MM Unit 4 - Students

7/31/2019 MM Unit 4 - Students

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Pricing , Distribution &Promotion

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What Is a Price?

Narrow Definition:The amount of moneycharged or paid for a product or service.

Broad Definition:The sum of all valuesconsumers exchange for the product orservice.

Time Costs Emotional Costs

Transaction Costs


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Factors Affecting Price Decisions

Internal Factors

Marketing ObjectivesMarketing Mix StrategyCostsOrganizational considerations

External Factors

Nature of the marketand demand

CompetitionOther environmentalfactors (economy,

resellers, government)

PricingDecisions


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9 - 4

Marketing

Objectives

SurvivalLow Prices to Cover Variable Costs andSome Fixed Costs to Stay in Business.

Current Profit MaximizationChoose the Price that Produces the

Maximum Current Profit, Etc.

Market Share Leadership

Low as Possible Prices to Becomethe Market Share Leader.

Product Quality LeadershipHigh Prices to Cover Higher

Performance Quality and R & D.

Internal Factors Affecting Pricing

Decisions: Marketing Objectives


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9 - 5


Decisions: Marketing Objectives

Other specific objectives include:

Set prices low to prevent competition from entering themarket,

Prices might be reduced temporarily to createexcitement or draw more customers.

Nonprofit and public organization may have other

pricing objectives such as: University aims for partial cost recovery,

Hospital may aim for full cost recovery,

Theater may price to fill maximum number of seats.


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Decisions-Marketing Mix Strategy: Price decisions must be coordinated with product

design, distribution, and promotion decisions toform a consistent and effective marketing

program. Target costing:

Pricing that starts with an ideal selling price & thentargets costs that will ensure that the price is met.


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Decisions-Cost Factors

Total CostsSum of the Fixed and Variable Costs for a Given

Level of Production

Variable Costs

Costs that do varydirectly with the

level of production.

Raw materials

Fixed Costs(Overhead)

Costs that dontvary with sales orproduction levels.

Executive Salaries, Rent


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Types of Cost Factors that Affect Pricing Decisions

As a firm gains experience in production, it learns how to

do it better. The experience curve (or the learning curve) indicates

that average cost drops with accumulated productionexperience.


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Decisions

Organizational Considerations:

Must decide who within the organization shouldset prices.

This will vary depending on the size and type ofcompany.


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Market andDemand

Competitors Costs,Prices, and Offers

Other External FactorsEconomic ConditionsReseller Needs

Government ActionsSocial Concerns

External Factors Affecting Pricing

Decisions


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9-11


Decisions-Market and Demand: Costs set the lower limit of prices while the market

and demand set the upper limit.

Pricing in different types of markets: Pure competition-Many Buyers and Sellers Who Have Little

Effect on the Price

Monopolistic competition-Many Buyers and Sellers Who TradeOver a Range of Prices

Oligopolistic competition-Few Sellers Who Are Sensitive toEach Others Pricing/ Marketing Strategies

Monopoly competition


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Demand Curves and Price Elasticity

of DemandA Demand Curve is a Curve that Shows the

Number of Units the Market Will Buy in a Given

Time Period at Different Prices that Might beCharged.

Price Elasticity Refers to How ResponsiveDemand Will be to a Change in Price.

Price Elasticity of Demand = % Change in Quantity Demanded

% Change in Price


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Price Elasticity of Demand

Price

Quantity Demanded per Period

A. Inelastic Demand -Demand Hardly Changes Witha Small Change in Price.

P2

P1

Q1Q2

Price

Quantity Demanded per Period

P2

P1

Q1Q2

B. Elastic Demand -

Demand Changes Greatly Witha Small Change in Price.


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Decisions-Competitors How does the market offering compare?

How strong is competition and what is their pricingstrategy?

How does competition influence price sensitivity?


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Decisions-Environmental Elements

Economic conditions

Affect production costs

Affect buyer perceptions of price and value

Reseller reactions to prices must be considered Government may restrict or limit pricing options

Social considerations may be taken into account


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PricingObjectives

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Pricing Objectives

Profit-Oriented Pricing Objectives

Sales-Oriented Pricing Objectives

Status Quo Pricing Objectives


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ProfitMaximization

SatisfactoryProfits

TargetReturn on

Investment


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Market

Share

Sales

Maximization



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Maintainexistingprices

Meetcompetitions

prices



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PoliciesMethods forSetting Price

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Policies Methods for Setting Price

Demand oriented focus on consumer preference

Cost orientedfocus on businesss expenses

Profit oriented focus on profit

Competition oriented focus on the marketplace players


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DEMAND ORIENTED APPROACHES-Attempt to determine whatconsumers are willing to pay for goods and services.

The key to this method of pricing is the consumers perceived value of

the item. The price set must be in line with this perception or the itemwill be priced too high or low for the target market. The higher thedemand, the more a business can charge.

Skimming Pricing

high initial price

Penetration Pricinglow initial price

Prestige Pricinghigh price = quality and status

Bundle Pricing- 2 products priced as one. helps poorer seller


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PROFIT ORIENTED APPROACHES

Target Profit Pricing-set annual Rs volume or profitIf I need to make Rs 5000, & I can make 5 units,

selling price is Rs 1000.

Target Return-on-Sales Pricing-

Want to receive 1% of sales as my profitactors & directors

Target Return-on-Investment Pricing

I can make 5 % on my money in the bank. Set price so

I make 6% on my investment if I invest it in my business.


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COST ORIENTED APPROACHES-In cost-oriented pricing,marketers first calculate the costs of acquiring or making a

product and their expenses of doing business, then add their

projected profit margin to these figures to arrive at a price.

Markup pricing / cost-plus pricing

The process where resellers add a Rs amount(markup) to its cost to arrive at a price.

All costs and expenses are calculated, and thenthe desired profit is added to arrive at a price.

Marginal cost Pricing


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COMPETITION ORIENTED APPROACHES

Above-, At-, or Below-Market Pricing Use largest competitor as a benchmark to set your price.

Rolex watches (above) or Value City Furniture (below)

Loss-Leader Pricing- Price below cost to lure buyers in

Want buyer purchasing other things you sell at high mark ups


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Pricing

StrategiesMM Unit 3 27


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Pricing Strategies

Market Skimming

Market Penetration

Product Mix Pricing

Price Adjustment Strategy

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Best used when: Technological

Breakthrough

Higher quality /premium product.

Competitors with similarquality cannot easilyundercut price.

Initially set a highprice for a newproduct so as to

skim revenueslayer by layer fromthe market.

Lower prices over

time, Initially make fewer,

but more profitablesales.

Pricing StrategiesMarket Skimming


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Best used when: Market is highly price

sensitive.

Need to keepcompetition out oreffects are onlytemporary.

Set a low initial priceso the brand topenetrates themarket quickly.

Eventually raiseprices when wideadoption and brandloyalty have been

achieved.

Pricing StrategiesPenetration Strategy


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Pricing Strategies- Product Mix

Product line pricing

Optional-product pricing

Captive-product pricing By-product pricing

Product bundle pricing

Geographical pricing


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Product Line Pricing

Sets price stepsbetween variousproduct line itemsbased on:

Cost differences betweenproducts

Customer demand foradditional/different

features Intel from Celeron to

pentium


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Optional-Product Pricing

Pricing optional or accessory products sold withthe main product

Examples:

Computer sold with additional RAM (memory) Rental car sold with luxury


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Captive-Product Pricing

Pricing products that must be used with the mainproduct

Base product is relatively cheap or free

Replacement product is relatively expensive Examples:

Replacement cartridges for Gillette razors.

