Principles of Marketing: Product, Pricing, Distribution, Promotion

This assignment delves into the core concepts of marketing, focusing on product, pricing, distribution, and promotion strategies. It begins by defining a product and its various forms, including goods, services, and ideas, before exploring the different levels of product such as tangible, intangible, augmented and total concepts. The assignment then classifies products into consumer and industrial categories, providing detailed explanations and examples of each type, including convenience, shopping, specialty, and unsought products for consumers, and materials & parts, capital items, and supplies & services for industrial users. It further examines the product life cycle (PLC), outlining its stages (introduction, growth, maturity, and decline) and the corresponding marketing strategies. The assignment concludes with an overview of the new product development process, from idea generation and screening to concept development, testing, and business analysis.

Principles of Marketing .. FERVID.. (Sem IV)
Unit- 4 PRODUCT, PRICING, DISTRIBUTION AND PROMOTION STRATEGIES
PRODUCT
Meaning of Product: A product is the core element of marketing mix. It is anything that satisfies need and want of
customers. It can be
physical goods: book, pen, furniture, etc.
services: car repair, haircut, air travel, etc.
properties: land, building, shares, etc.
idea: safe driving, go green, small family happy family, etc.
experience: bunji jumping, cablecar ride, rafting, elephant ride, etc.
person: sportsperson, filmstar, model, singer, etc.
place: picnic spot, tour package, vacation, etc.
Service is a form of product that consists of activities, benefits or satisfaction offered for sale. It is intangible (can’t
be seen or touched, but only felt). For e.g. : services provided by dry cleaners, hair saloon, banks, hotels , airlines,
communication media, and so on. Both product and service comes together.
Jerome McCarthy has said, “Product means need-satisfying offering of a firm.”
Concepts of Product (Levels of Product):
1. Tangible concept: It is the traditional concept of product. Tangible products are those which can be touched
and seen. They have physical features for e.g. books, computer, mobile, etc.
2. Intangible Concept: Products can be intangible such as services, ideas, experiences and events. They can’t
be felt by customers but can’t be seen or touched.
3. Augmented Concept: This concept combines tangible and intangible products. Many physical goods carry
service packages. For e.g. solar heater with free installation service, photocopy machine with two years
warranty for free repair and maintenance, etc.
4. Total concept: it is the combination of all- tangible, intangible and augmented product concepts. It focuses
on product features, advantages and benefits. Features are physical characters, advantages relate to the
performance & benefits and results of buying. For instance, the marketer of a car not only offers
combination of metal, rubber, plastic, but also space for 4- 5 passengers, comfortable travel with image and
status related to ownership of brand.
Classification of Products (Types of Products)
A. Consumer Products B. Industrial products
1. Convenience Products 1. Material & Parts
2. Shopping ,, 2. Capital Items
3. Speciality,, 3. Supplies and Services
4. Unsought ,,
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A. Consumer Products: Products purchased to satisfy personal and family needs. Food items, clothes,
cosmetics, refrigerator, books, etc. are examples.
B. Types of Consumer Products:
1. Convenience Products: are purchased easily & often. Consumers buy them frequently and immediately
with minimum buying effort. Examples are bread, newspaper, sweets, eggs, etc.
2. Shopping Products: are less frequently purchased goods. Customers carefully compare quality, price,
suitability and style. Furniture, shoes, television, refrigerator, etc. are shopping products. These last for
years and consumers spend more time and effort for
purchase.
3. Speciality Products: are consumer products with unique features or brand identification. These are so
special for the buyers that they are ready to put extra effort to purchase the products.e.g. Rolex watch,
jewellery, expensive camera, high brand electronic equipment, designer clothes, and so on.
4. Unsought Products: These are the products that the consumers do not know or do not normally think of
buying. Consumers have little product awareness and knowledge. Examples are life insurance policy,
painting, artistic product, encyclopedia, etc.
