) A Reta!"e) A Co+%/me):

%holesaler and retailers are the two types of intermediary in this channel. A manufacturer channels his products to consumers through these intermediaries. The gap between the manufacturer and the consumer is widened due to these intermediaries. It is oldest method.

4. Ma+/fa1t/)e A A,e+t m!55"eme+ A Gho"e%a"e) A Reta!"e) A Co+%/me):

Agent &iddlemen, wholesalers, retailers are the three types of intermediaries in this channel. The gap between the manufacturer and the consumer is very great. In this

channel the manufacture uses the services of the agent middleman >sales agent3 for the dispersal of goods. The agent distributes the goods to the wholesaler who sells the goods to retailer and who in turn sells to the consumers. >,x3. /loth, cool 4drin$s, electrical products etc. II. I+te,)ate5 1ha++e": Integrated channels are networ$s in which channel components participate in a coAordinate manner. Integrated channel may be vertical or hori!ontal.

The ma!" o)5e) %<%tem !% %/!ta2"e a+5 ()of!ta2"e Bhe+: 1. The goods are standardi!ed and graded. 6. The goods are $nown to the customers 7. The goods can be advertised precisely. 4. %ide publicity is made :. The price is low ;. .oods are capable of being put into immediate use on buying =. .oods are not damaged in transit >. .oods are non perishable ?. &anufacturers have earned a good reputation A54a+ta,e% of Ma!" o)5e) %<%tem:
;. B. 7. D. "usiness can be housed in any place, by loo$ing at the economy of rent /apital re#uirement is less The buyer gets home delivery "ad debts can be avoided to a great extent

$!%a54a+ta,e%: &5' "uyers cannot inspect or select the goods &e' 1emonstration is not possible &f' 0o credit facilities are provided &,' .enerally high prices are charged &h' +onestly of the seller is #uestionable
&!'/heating is common. Fa1to)% !+f"/e+1!+, the 1ho!1e of 1ha++e" 5!%t)!2/t!o+: I. &ar$et consideration II. Product consideration III. /ompany consideration IC. &iddleman consideration C. /onsumer /onsideration I. Ma)*et Co+%!5e)at!o+: &a' The +at/)e of the ma)*et 2 The nature of the mar$et is one of the important factors in mar$et consideration. /onsideration is ta$en under this factor about the product which is meant for customer or the industrial buyer. (etailers will be employed if the product is for consumer mar$et. 5ong channel of distribution will have to be employed if the product is meant for consumer mar$et and industrial mar$et.

&2' The N/m2e) of (ote+t!a" 1/%tome)%:

There is the need for a number of middlemen service if the number of potential customers is large. If the number of potential customers is small direct selling is suggestible.

&1' Geo,)a(h!1 1o+1e+t)at!o+ of the ma)*et:

1irect selling is effective if the customers are concentrated in places. If they are situated over the whole country. Then a large number of middlemen will have to be employed. /ompanies branches can sell their products in thic$ly populated area. In a thinly populated area, direct selling is costly and ineffective.

&5' O)5e) %!9e:

If the sale volume is large, direct selling is suitable.

&e'C/%tome) #/<!+, Ha2!t:

This affects the channel policies very much. %hen the buyers habit and purchases pattern of consumers are fre#uent and small in si!e, we must adopt indirect channel.

II. )o5/1t 1o+%!5e)at!o+: &a'

-+!t %a"e 4a"/e of a ()o5/1t:

%hen the unit value of a product is high, direct channel is effective. *n the other hand, when the unit value is low, the direct channel is in effective. If the product is of low value, larger and cheaper channels will be better. -hort and costly channels may be used if the product is of high value.

&2' e)!%ha2"e Nat/)e:

Perishable products such as mil$, dairy products, bread, meat etc. are sent by shorts channel or direct channel, while long channel is used for nonAperishable products.