Toner/ink for HP printers.

Replacement car parts sold at car dealers


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Product Bundle Pricing

Multiple products sold together for one price Creates perceptionof savings

Eases decision-making and ordering forconsumers

Examples:

Computer package: PC, monitor, software, and printer.

McDonalds Value Meal: Burger, Fries and Drink

Vacation package: Flight, hotel and meals Season tickets for 5 days cricket match is cheaper than

5 days individually


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By-product pricing

-Helps businesses get rid of excessmaterials used in making a product byusing low prices. One example is a

furniture company selling wood chips.


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Discount and allowance pricing

Price discrimination (Segmented pricing)

Psychological pricing

Promotional pricing

Dynamic pricing

Pricing Strategies-Price Adjustment


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Discounts and Allowances

Discount pricing involves the seller offering reductions from the

usual price, and it can be done with:

Cash discounts -Cash discounts are given when the consumerpays for his/her purchase quickly.

Quantity discounts-Quantity discounts are rewards for

consumers who buy large amounts of a product. Thesediscounts can be one of two types:

Noncumulative: A discount given on one specific order

Cumulative: A discount given on all orders over a specified period of time

Trade discounts-Trade discounts are the way manufacturers

quote prices to wholesalers and retailers. Price cuts from thelist price will be given to members of the channel ofdistribution.

Seasonal discounts-Seasonal discounts are offered to buyerswilling to buy at a time outside the customary buying season.


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Price Discrimination

(Segmented Pricing) Selling a product or service for

different prices to different people,where differences in price are notdriven by different costs.Four factors can help marketers use segmented

pricing strategies:

Customer segment: Some customersbuyers are charged differently. student'sconcession

Product design: Different product stylesmay be more in demand. Powderdifferent packs

Purchase location: Some areas havehigher prices than others. Multiplex &common cinema

Time of purchase: Demand for productsand services rises at certain times.


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Psychological Pricing

Considers the psychological effects of prices usually irrational responses.

Standard practice among most retailers


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Even-Odd Pricing

Odd-even pricing involves setting prices that end in either odd oreven numbers to convey certain images. It is based on apsychological principle that odd numbers convey a bargain image,while even numbers convey a quality image.

Rs 12


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Prestige Price- as Signal of Quality

A pricing technique that sets higher-than-averageprices to suggest status and high quality to theconsumer.

The typical Price-Quality Inference

Effects of price changes on quality inferences

When pricing is NOT used as a quality signal

Extensive product knowledge/expertise

Repeat buys


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Everyday low prices (EDLP)

Low prices set on a consistent basis withno intention of raising them or offeringdiscounts in the future. These help to

reduce promotional expenses and lossesdue to discounting.

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Promotional Pricing Techniques Cash Rebates-Rebates are

partial refunds provided by

the manufacturer toconsumers

Special-Event Pricing-In special-event pricing, items arereduced in price for a shortperiod of time, based on aspecific happening or holiday.

Loss Leaders-Loss leaderpricing is used to increasestore traffic by offering verypopular items for sale atbelow-cost prices.

Trade-in allowances godirectly to the buyer.Customers are offered a

price reduction if they sellback an old model of theproduct they arepurchasing.

Low-Interest (or Free)Financing

Clearance Sales


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Promotional PricingDeals, Clearance Sales and 0% Financing

Promotional pricing createsexcitement and a sense of urgency.


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Dynamic Pricing

Adjusting prices continually tomeet the characteristics and

needs of continuously changingsupply and demand.


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Geographical pricing

Price adjustments required because of thelocation of the customer for delivery of products.In this strategy, the manufacturer assumesresponsibility for the cost and management of

product delivery.

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Steps in Determining Prices


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Steps in Determining Prices

There are six basic steps that are used to determine prices:

Establish pricing objectives-To set effective prices, the pricing objectives must

conform to the companys overall goals. They must also be specific, time-sensitive, realistic, and measurable.

Determine costs -Businesses must consider all of the costs involved in makinga product available for sale, including materials, labor, and supplies. Costs canvary due to ever-changing economic conditions.

Estimate demand-To estimate demand, marketers must research how thepublic will receive their product or service based on supply-and-demand theoryand on the exceptions that occur because of demand elasticity.

Study competition-Businesses need to investigate what prices theircompetitors are charging for similar goods and services.

Decide on a pricing strategy-When choosing a pricing strategy, be sure yourdecision conforms to your pricing objectives and remember that as economicand market conditions change, strategies may require changes too.

Set prices-The final step is setting the price. Marketers must decide how oftenthey want to change their final, published prices. In addition to the cost ofchanging printed materials, customers reactions to price changes must beconsidered as well.


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Ways to increase prices without increasing price

Revise the discount structure

Change the minimum order size

Charge for delivery and special services

Charge for engineering, installation Charge for overtime on rushed orders

Collect interest on overdue accounts

Produce less of the lower margin models in the line

Write penalty clauses into contracts Change the physical characteristics of the product


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Channels ofDistribution

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What is a Marketing Channel?

A Marketing channel is a set of organizations involvedin the process of making product or services available

for use or consumption.

A set of interdependent organizations that ease thetransfer of ownership as products move from producerto business user or consumer.


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Retailer

Wholesaler

Agents

A channel intermediary thatsells mainly to customers.

An institution that buys goodsfrom manufacturers, takes title

to goods, stores them,and resells and ships them.

Wholesaling intermediaries whofacilitate the sale of a product in

return for a commision

Names for Marketing Intermediaries


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Specialization andDivision of Labor

ThreeMain

Functions

OvercomingDiscrepancies

Providing ContactEfficiency

JOB OF INTERMEMDIARIES

SPECIALIZATION AND DIVISION OF


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Provides efficiency and cost savings

Aids producers who lack resources tomarket directly

Builds good relationships with customers

SPECIALIZATION AND DIVISION OFLABOR


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OVERCOMING DISCREPANCIES

Spatial discrepancyExist because of gap of place between manufacturerplace & consumption, e.g GSK, tea

Companies to weigh between transportation costreduction or inability to exploit economies of scale

Temporal discrepancyTime gap between manufacturer & consumption

Manufacturing is always in batchesNeed demand assessment & place assessmentFor perishable products , temporary discrepancy iscomplex & critical


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Discrepancy of Quantity/Need to break the bulk

Exists because products are manufactured in bulkbut consumed in smaller quantities

Large trucks to different locations ( state capitals )to smaller locations ( area) to retailors to consumer

ITC cigarette

Discrepancy of Assortment/ Need to provide assortment Consumers demand for assortments rather than

single product

Vegatable seller versus manufacture, big

bazaaretc.

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C Effi i


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Contact Efficiency

Distribution Channel Functions


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Information

Promotion

Contact

Matching

Negotiation

Physical

Gathering and distributing marketingresearch about the environment

Developing and spreading persuasivecommunications about an offer

Finding and communicating with prospectivebuyers

Shaping and fitting the offer to the buyersneed

Agreeing on price and terms of the offer soownership or possesion can be transfered

Distribution: transporting and storing goods

FinancingAcquiring and using funds to cover the costs

of channel work

Distribution Key FunctionChannel

Risk TakingAssuming financial risks such as the inability

to sell inventory at full margin

F Aff i Ch l f Di ib i


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Factors Affecting Channel of Distribution-:

Market Factors

Product Factors

Company Factors

Competitive Factors

Environmental Factors

Middlemen factors

M k f


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Market factors

Consumers- The number of consumers, their geographic

location and purchase pattern considerable affect thechoice of a channel

Intermediaries- The relative strengths and weaknessesof intermediaries and the differences in the types of

functions performed and facilities and privileges desiredby them often determine the choice of channel.