Features of Convenience Products
1. Convenience products are frequently or regularly purchased.
2. Purchase planning is not required.
3. Generally the price of per unit is low.
4. Convenience products are sold with good packaging.
5. Consumers prefer different variety of products at different time.
6. Such products are sold by many retailers.
Features and Marketing Considerations of Consumer Goods
Features Convenience Shopping Speciality Unsought
1. Purchase Frequency Frequently Less
frequently
Infrequently Rarely
2. Purchase planning Rarely High Very high None
3. Price Low High High High
4. Packaging Very important Less
important
Less
important
Importance
Varies
5. Brand Loyalty Low Low High None
6. Distribution Intensive(many
retailers)
Selective(few
retailers)
Exclusive
show rooms
Factory
outlets
Marketing Considerations Convenience Shopping Speciality Unsought
1. Product features Modify products Improve
features
Maintain
quality
New
products
2. Branding Awareness Image Loyalty Awareness
3. Packaging Attractive Useful
protective
Not
important
Appropriate
4. Pricing Low price High price High price High price
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5. Place(distribution) Long channels Short channels Very short
channels
Direct
channel
6. Promotion Nationwise by
manufacturer
Local by
retailer
Targeted
promotion
National &
Local
Marketing Considerations of Convenience Products: The businesspersons or marketers have to focus on
following considerations for marketing of convenience products:
1. The products features should be modified from time to time.
2. Branding (Name, symbol ,etc.) should be used.
3. Attractive packaging is required to win competition.
4. Low price is more favorable.
5. Convenience products should be distributed through long channels.
6. Manufacturer is responsible for promotion all over the country.
B. Industrial products: are purchased for business purpose- to run organization, to manufacture goods or resale.
Fuel, raw materials, machines, tools, etc. are industrial products.
Types of Industrial Products:
1. Material & Parts: include raw materials, manufactured materials and parts. Raw materials consist of
farm products(wheat, cotton, fruits, vegetables) and natural products( fish, crude petroleum, iron ore,
minerals, herbs).
Manufactured materials and parts consist of component materials(iron, yarn, cement, wires)
and component parts (tyres, spark plug, nuts, bolts,). Most of manufactured materials and parts are
directly sold to industrial users.
2. Capital Items: are fully manufactured products used for production of other products or for providing
services. They include installations and accessory equipments. Installations consist of major purchases
such as buildings, generators, elevators, lift machines, large computer systems, etc.
Accessory equipments include portable equipment& tools such as hand tools, fax machine,
telephone set, desk, table accessories, and so on. They simplify production as well as official works.
3. Supplies & Services: Supplies include operating supplies such as petrol, diesel, mobil, grease, coal,
paper, ink, nails, stapler pins, etc.
Business services include maintenance & repair service(cleaning, computer repair, facility
maintenance,) and advisory service(legal, management consultancy, advertising ). Such services
usually exist on contract.
Features and Marketing Considerations of Industrial Products
Features Raw Materials Capital Items Supplies & Services
1. Purchase Frequency Frequent Rarely Frequent or less
frequent
2. Life Span Generally short Very long Short
3. Unit Price Low Very high Medium / low
4. Purchase Planning Long term contract One time contract None
5. Brand Loyalty Low High Generally low
6. Distribution Channel Selective Exclusive Intensive
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Marketing Considerations Raw Materials Capital Items
Supplies & Services
1. Purchase
Standardization
Very much Very little Moderate
2. Brand Preference None High Low
3. Pricing Negotiated Negotiated Fixed
4. Place(distribution) Short channel Direct Long
5. Promotion None Personal Selling is
important
Less important
6. Post-sale services None Very important None
Product Life Cycle (PLC)
Concept: All products have a life-cycle like living beings. They are born, they live and they die.
Changes in technology, competition & customers’ preference affect the life of the product. PLC is
based on following assumptions:
 Every product has a limited life
 Product sales pass through in each stage different stages
 Profits rise and fall at different stages
 Different buyer groups buy products during different stages
 Marketing strategies should differ of PLC
 No product sells forever
Stages of Product Life Cycle
1.Introduction 2. Growth 3.Maturity 4. Decline
1. Introduction Stage: starts when a new product is first launched. The marketing objective is to
create product awareness & make trial purchase among consumers.
Features:
a. Slow growth of sales: due to low awareness of product.
b. Innovator customers: customer acceptance is low. Only few customers try the product.
c. Small production level: the firm is unable to predict the success of product & keeps
production at low quantity.
d. Technological problems: since the product is new, some technological problems exist.
e. High price: due to high production cost, distribution & promotion expenses.
f. No competitors: Competitors lack production facility and technical knowledge to compete.