&1'Te1h+!1a"!t<:
The technical nature of the product re#uires services. +ence sales and servicemen are needed to explain the use of the product to the customers. Pre 4saleAand postAsale services can be provided. Product li$e computers, direct channel is needed &5' )o5/1t ma5e to o)5e): If the product is made for customers, the shortest channel may be sued products can be distributed directly to the customers. &e'St<"e o2%o"e%1e+1e2 6ashionable dresses must be sole considerably in a short time. III. Com(a+< 1o+%!5e)at!o+: &a' F!+a+1!a" %t)e+,th: 6inancially sound companies are in a better position to select and design their distribution channel. As such, direct channel is adopted. &2' Re(/tat!o+: It has been said that reputation travels faster than man. There are many companies, which have good reputation because of the product preference by the customers many intermediaries eager to have connective with such companies. &1' Ma)*et 1o+t)o": %hen a firm wants to exercise control over the price. They way in which customers are served etc. direct channel is suggested. IV. M!55"ema+ 1o+%!5e)at!o+: The middleman who is able to offer a good facility of storage may be considered. The channel facilitates maximum sales must be preferred. IV. Co+%/me) Co+%!5e)at!o+: The characteristics of buyers as their number, location, fre#uency of the purchase, #uantities bought by them etc. influence the channel selection. If the customers are scattered geographically, a long channel can be adopted.

INTERME$IARIES: &iddlemen or business intermediaries act as the connecting lin$ between the manufacturers and consumers. They are very important in the mar$eting the products, through them products flow in the mar$et. The gap between the producers and consumers is reduced by the middlemen. They speciali!e in carrying out the transfer of title between the producers and buyers. C"a%%!f!1at!o+ of m!55"eme+C!+te)me5!a)!e%: There are two types of middlemen in distribution2 I3 6unctional middlemen II3 &erchant middlemen I' F/+1t!o+a" m!55"eme+CA,e+t m!55"eme+: They are mostly engaged in wholesale dealing. They assist in negotiating sales or purchase or both on behalf of the seller or buyer. They do not ta$e title to the goods which they handle. The $inds of agent middlemen are as follows2 1' #)o*e): A bro$er is an agent. +is main service is to bring the buyer and seller together. +e is agent of the owner of the goods, see$ing a buyer other than the agent of a buyer who is see$ing for supply. 6' Comm!%%!o+ a,e+t: /ommission agent is an agentA individual, firms, or even companies. It negotiates the sales of the goods belonging to the principal. It has the power on the prices, and terms of sales under the condition that it must obey the instructions of the principals. /ommission agent may arrange for delivery? he may extend necessary credit. +is services are mainly used for rapid sale of perishable commodities li$e fruits, vegetables etc., it is very important in agricultural mar$eting. 7' Ma+/fa1t/)e).% a,e+t: The agent receives a percentage of commission based on his sales. +e uses his techni#ue. +e employs his sales representatives, who wor$ for him. They are important in the mar$eting of industrial goods. &anufacturers use such agents when2 !' they find the sales force uneconomical !!' the firm is financially wea$ !!!' experienced and $nowledgeable representation is needed !4' new product is introduced 4' new mar$et area is opened 4' Se""!+, a,e+t%: +e is an independent middleman. +e operates on a contractual basis. +e negotiates all sales of a specified line of merchandise or the entire output of its principal. -elling agents are in close contact with the buyers, and hence they guide the manufacturers on styling, design and pricing matters. :' Re%!5e+t 2/<e)%: (esident buyer is an independent agent, and he speciali!es in buying for retailers. +e receives compensation or a free on commission basis. +e operates in lines of trade such as furniture, garments etc. he has his office in the mar$et place. ;' A/1t!o+ee)%:

They are generally appointed by business firms. The auctioneer receives the goods and invites bids for the goods. The highest bidder gets the goods and the auctioneer collects the amount from him. II' Me)1ha+t m!55"eme+ /ontrary to agent middlemen, merchant middlemen buy and sell goods on their own account and ris$. They ta$e the title to the goods. They resell the goods at a profit. They are divided into two categories i3 wholesalers ii3 retailers !' Gho"e%a"e)%: %holesale dealing includes all activities involved in selling goods or services to those who buy for resale or business use. A wholesaler is a businessman who speciali!es in performing wholesale activities. The word wholesaler means to mar$et goods in relatively large #uantities. !!' Reta!"e)%: (etailer sells varieties of goods in small #uantities to the final consumer. (etailing is an activity directly related to the sale or goods of services to the ultimate consumer for personal use. A retailer is the last middlemen in the machinery of distribution. +e is between the wholesaler and ultimate consumer. F/+1t!o+% of m!55"eme+C!+te)me5!a)!e%: ;. They are the connecting lin$ between the buyers and sellers. They help the sellers and buyers to enter into a contract of sa$e or purchase. B. They direct the flow of the goods from the manufacturer to the ultimate consumers. 7. They $now the mar$et condition, and hence they guide in pricing the products which is satisfactory to both the producers and consumers. The price will be profitable to both the parties. D. +e is responsible for the flow of goods? i.e., physical distribution of goods. =. +e loo$s after advertisement and publicity. E. "uyers need is fulfilled by middlemen. G. They give advice to manufacturers on small commission. F. 5arge scale production is possible with the help of middlemen. They collect huge orders and large purchases of products lead to large scale production. Cha)a1te)!%t!1% of the Bho"e%a"e): ;. he provides information and advisory service to manufacturers and retailers B. he assembles the goods from many sources for the retailers to buy 7. they sell large #uantities D. he buys goods from the manufacturers and resell to the retailers =. the wholesaler does not sell to the ultimate consumer E. +e is engaged in the wholesaling activities. +e ta$es the title of the goods he handles

C"a%%!f!1at!o+C t<(e% of the Bho"e%a"e)%: I. o+ the 2a%!% of a)ea 1o4e)e5: !. Lo1a" Bho"e%a"e)%: They purchase the products from the producers and deliver them to the local retailers !!. State Bho"e%a"e)%: They purchase the products and sell them to retailers in a particular district or state. !!!. Nat!o+a" Bho"e%a"e)%: They purchase the products from the producers and distribute to the retailers of over the country. II.o+ the 2a%!% of metho5% of o(e)at!o+: !. f/"" %e)4!1e Bho"e%a"e)%: They are merchant wholesalers who provide many services to their customers. They provide services of carrying stoc$, sales force and credit facilities. There are three types2 a' Bho"e%a"e a+5 me)1ha+t%: They sell to retailers and provide a full range of service to them. They buy and sell goods in their own name. 2' 1o+4e)te)%: They operate both as manufacturers and wholesalers. "ut their production operation would be simple, concentrating more on selling. This is found in textile industry, where the raw cotton is bought and after dying, printing, etc. finished clothe is sold. 1' !+5/%t)!a" 5!%t)!2/to)%: They are merchant wholesalers who sell to manufacturers. They provide several services to the manufacturers. They carry stoc$, offer credit and deliver the goods to the manufacturers. !!' "!m!te5 f/+1t!o+ Bho"e%a"e)%: a' Ca%h a+5 1a))< Bho"e%a"e)%: They do not provide credit and transport facilities. They have limited line of fast moving goods. 2' T)/1* Bho"e%a"e)%: They perform selling and delivery functions. They also do the functions of collection. They carry a limited line of perishable merchandise, such as mil$, bread, snac$s etc. they sell them for cash. They sell them in supermar$ets, hospitals, hotels etc. 1' $)o( %h!(me+t Bho"e%a"e)%: Though by nature, they are also wholesalers, they do not handle the goods they sell. They simply collect orders from retailers and pass them on the manufacturers who deliver the goods direct to the retailers. They perform most of the wholesaling functions, with the exception of storage and handling. 5' Ma!" o)5e) Bho"e%a"e)%: This type of wholesalers sells goods by mail.

!!!' O+ the 2a%!% of 2)ea5th of the!) "!+e ()o5/1t: a' Ge+e)a" me)1ha+5!%e Bho"e%a"e)%: -uch a wholesaler never restricts the varieties of products to be handled. +e may even handle unrelated product lines. 6or ex. A wholesaler may stoc$ food items together with hardware. 2' Ge+e)a" "!+e Bho"e%a"e)%: /ontrary to the above $ind of wholesalers, they deal in closely related items, for ex. A wholesaler dealing in various types of cosmetics. 1' S(e1!a"t< Bho"e%a"e)%: They give a strong promotional support to the restricted manufacture brand. They create special displays, demonstration and arranging for distribution of samples.