Size of the order

Competitors- The distribution channel used by

competitors also influence the channel choice because itmay be the customary channel used by all thoseoperating in the field.

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P d F


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Product Factors Industrial / Consumer product- When the product being

manufactured and sold is industrial in nature, direct channel is useful

because of the relatively small number of customers need forpersonalized attention, customer training requirements and aftersale servicing.

Perishable Nature- When products are perishable nature, like milk,dairy products bread and meat, etc., it is useful to opt for direct

channel Technicality- When a product is very technical and complex like

computers business machines etc. the direct channel is relativelymore useful.

Selling price- if selling price is low, the channel of distribution may

be long as in the case of cigarette

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C F


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Company Factors

Financial Strength- A financially strong company is better

placed to select and design its distribution channel . Past Channel Experience- In case of an old and

established company, its past experience of working withcertain kind of intermediaries also affect the channel

choice. Reputation/ Goodwill-

Controlling Power

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E i l F


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Environmental Factors

Economic- in depressed economic condition& in multipoint tax on sales- short channel

Legal Restrictions- as per MRTP act ,any

practice which may have the effect ofunreasonably preventing or lesseningcompetition in the supply of goods is notpermisible

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C i i F


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Competitive Factors-:

Channels which are less expensive aregenerally preferred.

Consumer convenience is also a factor to

consider for selection.Alternative distribution channel may be used

as a means of attaining competitiveadvantage

Competitor controls channel of Distribution.

Middl F


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Middleman Factors-:

Availability of MiddlemanAttitude of Middleman

Services Provide by Middleman

Sale potential of Middleman


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Direct Distribution Direct contact between producer and customer.

Often found in the marketing of relatively expensive, complex productsthat may require demonstrations.

Internet is helping companies distribute directly to consumer market.

Own Retail shops, Personal selling (door to door), Automatic vending,Franchised shops, Telephone selling (Telemarketing), ExclusiveStores/Specialty Stores-marketing

Distribution Channels Using Marketing Intermediaries

Producers distribute products through wholesalersand retailers. Inexpensive products sold to thousands of consumers in widely

scattered locations.

Lowers costs of goods to consumers by creating market utility.

Types of Distribution Channels


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Major Distribution Channels

For distribution of consumer goods, fivedifferent types of channels are widely used.

Business goods are normally distributedthrough four major types of channels.

There are only two common channels ofdistribution for services.

Some producers are not content to use onlya single distribution channel and use

multiple channels (dual distribution) Multiple channels can aggravate middlemen

and cause conflicts in the channels.

Consumer Channels


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ULTIMATE CONSUMERS

PRODUCERS OF CONSUMER GOODS

Retailers Retailers Retailers Retailers

Merchantwholesalers Merchantwholesalers

Agents Agents

Consumer Channels

Business Channels


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BUSINESS USERS

PRODUCERS OF BUSINESS GOODS

Merchant wholesalers(industrial distributors)

Agents Agents

Merchant wholesalers(industrial distributors)

Business Channels


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ULTIMATE CONSUMERS OR BUSINESS USERS

PRODUCERS OF SERVICES

Agents

Service Channels


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Multiple Distribution Channels

Some firms will use several distributionchannels to reach specific markets orsegments

Dual distribution is used, for example, to reach

business and consumer markets, or to carrydifferent groups of products or may be used toreach different segments of the sellers market;different sizes of buyers or different regions ofthe country

Some companies operate their own stores

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Channel Design Decisions

Analyzing Consumer Needs

Setting Channel Objectives

Identifying Major Alternatives

Evaluating the Major Alternatives

Analysing Consumer Needs


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Analysing Consumer Needs Designing the distribution channel begins with

determining what (e.g. convenient location to buy the

products, immediate delivery, credit, repairs, long-termwarranty) the consumers want from the channel.

The company must balance the consumer service needswith the feasibility and costs plus prices.

Answering key questions helps to determine customerneeds: Do consumers want to buy from nearby locations or are they

willing to travel?

Do consumers want many add-on services? Firm must balance needs against costs and consumer

price preferences.

Setting the Channel Objectives


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Setting the Channel Objectives

The company must decide which segments to

target and the best channels to use in eachsegment. Here, the objective of the company isto minimize the total channel cost.

Besides the target market, the companys

channel objectives are influenced by;

the nature of its product, e.g. perishable productsrequire more direct marketing to avoid delays and toomuch handling. Daily newspaper

company characteristics, e.g. the companys size andfinancial situation determine which functions it canhandle, how many channels it can use, whichtransportation can be used

ch ct i tic f i t m di i i t di i diff i


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characteristics of intermediaries, intermediaries differ intheir abilities to handle promotions, customer contact,storage and credit e.g. the companys own sales force is

more intense in selling. competitors channel, some companies may prefer to

compete in or near the same outlets that carrycompetitors products, some may not e.g. Burger King

wants to locate near McDonalds environmental factors, economic conditions and legal

constraints affect channel design decisions e.g. in adepressed economy, producers want to distribute their

goods in the most economical way, using shorterchannels.



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After the channel objective have been determined, thecompany should identify its major channel alternatives interms of (1) types of intermediaries, (2) number ofintermediaries, and (3) the responsibilities of each channelmember.

Types of Intermediaries

Company sales force-strategies-Expand direct sales force,Assign salespeople to territories to contact all prospects,Develop a separate sales force, Telesales

Manufacturers agency- hire agents in different regions

Industrial distributors-Find distributors in different regions

who will buy & carry the device. Give them Exclusivedistribution, Margin, opportunities, Training, Support

A firm should identify the types of channel members that areavailable to carry out its channel work.

Number of Marketing Intermediaries


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Number of Marketing Intermediaries

Companies must also determine the number ofchannel members to use. There are three strategies; Intensive distribution; is a strategy in which companies stock

their products in as many outlets as possible. Convenienceproducts and common raw materials must be available whereand when consumers want them e.g. toothpaste, candy

Procter & Gamble, Coca-Cola distributes its products in this

way. Here, the advantages are maximum brand exposureand consumer convenience.

Exclusive distribution; is a strategy (opposite to intensivedistribution) in which the producer gives only a limitednumber of dealers the exclusive right to distribute its products

in their territories. Often found in new automobiles andprestige womens clothing e.g. Rolls-Royce. Here, theadvantages are establishing image and getting highermarkups.

selective distribution; (is between intensive and exclusive


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selective distribution; (is between intensive and exclusivedistribution) is a strategy in which the company uses morethan one but fewer than all of the intermediaries. Mosttelevision, furniture brands are distributed in this way. Here,

the advantages are; it provides good market coverage withmore control and less cost than intensive distribution. It doesnot spread its efforts over many outlets as in intensivedistribution.

Responsibilities of Channel Members

The producer and intermediaries must agree on pricepolicies, discounts, territories, and services to beperformed by each party. E.g. McDonalds provides

franchisees with promotional support, training,

management assistance, in turn, franchisees mustmeet company standards for physical facilities, buyspecific food products...

Evaluating the Major Alternatives


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Evaluating the Major AlternativesIn order to select the channel that satisfy thecompany objectives in the best way, eachalternative should be evaluated by using;

economic criteria; the company compares theprojected profits and costs of each channel.

control issues; the company prefers to keep thechannel where it has the highest control in termof sales procedure, payment & promotion.

adaptive criteria; the company prefers to keepthe channel which is the most flexible to thechanging marketing environment.