2. Growth Stage: If the new product satisfies the market, it will enter in growth stage, where sales
start improving. This stage is the period of market acceptance. The marketing objective is to
increase market share.
Characteristics:
a. Sales increase rapidly: innovators continue to buy products. New customers join them.
b. Improved features: the firm corrects technical defects in production & adds new features in
product.
c. New market segments: the firm moves the product into new market segments.
d. High profit: high sales bring more profit.
e. Slightly lower price: production cost decreases & prices are slightly lower.
f. Growing competition: new competitors enter into the market.
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3. Maturity Stage: At some point, a product’s sales growth will slow down, & the product will enter a
maturity stage. This stage is the period of defending market share & lasts longer. The marketing
objective is to stabilize profit & defend market share. Characters:
a. Decreasing sales volume: market competition slows down the growth in sales.
b. Tough competition: more & more competitors enter into market. They are attracted by higher
sales & profit.
c. Price cuts: competitors reduce their prices forcing the organization to price cuts.
d. Heavy promotion: organization spends more on sales promotion to attract new customers.
e. Low profit: low sales, high marketing costs bring low profit.
4. Declining Stage: this is the stage where sales decline & profits also decline. The marketing objective
is to survive or withdraw their products from the market. Those who continue rapidly reduce their
prices & try to attract price sensitive buyers.
Characteristics:
a. Declining sales: new technology, change in customers’ preference, intense competition
b. Declining profits: profits decline & reach to zero or negative level.
c. Laggard customers: hard core loyal customers continue buying the products. Late comers(laggard)
also buy.
d. Declining competition: competitors withdraw attention from the market. They incur losses.
e. High price: the loyal customers are still willing to pay high price to support the organization.
New Product
Concept: In general sense, a new product is an innovative product developed & introduced for the
first time in market. However, in marketing, a new product has several meanings. It can be
original product, improved product, modified product or new brand. But it should be taken as new
by the customers.
Types of New Products
1. Innovative Products 2. Modified Products 3 . Imitating Products
1. Innovative Products: are unique or original products launched for the first time. Innovations
are costly, riskier and time consuming. Polarized glass, aneroid mobiles, medicines for cancer,
etc. are examples. Only 10% of new products are innovative and about 75% of innovative
products fail.
2. Modified Products: existing products are modified & improved in terms of quality, functions
& benefits. The objective is to capture market share. Customers believe them different from
existing products.
For example: introduction of Horlicks in paper package, change in look & features of Honda
Dio scooter, etc.
3. Imitating Products: are new to the organizations but old to the market. These products are
“copy products”& follow me too “strategy”. Some organizations find difficulty & risk to
bring innovative & modified products. They copy successful products under different brand
name to capture some market share. e.g. Podreg for Godreg, Noktel for Nokia, introduction of
“Chinese Style” ball pens by local firms& so on.
New Product Development Process
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It is time consuming and painful process. In order to create successful new products, a
company must understand its consumers, markets, competitors & deliver superior value to
customers.
Steps in New Product development Process are
1. Idea Generation: New product development starts with idea generation. A company
generates hundreds of ideas, in order to find few good ones. New ideas can be
collected through several sources such as consumers’ complaints, marketing
research, investors, competitors, inventors. Similarly, the company can also rely on
its sales representatives, middlemen, engineers, consultants and employees.
(Customers are the best source of ideas in 80% of companies in USA)
2. Idea Screening: is the method of picking out good ideas and leaving out poor ones.
The ideas are screened in terms of organization’s objectives, policies, resources &
technical capabilities. Marketers find out answers to questions like- Is it real?.., Can
we win?
3. Concept Development & Testing: Concept development is the selection of 4 to 5
ideas for consumers. Promising ideas are turned into product concept. Consumers
can easily react to product concept without seeing the physical product. For e.g.
noodles can have three product concepts:
a. breakfast in the morning
b. Tasty snacks for afternoon
c. Full meal for lunch or dinner
Concept testing is asking potential customers to evaluate description of product
concept. The interview technique is used to find out customer reaction on uniqueness
& clarity of concept, price value, need satisfying features, frequency of potential use.