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Channel Management Decision Selection of Channel Members

Training of Channel Members

Motivation of Channel Members

Evaluation of Channel Members

Modification of Channel Arrangement

Selecting Channel Members


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Selecting channel members involves determining thecharacteristics that distinguish the better ones byevaluating channel members

Years in business Lines carried Profit record

Selecting intermediaries that are sales agents involves evaluating

Number and character of other lines carried Size and quality of sales force

Selecting intermediates that are retail stores that want exclusive or

selective distribution involves evaluating Stores customers Store locations Growth potential

Selecting Channel Members

Training Channel member


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Training Channel member- On the job, class room training ( products & positioning), product

features, marketing & promotional materials, special meeting on the

new launch, training on reports, servicing

Motivating Channel member-- Develop a cooperative/collaborative and balanced relationship with

the partner

- Understand the partners customers their needs, wants, anddemands

- Understand the partners business operationally and financially andwhats really important to them

- Look at the partners needs in terms of customer support, technicalsupport, and training

- Establish clear and agreed upon expectations and goals- Develop recognition programs focusing on the partners contributions

- Build internal support systems and dedicate resources to the partner

Determines intermediates needs, time to time training programme,capability building programme for improving efficiency,

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Channel Power- producers use following types of power


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Channel Power- producers use following types of power.

Coercive power- threatens to withdraw or terminate arelationship

Reward power- extra benefit for performing specific acts Expert power- manufacturer has special knowledge that

intermediaries value

Legitimate power- manufacturer requires a behaviour that

is warranted under the contract Referent power- intermediaries feel proud to be associated

with the manufacturer

Evaluating Channel member- criteria may be sales volume & value, profitability, level of

stocks, quality & position of display, selling & marketingcapabilities, quality of service to be provided to customer,market information feedback, attitude

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Channel Behavior


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Channel Behavior

All channel firms should work together to besuccessful. Each channel member is dependenton the others e.g. a Ford dealer (retailer)depends on the Ford Motor Company to designcars that meet consumer needs. In turn, Forddepends on the dealer to attract consumers,persuade them to buy Ford cars, and service

cars after the sale. The Ford dealer alsodepends on the other dealers to create a goodoverall reputation for the entire distributionchannel.

Although channel members are dependent on


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one another, they often concentrate on theirshort-term benefits. Channel conflictoccurs

when disagreement among channel memberson goals and roles - who should do what andfor what rewards.

Horizontal conflict; occurs among firms at the same

level of the channel. In other words, one dealermay complain about the other.

Vertical conflict; occurs among different levels ofthe same channel. In other words, the producer

may complain about its dealers or vise versa.

Conflict may be healthy or damaging for thechannel. Healthy competition wouldencourage dealers to improve their services.

Channel organisation


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Channel organisation

Historically channels have followed theconventional distribution channelformat:

comprised of independent producers, wholesalers andretailers, with separate businesses and seeking to

maximise their own profit individually, even at theexpense of the entire channel.

Modern channel management has evolved todevelop vertical marketing systems (VMS)that

provide channel leadership.

Vertical Marketing Systems


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Vertical Marketing Systems

Vertical Marketing Systems (VMS) consists ofproducers, wholesalers, and retailers acting as aunified system - that seek to maximize profits forthe whole channel.

Here, one channel members owns the others,has contracts with them or use so much powerthat they all cooperate.

Such systems occur to control channel behaviorand manage channel conflict.

Types of Vertical Marketing Systems


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Types of Vertical Marketing Systems

Corporate

VMS

Wholesaler-

sponsored

voluntary

chains

Retailer

cooperatives

Franchise

organizations

Contractual

VMS

Administered

VMS

Vertical

marketing

systems (VMS)

Corporate VMS


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Corporate VMS

In a corporate VMS, production anddistribution stages are combined under singleownership, in order to manage cooperation

and conflict management e.g. AT&T markets its products through its own

chain of distributors.

Reliance owns all stages from oil exploration to oil

refinery

Contractual VMS


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Contractual VMS

A contractual VMS consists of independent firms

at different levels of production and distributionwho join together through contracts to obtainmore economies or sales impact than eachcould achieve alone.

There are three types of contractual VMSs;

wholesaler-sponsored voluntary chains; arecontractual marketing systems in which wholesalersorganize voluntary chains of independent retailers tohelp them compete with large corporate chainorganizations.e.g vegetable & food market

retailer cooperatives; are contractual marketing


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retailer cooperatives; are contractual marketingsystems in which retailers organize a new, jointlyowned business to carry on wholesaling and

possibly production. Apna bazaar in Mumbai franchise organizations; are contractual marketing

systems in which a channel member, called afranchiser, links several stages in the production-

distribution process. There are three forms offranchisees; manufacturer-sponsored retailer franchise system e.g.

Ford licenses dealers to sell its cars. The dealers areindependent businesspeople who agree to meet various

conditions of sales and service. manufacturer-sponsored wholesaler franchisee system

e.g. Coca-Cola licenses bottlers (wholesalers) in variusmarkets who buy Coca-Cola syrup concentrate and thencarbonate, bottle and sell the finished product to retailers

in local markets.

service-firm-sponsored retailer franchise system in


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service firm sponsored retailer franchise system inwhich a service firm e.g. Hertz, Avis, McDonalds,

Burger King, Holiday Inn, Ramada Inn licenses a

system of retailers to bring its service to consumers.

Administered VMS


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Administered VMS

A vertical marketing system that coordinatesproduction and distribution stages, not throughcommon ownership or contractual ties, butthrough the size and power of one of the partiese.g. Procter & Gamble, Kraft, Campbell Soup (orretailers like Wal-Mart, Toys `R` Us) are verystrong that they can command special displays,

shelf space, promotions and prices form theother parties.

Horizontal Marketing Systems


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Horizontal Marketing Systems

Horizontal marketing systems is a channelarrangement in which two or more companies at onelevel join together to follow a new marketingopportunity.

The major benefit is that companies combine theircapital, production capabilities, marketing resourcesand therefore accomplish more.

Companies might join forces with competitors or

noncompetitors. They might work with each other ona temporary or permanent basis or they may create aseparate company.

E g Coca-Cola and Nestle formed a joint


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E.g. Coca Cola and Nestle formed a jointventure to market ready-to-drink coffee andtea worldwide. Coke provided worldwideexperince in marketing and distributionbeverages and Nestle contributed twoestablished brand names - Nescafe and

Nestea.

Hybrid Marketing Systems


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Hyb d Ma et g Syste s

Hybrid marketing systems is also calledmultichannel distribution systems where thecompany uses several marketing channels

(e.g. direct mail - telemarketing, retailers,distributors, dealers, own sales force) to sellits products to different customer segments.

E.g. IBM uses its own sales force + IBM

direct which is the catalog and telemarketingoperation of IBM + independent IBM dealers+ IBM dealers for business segments + largeretailers like Wal-Mart.

The major benefit is that when the company


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j p yhas large and complex markets (consumers)the company can expand its sales and

market coverage by providing services to thespecific needs of diverse customer segments.

The disadvantage is that they are harder to

control and generate more conflict.


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RETAILING &

WHOLESALING

What is Retailing?


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What is Retailing?

All the activities involved in selling goods or

services directly to final consumers for theirpersonal, non business use.

Retailers - businesses whose sales comeprimarily from retailing.

Retailers can be classified as:

Store retailers such as Home Depot, Walmart Nonstore retailers such as the mail, telephone, and

Internet.

Types of Retailers


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11-101

yp

Retailers are classified based on: Amount of service they offer

Breadth and depth of product lines

Relative prices charged How they are organized

Amount of service they offer


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y

Self-service retailers Customers are willing to self-serve to save money

Convenience stores and fast moving shopping goods

Limited-service retailers Provide more sales assistance because they carry more

shopping goods about which customers need information.

Most department stores

Full-service retailers Salespeople assist customers in every aspect of shopping

experience

High-end department stores and specialty stores

MM Unit 3 102

Major Store Retailer Types


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Copyright 2007, Prentice Hall,

Inc. 11-103

j yp Specialty stores- Narrow Product Line, Deep Assortment. Sporting

goods store. Raymonds

Department stores- Wide Variety of Product Lines required bytypical household. i.e. Clothing, Home Furnishings, & HouseholdItems. Pentaloon retail

Supermarkets- large, low cost , low margin, high volume .WideVariety of Food, Laundry, & Household Products. Foodland &Garware in Mumbai

Convenience stores- generally food stores, smaller in size thansupermarket, located near residential areas. Street corner grocerystore

Discount stores- sell standard merchandise at lower prices thanconventional merchants. Subhiksha

Relative prices charged


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p g

Discount stores Low margins are offset by high volume

Off-price retailers Merchandise bout at less than regular wholesale price & sold at

less than wholesale price & sold at less than retail :often leftovergoods,

Independent off-price retailers- run by entrepreneurs or by divisionsof large retail corporation. E.g C3

Factory outlets- owned & operated by manufacturer & normally carry

the manufacturers surplus. Bata, Levi Strauss, Reebok Warehouse clubs-serve limited selection of brand name appliances,

clothing to member who pay annual membership fee.

Sams Club, Costco

MM Unit 3 104

How they are organized


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y g

Corporate chain stores Commonly owned / controlled

Voluntary chains Wholesaler-sponsored groups of independent retailers

Retailer cooperatives

Groups of independent retailers who buy in bulk Franchise organizations

Based on something unique

MM Unit 3 105

Retail formats in India


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Departmental Stores Convienience Stores

Shopping Mall

E-Trailers

Vending

Speciality Stores

Co-operative Society

Challenges facing Indian Retail Industry


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Tax structure in India favours small retailbusiness

Lack of adequate infra structure facilities

High cost of real estates Shortage of trained man power

Low Retail Management skill

Dissimilarity in consumer groups

Major Retailers in India


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j

Shoppers Stop

Westside

Pantaloons

Life Style

RPG retail

Cross Word

TATA Group

Reliance

Right Pricing Strategy


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g g gy

The right price is one , consumers are willing and

able to pay and retailers are willing to accept in

exchange for merchandise and services!

The right price allows the retailer to make a fair

profit while providing the consumer with value

satisfaction before, during, and after the sale!

Functions of Retailers


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Retailing undertakes business activities or

perform functions that increase the value ofproducts and services they sell to consumers.

These functions are:

Providing assortments Breaking Bulk

Rendering services

Risk Bearing

Holding Inventory

Non-Store Retailing


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g

Most retailing is done in retail stores.

In recent years non store retailing has

been growing much faster than store

retailing

It includes selling to final consumers

through direct mail,catalogue,telephone,

the internet, TV

Benefits of Retailer for both manufacturers and customers


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Manufacturer Expectation Customers Expectations

1. Promote Product 1.Offer high quality or low prices

2.Make Product Visible 2.Hire Knowledgeable Sales

Force

3.Be Knowledge about its use 3.Provide Prompt Services

4.Provide necessary service 4.Provide service after sales

Retailing Functions


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Assembling of goods Physical movements & storage

Providing of information to consumer &

producers Financing, credit to consumer

Floor & shop operations

Marketing & brand management

MM Unit 3 113

Tasks Of Retailing


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Get Consumers into your Store Convert them into customers

Operate as efficiently as possible

Retailing should be planned aftersegmentation and identifying the target

market

Retail Mix


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Retail mix brings the firm objective in final and practical form.

Retail mix describes how major factors like price and

merchandise are traded off against other retail factors- service,

location, marketing communication,quality and stores ambience

to form

Overall store image,

Create value for customers

Produce profit for retailer


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RETAIL IN INDIA

Overview


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Overview The retailing industry in India is largely

unorganised and predominantly consists of smallindependent, owner-managed shops Retailing is Indias largest industry in terms of

contribution to GDP and accounts for 13 percentof the GDP

There are around 5 million retail outlets in India There are also an unaccounted number of low-

cost kiosks (tea stalls, snack centre, barbershopsetc,.) and pushcarts/mobile vendors

Emergence of organized retailing


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Emergence of organized retailing

Organized retailing in India represents a smallfraction of the total retail market

Organized retailing was first started in India in theyear 2001 and was valued at Rs. 11,228.7 billion

Income in urban India is increasing A rising working population faces a shortage of time Demand for frozen, instant, ready-to-cook, ready-to-

eat food, and readymade clothes is rising

Rural India continues to be serviced by small retailoutlets The McKinsey report predicts FDI will help the retail

businesses to grow to $ 460-470 billion by 2010

Traditional retail formats


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Traditional retail formats refer to retail formatsthat have long been part of the retaillandscape of India.

There are predominantly two types of

traditional retail formats, namely:- Kirana and Independent Stores

- Co-operative and Government owned stores

Kirana and independent stores


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Kirana, Mom and Pop, and family owned retail shopsrepresent bulk of the retail business in India

These are usually shops with a very small areastocking a limited range of products, varying fromregion to region according to the needs of theclientele

About 78% of these retail stores are small family-owned businesses utilising only household labour

Even among retail enterprises that employ hiredworkers, the bulk of them use less than threeworkers

These are low cost structures, mostly owner-operated, with negligible real estate and labour costs

and little or no taxes to pay Branding is not the key decision criteria for amajority of customers at the traditional retail outletsparticularly in the small townships and rural India

Conventionally, retailers source the merchandisefrom wholesalers and sell it to end-users

Cooperatives and governmentb di


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bodies

India has large number of retail stores run bycooperative societies and government bodiesacross product categories

Such initiatives were taken for various socio-economic factors primarily to promote industries

and employment in rural areas Super Bazaars and the Kendriya Bhandars along

with the administered price Public DistributionSystem are organized retailing formats

Examples:

Mother Dairy, Delhi and Fruit & Vegetable Project Public Distribution System in New Delhi

Central Cottage Industries Emporium

Retailing in rural indiaAn important phenomenon in Indias consumer culture is


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An important phenomenon in Indias consumer culture isthe emergence of the rural market for several basicconsumer goods

Three-fourths of Indias population lives in rural areas,and brings one-third of the national income

The rural market has been growing steadily over theyears and is now bigger than the urban market forFMCGs (53% share of the total market) with an annualsize in value terms currently estimated at around 50,000crore

A boon for the companies who are seeking new ways toincrease sales

NCAER projects that the number of middle and high-income households in rural India are expected to growfrom 80 million to 111 million by 2007

Existing retail formats available in rural India are retailoutlets within the village, feeder centre or markets, melas,haats and shandies, hawkers (mobile retailers)

Rural market penetration levels


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Rural market penetration levelsDurable Rural share % Product Penetration %