4. Marketing Strategy & Business Analysis: During new product development
process, the firm has to develop primary marketing strategy for the successful
product concepts. It covers target market share, marketing budget & marketing mix.
Business analysis is done to evaluate the attractiveness of product concept. It
involves competitor analysis, demand forecast, cost statement & break even analysis
to estimate costs, and profit projections.
5. Product Development & Test Marketing: Research & development department
develops physical versions of the product. They are known as product prototypes.
Functional tests and field conditions are conducted to see the performance of
product. Product tests are mostly essential in consumer products like foods,
cosmetics, etc.
6. Test Marketing: Product is manufactured in a limited scale. It is given a brandname,
packaging and marketing programme. Trial, first repeat, adoption and purchase
frequency are monitored.
Trial: Number of consumers buying for the first time.
First repeat: ,, ,, ,, for the second time.
Adoption: ,, ,, ,, who continue using the product (adopters).
Purchase frequency: frequency of product purchased by adopters.
7. Commercialization: is the last step. It involves commercial launching of the product
in the target market. In this stage, the organization prepares full-scale production and
marketing programmes. It involves decisions relating to timing, place, market
segment & strategy for launching the product.
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Branding Strategies
Definition: Branding is an important part of product. It is used to identify manufacturer or seller of the product. A
brand is a name, sign, symbol, or combination of all to identify the product/ service. It consists of various activities
such as:
a. Brand name: is that part of brand that can be pronounced. It includes letters, words, or numbers. For e.g.
Coca Cola, Honda, Dabur, etc.
b. Brand mark: is that part of brand which can be recognized but not pronounced. It appears as a sign,
symbol, or design. For LG, √ for Nike, tree for Dabur, etc.
c. Trademark: is a legal term. It refers to a brand which is registered with the govt. The owner has only the
right to use the registered brand name & brand mark. R is used in the name. It represents that the product
has legal protection.
Objectives/ Reasons for branding:
 Product identification
 Develop brand awareness
 Prestige & status
 Product positioning
 Increase profit margin
 Customer loyalty
 Legal protection * Efficiency in marketing
Types of Brands
1. Individual Brand: Each product has a separate brand name. Each brand is targeted to a different
group of customers. Companies use individual brand name to encourage internal competition &
diversify risk. Products manufactured by Unilever are given individual brand name like LUX, Liril,
Lifebuoy, and so on.
2. Family Brand: All products are given a single brand name. It helps in the advertisement & sales
promotion. LG for electronics, Ponds for cosmetics, Dabur for consumer products.
3. Manufacturer Brand: The manufacturer plays a dominant role in the market. Such brand is owned by
the manufacture. Manufacturer brand assures quality, price is high & aggressively promoted. Sony,
Tata, IBM, John Players, etc.
4. Distributor Brand: is also called private brand. Wholesalers or large retailers follow this type of
branding. They get their brandname registered under Trademark Act. They have freedom in pricing the
products, advertisement & sales distribution. Asian Sky Shop, Tele Shopping Network, Bigbazaar,
Woolmart, etc. are examples.
Packaging
Concept: Packaging refers to the designing & providing container or wrapper for the product. Package can be made
of metals, plastics, wood, paper, glass, jar, etc. Package contains important informations about product’s
composition, price, date of manufacture, batch number, using method, etc. Therefore, packaging is also a tool for
marketing products.
Packaging is different from packing. Packaging refers to wrapping or tieing up materials in paper, plastic, cardboard,
tube, gar, etc. for safe handling & use whereas packing is done after packaging is over, in cartoons, wooden box,
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plastic bag for easy distribution. Packaging lasts long until the product is used whereas packing is for very short
time, for transporting the product.
Pride & Ferrell,” Packaging involves the development of container & a graphic design for a product.”
Levels of Packaging (Types of packaging)
1. Primary Package: It holds the actual product until it is completely consumed. For e.g. tube containing
toothpaste or ointment, a bottle containing medicine, etc.
2. Secondary Package: Is the additional layer that protects the primary package. It is removed when the
product arrives at home or is ready to use. For e.g. a packet containing 10 dot pens, a cardboard box
containing a tube of toothpaste, etc.