Refrigerator 24.30 Coffee 7

Black and white

television

62.65 Biscuits 60.1

Washing machine 14.64 Toilet soap 91.6

Pressure cooker 51.51 Toothpaste 35.6

Instant Water heater 2.04 Talcum powder 16.4

Mixer/grinder 27.43 Hair oil 16.0

Colour television 28.77 Shampoo 39.8

Scooter 28.56 Razor blade 47.1

Motorcycle 47.87 Skin cream 15.5

Retail Strategy


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The sector represents a variation in level ofdevelopment and preference for formatsbased on product categories

Product categories differ in terms of

percentage share of markets, level of riskand relevance for the consumer, and theexpectation and requirement of customer

service

Specific product categories


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1. Food Category: Supermarkets,discount stores, freshproduct outlets, speciality stores, convenience stores

and off-price retailers.2. Restaurants:Apna Ghar, old formats coexist

(Ghanteewala Halwai, Natraj Caf, Giani ka falooda)3. Health and Beauty Products: LIFESPRING HEALTH &

BEAUTY PLACE (Health Foods at Beauty Products, Eye

Care at Life Spring )4. Clothing and Footwear Retailers: Kala Niketan, THE

LOFT, Shoppers Stop, Pantaloon, Trent, HomeFurniture and Household Goods Retailers

5. Durable Goods Retailers:Viveks

6. Petro-Retailing in India: Bharat Petroleum7. Retail Banking: Multi-Channel Distribution, Call Centres

(support services), Technology, Rural exposure8. Leisure industry

Vertical marketing system In Indianretailing


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retailing An independent vertical marketing system consists of all

the levels of independently owned business entitiesalong a channel of distribution/value chain

Three levels of independently owned forms:manufacturers or suppliers, wholesalers or distributors,and retailers

System is compatible if:

- producer and retailers are large and selective- exclusive distribution is sought- unit sales are moderate- company resources are high and greater channel control isdesired

- existing wholesalers are too expensive or unavailable All or most of the functions from production to

distribution are at least partially owned and controlledby a single entity

Corporate systems typically operate manufacturingunits, warehouse facilities, and retail outlets

Challenges in retail business In India


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Retail industry in India is in a phase of transitionand faces challenges

Recent examples of chains that tried ramping uptoo fast too soon (Barista, Domino's andShoppers' Stop) all fell into a cash trap

Deciding the right pace of expansion is critical

Retailers in India face other challenges in termsof

1. Real estate2. Regulations3. Manpower

These challenges have an impact on thr costsand efficiency of operations of the retail business

What is wholesaling?


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All the activities involved in selling goods and

services to those buying for resale or business

use.

Wholesaler-those firms engaged primarily in

wholesaling activity.

Why are Wholesalers Used?Wholesalers are Often Better at Performing One


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Wholesaler

Functions

ManagementServices & Advice

Selling andPromoting

MarketInformation

Buying andAssortment Building

Risk Bearing Bulk Breaking

Transporting

Financing Warehousing

Wholesalers are Often Better at Performing Oneor More of the Following Channel Functions:

Types of Wholesalers


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11-130

Merchant Wholesalers Largest group of wholesalers

Account for 50% of wholesaling

Two broad categories: Full-service wholesalers- They perform all or most of the

marketing functions ( carry stock, maintain a sales force, offer

credit, a full range of services) normally associated with

whole saling.they also referred to as distributor or a jobber.

Limited-service wholesalers

Type of limited wholesalers Functions


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Cash and carry wholesalers Emphasise on small business

market.no credit ,no managerialassistance

Drop shippers Dont store inventory .commodities like grains and coal.

Truck wholesalers or wagon jobbers Inventories are carried on trucks

Mail order wholesalers Send catalogues to retail, industrialThey serve business, gov,

institutional markets

producers and retail coperatives andrack jobbers

Independent producers markettogether their output at discount

Brokers and Agents

Do not take title to goods


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Copyright 2007, Prentice Hall,Inc. 11-132

Do not take title to goods

Perform fewer functions

Brokers bring buyers and sellers together

Agents represent buyers on more permanentbasis

Manufacturers agents are most common type ofagent wholesaler

Manufacturers Sales Branches and Offices

Wholesaling by sellers or buyers themselvesrather than through independent wholesalers.

Wholesaler Marketing Decisions


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Wholesaler Marketing

MixWholesaler Strategy

Target Market

Retail StorePositioning

Product and ServiceAssortment

Prices

Promotion

Place (Location)

Trends in Wholesaling

Wholesaling Developments to Consider


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Wholesaling Developments to Consider

Must Learn to Compete Effectively OverWider and More Diverse Areas

Increasing Consolidations Will ReduceNumber of Wholesalers

Surviving Wholesalers Will Grow LargerThrough Acquisitions and Mergers

Vertical Integration Will Remain Strong

Global Expansion

Warehousing


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Every company stores its goods while they waitto be sold.

A company must decide on (1) how many and(2) what types of warehouses it needs and (3)where they will be located.

The company might own private warehouses orrent space in public warehouses or both.

Both has advantages and disadvantages.Owning a private warehouse;

bring more control

ties up capital

is less flexible if locations change


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On the other hand, public warehouses;

charge for rented space provide additional services for inspecting,

packaging, shipping and invoicing goods but at acost

offer wide choice of locations and warehouse types Basic types of warehouses are; (1) storage

warehouses and (2) distribution centers.

storage warehousesstore goods for moderate tolong periods

distribution centersare designed to move goodsrather than just store them. They are large andautomated warehouses desinged to receive goods

from su liers take orders and deliver oods to

Inventory


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Inventory decisions involve (1) when to order and (2)how much to order.

In deciding when to order, the company must think of therisks of running out of stock and costs of carrying too

much. In deciding how much to order, the company must think

of order-processing costs and inventory-carrying costs.

Just-in-time logistic systems are used by some

companies in which the producers carry only smallinventories only enough for a few days of operations.Such systems result in savings in inventory carrying andhandling costs.

Transportation


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The choice of transportation carriers affects (1)the pricing of products, (2) delivery performance,(3) condition of the goods when they arrive - allaffect customer satisfaction.

In shipping goods, there are five transportationmodes: rail, water, truck, pipeline, and air.

Rail; is the most cost-effective mode for shipping large

amounts products e.g. coal, farm and forest productsover long distances.

Truck; trucks are very flexible in their routing and timescheduling. They can move goods door to door,saving

the need to transfer goods from truck to rail andback again. They are efficient for short hauls of


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g yhigh-value products. They can offer faster service.

Water; the cost is very low for shipping bulky, low-value, nonperishable products e.g. coal, oil,metallic ores. It is the slowest mode and affectedby the weather.

Pipeline; are specialized means of shippingpetroleum, natural gas and chemicals from sourcesto markets. It costs less than rail but more thanwater.

Air; costs higher than rail and truck but ideal whenspeed is needed and distant markets have to bereached. Products are perishables (fresh fish, cutflowers), high-value, low-bulk items (technicalinstruments, jewellery).

In choosing a transportation mode, shippersconsider five criteria; (1) speed door to door


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consider five criteria; (1) speed - door to doordelivery time, (2) meeting schedules on time,(3) ability to handle various products, (4)number of geographic points served, (5) costper tone-mile.


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Table 20.1 Major types of wholesalers


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Table 20.1 Major types of wholesalers (continued)


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Promotion andPromotion Mix

PROMOTION


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Promotion involves disseminating information about aproduct, product line, brand, or company. It is one of thefour key aspects of the marketing mix.

Promotion is the process of informing your customersabout your products and services.

To generate sales and profits, the benefits of productshave to be communicated to customers. In marketingthis is commonly known as promotions.

Promotion


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Promotionis the function of informing, persuading,and influencing a purchase decision.

Promotional mix -combination of personal and nonpersonal selling techniques designed to achievepromotional objectives.

Specific combination of promotional methods suchas print or broadcast advertising, direct marketing,personal selling, point of sale display etc., used forone product or a family of products.

Personal selling -interpersonal promotionalprocess involving a sellers face-to-facepresentation to a prospective buyer.

Nonpersonal selling- advertising, salespromotion and public relations.

Promotion


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Above-the-line promotionThis uses advertising media over which a firm

has no direct control e.g. television, radio andnewspapers

Below-the-line promotion

This uses promotional media which the firmcan control e.g. direct mail, sales promotionsand sponsorship

11/1/2012 Marketing Management Unit 1

Factors that Affect the Promotion Mix

Nature of the Product


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PushandPull Strategies

Stage in the ProductLife Cycle

Target Market Characteristics

Type of Buying Decision

Available Funds $ $ $

Objectives of Promotional Strategies


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Promotional activitiesAd i i Ad i i i id f f


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Advertising-Advertising is a paid form of

communication used to persuade an audience (viewers,readers or listeners) to take some action with respect toproducts or services e.g. TV, billboards and internet.

Sales promotions-Sales promotions are short-termincentives to encourage the purchase or sale of aproduct or service.e.g. Loyalty cards, discounts, sample& free gifts

SponsorshipOne who assumes responsibility foranother person or a group for a period e.g a business

pays to be associated with another firm, event or cause


Promotional activities


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Direct mailing promotional material is sent topotential customers by post/email

Public relationsis the actions of a company etc., inpromoting goodwill between itself and the customers i.e.building the relationship between the firm and the public

by enhancing its reputation

Publicity-is the deliberate attempt to manage thepublic's perception of a subject



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Advertising -paid non personal communication delivered throughvarious media and designed to inform, persuade, or remind members ofa particular audience.

The means of providing the most persuasive possible selling messageto the right prospects at the lowest possible cost".

Kotler and Armstrong provide an alternative definition:-

"Advertising is any paid form of non-personal presentation and promotionof ideas, goods and services through mass media such as newspapers,magazines, television or radio by an identified sponsor".

Consumers receive 5,000 marketing messageseach day.

Firms need to be more and more creative and efficientat gettingconsumers attention.

The Five Ms of Advertising


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Mission

Sales

goalsAdver-tisingobjectives

Message

Message generationMessage evaluationand selection

Message execution

Social-responsibilityreview

MoneyFactors toconsider:

Stage in PLC

Market share

and con-sumer base

Competitionand clutter

Advertisingfrequency

Productsubstituta-bility

Measure-ment

Communi-cationimpact

Salesimpact

MediaReach, frequency,impactMajor media types

Specific mediavehicles

Media timingGeographicalmedia allocation


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Informative advertising -used to build initial demand for aproduct in the introductory phase.

Persuasive advertising -attempts to improve thecompetitive status of a product or concept, usually in the

growth and maturity stages.

Comparative advertising -compares products directly withtheir competitors either by name or by inference.

Reminder-oriented advertising - appears in the latematurity or decline stages to maintain awareness of theimportance and usefulness of a product.

Types of Advertising- on the basis of Aims


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Product advertising - messages designed to sell aparticular good or service.

Institutional advertising- messages that promoteconcepts, ideas, philosophies, or goodwill for industries,

companies, organizations, or government entities. Cause advertising- institutional messaging that promotes

a specific viewpoint on a public issue as a way to influencepublic opinion.

Non commercial advertising- undertaken by charitableinstitute for raising public donation or funds to meet certainpurposes

Local advertising - circulated to a defined area

Types of Advertising- on the basis of coverage


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g

National advertising for entire nation messages that

promote concepts, ideas, philosophies,

International advertising covers globe/specific foreigncountry

Types of Advertising- on the basis of users

Consumers advertising - directed at ultimate householdconsumer

Industrial advertising related to product which areconsumed by industries

Types of Advertising


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Television Easiest way to reach a large

number of consumers. Most expensive advertising

medium.Newspapers Dominate local advertising. Relatively short life span.Radio

Commuters in cars are acaptive audience.

Magazines Consumer publications and tradejournals.

Can customize message for

different areas of the country.Direct Mail High per person cost, but can be

carefully targeted and highlyeffective.


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Online and Interactive Advertising Viral advertising creates a message that is novel or entertaining

enough for consumers to forward it to others, spreading it like avirus.

Many consumers resent the intrusion ofpop-up adsthat

suddenly appear on their computer screen.

Common Advertising Appeals

Profit Save money keep from losing money


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Profit

Health

Love or Romance

Fear

Admiration

Convenience

Fun and Pleasure

Vanity and Egotism

Save money, keep from losing money

Body-conscious, healthy

Sell cosmetics and perfumes

Social embarrassment, growing old, losinghealth, power

Celebrity endorsement effective

Fast-food and microwave products

Vacations, beer, amusement parks

Expensive, conspicuous items

Advantages To manufacturer

Increase sales volume/net profit


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Opening new market/ maintain the existing market

Creates reputation & is less expensive To sales man

Create a background/ lessen the burden

Least effort

To wholesalers & retailers

Easy sales/ attract new customer Publicity

To the customer

Easy purchasing/ saves time

Educate to the customer

To community

Employment generation

MM Unit 3 159

Sales promotion

Non personal marketing activities other than


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Non personal marketing activities other thanadvertising, personal selling, and public relations

that stimulate consumer purchasing and dealereffectiveness

An activity designed to boost the sales of a

product or service. It may include a free-sample

campaign, offering free gifts, setting upcompetitions with attractive prizes, temporary pricereductions

More than any other element of the promotionalmix, sales promotion is about action. It is about

stimulating customers to buy a product. It is notdesigned to be informative a role whichadvertising is much better suited to.

.

Premiums, Coupons, Rebates, Samples Premium -An offer oa a certain amount of product at no cost who

Consumer-Oriented Promotions


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Premium An offer oa a certain amount of product at no cost whobuy a stated quantity

Couponsattract new customers but focus on price rather thanbrand loyalty. Lifebuoy issue coupons on purchase

Rebatesincrease purchase rates, promote multiple purchases,and reward product users.

Three of every four consumers who receive a samplewill try it.

Games, Contests Introduction of new products.Specialty Advertising Gift of useful merchandise carrying the name, logo, or slogan

of an organization.

Self liquidating premium- a plastic bucket of 5 litre for Rs. 5 forpurchase of 1 kg Surf.