3. Shipping Package: is used to store & transport the product. It is designed to hold several units of primary
or secondary packages. It is removed when retailers receive the product. For e.g. a cartoon containing 5
dozen toothpaste, a wooden box having 500 tablets, etc.
Functions of Packaging
1. Containment: packages are containers for product of various shapes & sizes.
2. Product Protection: packaging provides extra use life to the product. It protects product from
evaporation, spilling, spoilage, & mishandling.
3. Identification: packaging by use of labels, provides various informations& features of product.
4. Differentiates Product: Packaging is used for product differentiation & positioning. Manufacturers
change packages to modify products.
5. Convenience: a good design of the package provides many advantages- easy to stock,display& dispose
off.
6. Cost Effective: a package increases the cost of product. A package in cosmetics has 20% to 30% , in
chocolates 5% to 10% share in the final price to the consumer.
Requirements of Packaging OR
Essentials of a Good Packaging (Things required in Good Packaging )
a. Economical : Packaging should involve least cost to fill, remove & handle for manufacturer.
b. Suitable: a package should suit the requirements of the goods. Package designer should consider the size &
quality of the product.
c. Attractive: Design, color, shape & size of package should attract customers. Generally, new packages
attract customers.
d. Protective: Packaging must be designed such that it protects the contents. Medicines, powders, acids,
edible oils, require special packaging. Packaging must protect contents from sun, moisture, germs, etc.
e. Eco-friendly: A package should also be eco-friendly. It should be made of materials that do not create
pollution. Use of plastics in consumer products should be minimized.
f. Reasonable: In some products, customers are searching package that can be reused. For e.g. jar of horlicks,
prinkles, glucose, and so on.
g. Communicative: packaging should provide all informations required by law( manufacture date, expiry
date, batch number, price, composition, etc.)
PRICING
Concept of Price: It is the exchange value of goods/services. In other words, it is the amount of money that
customers pay for the product. Rent for house, tuition fee for education, interest for bank loan, fare for taxi, salary
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for employee, premium for insurance, commission for service, etc are various forms of price. Price is an essential
component of marketing mix.
According to Philip Kotler, “Price is the amount of money charged for the product or service”.
Concept of Pricing: Pricing is the determination of appropriate value to a particular goods or service. It involves
many activities performed within an organization to determine exchange value, such as setting the list price,
determining discount and commission, and formulating pricing objectives, policies & strategies. Determination of
value of a product is a difficult task for a marketer. It is most secretly performed activity in a business organization.
Most of the firms use price as a competitive tool.
Price and pricing are inter-related, both denote monetary value. However price represents exchange value only
whereas pricing is a comprehensive term involving many activities, strategies & objectives.
Objectives of Pricing (Importance of Pricing)
Pricing objectives guide pricing methods, policies and strategies. Organizations should select pricing objectives
carefully. Objectives can be
1. Profit-oriented Objectives: Some organizations may give more preference on achieving profit than others.
Pricing objectives can be
a. Target Return: A company may price its products/ services to achieve a certain percentage on sales
or investment. A company sets a % markup on sales on investment to cover operating cost plus desired
profit. For e.g. 10 % on sales or 15% on net worth(total assets minus liabilities) Market leaders who do
not face competition use this objective.
b. Satisfactory Profit: Profit should be satisfactory i.e. reasonable which can satisfy both customers &
company. Some companies follow the concept of profit maximization.
To maximize profit on long run, sometimes companies may have to accept short-run losses. One of
the best way for profit maximization is to offer popular products at a very small profit margin.
2. Sales-oriented Objectives: focus on sales. Especially large companies focus their attention on sales
volume rather than profit. Pricing objectives can be
a. Sales Volume: the pricing objective is to gain higher sales volume, for example 30 % sales increase
annually. Low price strategy is followed to influence demand. Mass production help to lower the unit
cost. More stress on distribution is given consideration. Companies may sell products or services at
discount price, with some attractive schemes.
b. Market Share: Some companies may be willing to maintain their market share as it is or capture new
markets to expand their market or influence. Wai -Wai noodles has pricing objective to maintain its
market share in Nepal. Low price & high promotion strategies are used to increase market share.