Buying allowance discount Buy back allowance-preventing the post deal sales decline

Middlemen -Oriented Promotions


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Buy back allowance preventing the post deal sales decline Display & advertising allowance

Dealer listed promotion- name & address on the advertisement &publicity material

Push money-incentive for pushing the sale Sales contest- cash prize for highest sales Free gift- on quantity of purchase

Credit facility

Bonus Contest between sales force

Sales meeting/copnference

Sales force -Oriented Promotions

Types of Consumer & Sales Promotion Goals

Type of buyer Desired results Sales promotion examples


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Loyal customers Reinforce behavior, Loyalty marketing programs,People who buy your increase consumption, such as frequent-buyer cards

product most or all change purchase timing or frequent-shopper clubsof the time Bonus packs that give loyalconsumers an incentive tostock up or premiums offeredin return for proofs-of-purchase

Competitors Break loyalty, persuade Sampling to introduce yourcustomers to switch to your brand products superior qualitiesPeople who buy a compared to their brandcompetitors product Sweepstakes, contests, or

most or all of the time premiums that create interestin the product

Brand switchers Persuade to buy your Any promotion that lowers thePeople who buy a brand more often price of the product, such asvariety of products coupons, price-off packages,in the category and bonus packs

Trade deals that help make theproduct more readily available

than competing productsPrice buyers Appeal with low prices Coupons, price-off packages,People who or supply added value refunds, or trade deals thatconsistently buy the that makes price less reduce the price of brand toleast expensive brand important match that of the brand that

would have been purchased

Source: From Sales Promotion Essentials, 2E by Don. E. Schultz, William A. Robinson, and Lisa A. Petrison. Reprinted by permission of NTC Publishing Group, Lincolnwood, IL.

Tools for Consumer Sales Promotion

Coupons


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Coupons

Premiums

Frequent Buyer Programs

Contests andSweepstakes

Samples

Point-of-PurchaseDisplays

SixCategories

ofConsumer

SalesPromotions

Tools for Trade Sales Promotion

Trade Allowances


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Trade Allowances

Push Money

Training

Free Merchandise

Store Demonstrations

Business Meetings,Conventions, Trade-Shows

SixCategories

ofTradeSales

Promotions

Personal Selling


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Dr. Rosenbloom

A form of person to personcommunication in which asalesperson works withprospective buyer andattempts to influencepurchase in the direction ofhis or her companys

products or services

Personal selling is oral communication with


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gpotential buyers of a product with the intention

of making a sale.

The personal selling may focus initially ondeveloping a relationship with the potentialbuyer, but will always ultimately end with anattempt to "close the sale

A person-to-person promotionalpresentation to a potential buyer.

Customers are relatively few in number and

geographically concentrated.

The product is technically complex and requiresspecial handling.

The product carries a relatively high price.

Objectives of Personal Selling

To shoulder the entire responsibility of the promotion mix (when


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To shoulder the entire responsibility of the promotion mix (whenno other element of Promotion mix is used)

To maintain contact with existing customers, take orders etc(also known as servicing existing accounts)

To search and obtain new customers

To secure customers cooperation in stocking and promoting theproduct line

To inform and educate customers

To assist customers in selection

To provide technical assistance To assist with training the middlemens sales personnel

To collect market information

Characteristics of Personal SellingConPro


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Flexibility Adapt to situations

Engage in dialog

Builds Relationships Long term

Assure buyers receiveappropriate services

Solves customers

problems

Can not reach massaudience

Expensive per

contact Numerous calls

needed to generatesale

Labor intensive

Importance of Personal Selling


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Dr. Rosenbloom

Allows the firm to immediately respond tothe needs of the prospect

Allows for immediate customer feedback

Results in an actual sale Detailed information

Targeted

message control

Cost control

Evolution of Personal Selling


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Dr. Rosenbloom

Hard sell: Formerly thought customers had to beforced into making a purchase

Relationship selling: Now selling requires thedevelopment of a trusting partnership in which thesalesperson seeks to provide long-term customersatisfaction

Why choose the sales profession?


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Dr. Rosenbloom

Employment in sales is growing

Sales positions offer advantages:

Good compensation

Flexible in day-to-day activities

High-visibility career track

Limited supervision

Travel opportunities Increasing responsibilities

Selling Environments and Selling Types


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Dr. Rosenbloom

Selling Environments Selling Types

Over-the-counter Order takerOrder getter

Field Selling Professional salespeopleNational account managersMissionary salespeopleSupport salespeople

Telemarketing OutboundInbound

Over-the-Counter Selling


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Dr. Rosenbloom

Order taker

A salesperson who only processes thepurchase that the customer has already

selected Retail outlets that are heavily orientedtoward self-service

Over-the-Counter Selling


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Order Getter

A salesperson who actively seeks toprovide information to prospects, persuade

prospective customers, and close sales Personal service oriented stores May practice suggestion selling

Field Selling

Professional Salespeople


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Help prospective customers to define their needs

and then suggest the best means of meetingthose needs, even if that requires suggesting thatthe prospects use a competitive product

National account managers

Missionary Salespeople

Support Salespeople


Field Selling



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Highly skilled salespersons who call on keycustomers headquarters sites, develop strategic

plans for the accounts, make formalpresentations to top-level executives, and assistwith all the product decisions at that level




Support Salespeople

Field Selling



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Missionary _Selling in which the salesperson's role is to inform an individualwith the power to influence others to buy a product, rather than to make adirect sale to that person. These salespeople are used in industries wherecustomers make purchases based on the advice or requirements of others.

Pharmaceuticals, where salespeople, known as product detailers, discuss products withdoctors (influencers) who then write prescriptions for their patients (final customer) and

Higher education, where salespeople call on college professors (influencers) who makerequirements to students (final customer) for specific textbooks.Works only to creategoodwill and disseminate information . Does not do any order taking.


Support Salespeople


Field Selling



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Support the sales force in a number of ways

Technical support salespeople assist withtechnical aspects of sales presentations




Support Salespeople

Telemarketing


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Utilizing the telephone for prospecting, selling,and/or following up with customers

Outbound: the salesperson uses the telephone

to call customers Inbound: Firms which have customers calling

the vendor company to place orders (toll-freephone numbers)

Telemarketing

Delivery Salesperson Engaged in delivering the product(Person who delivers Milk, Eggs)


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Creative sales person of tangibles Sales person selling

vacuum cleaners , encyclopedias

Creative sales person of intangibles- Sales person sellingInsurance, advertising services, Educational programs

Political /Indirect/Back Door Selling big ticket items by

catering to the other interests of the customers (which have noconnection with the product)

Salespersons engaged in multiple sales- Where the salesperson is required to make presentation to various entities of an

organization (Ad agency salespersons making presentations toselection committee, creative department, product departmentetc)

The Personal Selling Process

P


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Prospecting

Pre-

Approach

PresentationHandling

Objections

Approach

Follow-UpNeed

Identification

GainingCommitment



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Prospecting

Prospecting involves finding qualified sales leads

Qualified sales leads: potential customers that have aneed for the salespersons product, and are able to

buy

Referrals: obtained by the salesperson asking current

customers if they know of someone else who mighthave a need for the salespersons product

Cold-calling: means contacting prospective customerswithout a prior arrangement



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Pre-approach

The collection of information about thepotential customer and the customers

company prior to the initial visit

Researching the prospect and the companywill assist the salesperson in planning theinitial presentation to the prospective customer



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Approach

The development of rapport with the customer

The chance to make a good first impression



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NeedIdentification

Requires asking probing questions of theprospective customer to determine needs

The salesperson should ask open-ended

questions Make sure that the customers needs and

potential concerns are addressed



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Presentation

The focus of the sales presentation is the salespersons

explanation of how the features of the product providebenefits

Presentation may be flexible or memorized

The salesperson should be prepared to provide documentationfor any statements of fact that are made.

Using Persuasive communication Hold Attention Stimulate Interest Desire



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HandlingObjections

The salesperson may have failed to provideadequate information, or have notdemonstrated how the product meets theneeds of the prospect

Objection as a sign of interest on the part ofthe prospect

Provide information that will ensure theprospects confidence in making the purchase


7/31/2019 MM

MM Unit 4 - Students

Documents

Transcript of MM Unit 4 - Students