3. Status-oriented Objectives: Some large companies focus on maintaining the current market position.
They adopt this objective in order to minimize the risk of loss & maintain their status or goodwill in the
market. These objectives are related with
a. Price Stability: The pricing objective is to stabilize current price. With the help of stable price,
companies can win the competition. Products like newspaper, recharge card, books, medicines, gain
status through price.
b. Meet Competition: Some companies price their products or services to meet competition. Market
followers use prevailing price for a long time to avoid price competition.
c. Survival: This objective is suitable in declining stage of product life cycle. Some organizations will
tolerate short run losses& internal problems, if they are necessary to continue existence. For Carpet
industry & readymade garments in Nepal, pricing objective is to survive.
4. Quality-oriented Objectives: They focus on product quality. The pricing objectives can be
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a. Quality Leadership: This is generally used by specialty products like Rolex watch, Benz car, Apple
laptop, etc. Market skimming is done by setting higher prices. The pricing objective is product quality
leadership. High image of organization, generally global reputation is needed for this objective.
b. Quality imitation: The pricing objective is to copy the high quality products. Lower prices are set to
attract price-sensitive customers. This objective is common in Nepal, India, China& Hong-Kong .
Methods of Pricing (or Pricing Approaches)
In the ancient time, prices were set through bargaining between buyers & sellers. In present day context, pricing
methods are of three types:
1. Cost-oriented Pricing Methods: Pricing is generally based on the costs. The methods can be:
a. Cost-plus Pricing: is also known as mark-up method. This is the simplest method of pricing
where a certain profit margin is added to the total cost. Resellers & small manufacturers use this
method. However, it ignores market demand, competitor’s price, output levels & customer’
willingness to pay.
Suppose unit cost is Rs.100 & profit margin is 30%
Cost-plus Price= unit cost + Profit margin
i.e. Cost-plus price= 100+30= Rs. 130
b. Target Return Pricing: A desired return on investment (ROI) is added to the total cost to set
price. This is the target return of the organization.
Target Return Price=Total Cost + Desired ROI
Unit Sales
Suppose: Total investment is Rs. 10,00,000
Target return on investment 20% (Rs. 2,00,000)
Total cost Rs. 5,00,000
Total sales 10,000 units
Target Return Price Per unit= 5,00,000+2,00,000= Rs. 70
10,000
The meaning of investment should be defined. It could be total fixed assets or net worth (fixed
assets minus liabilities)
This method is simple to calculate. But it ignores competitor’s price & fluctuations in demand.
c. Break- even Pricing: Break-even analysis uses Break Even Point(BEP) to determine revenue &
profit from a product at a given price under certain cost structure. Break -even point is the no
profit no loss point, where revenue equals to costs.If sales(revenue) increase beyond this point, the
firm is able to make a profit & beyond the
BEP can be calculated in terms of units as well as monetary value.
i. BEP in terms of unit:
Suppose
Total fixed costs = Rs. 1,00,000
Variable cost per unit= Rs. 60
Selling price per unit= Rs. 100
BEP in units = Total fixed cost
Selling price per unit- Variable cost per unit
= 1,00,000 =2,500 units
100-60
BEP in sales= 2,500 units X 100= Rs. 2,50,000
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Profit is made when sales increase beyond the BEP, i.e. more than 2500 units.
ii. BEP in terms of Value(monetary): It can be used as the basic tool for measuring various
alternatives of price with sales volume.
BEP in Value= Total Cost
1- VC per unit
Selling Cost
=40,000 / 1-0.80
1.20
= Rs. 1,20,000
2. Demand-oriented Pricing Methods: also known as customer value-oriented method. Under this method,
price is determined on the basis of customer’s perceptions. Costs and market prices are not considered. The
pricing methods can be
a. Customer Value Pricing: value is the ratio of benefits to costs. Customer expects certain level of
quality service or benefit from the seller, after purchasing the product. Free installation, home
delivery, maintenance, etc attract customers. Supermarkets use this method where one or two well
known brands are offered at low price.
b. Perceived Value Pricing: is gaining popularity for the pricing of consumer products. Under this
method, the firm collects buyer’s perception of value(price) of the product & fixes the price
around average perceived value. Demand & costs are not considered. New products are priced by
this method. Non-price variables such as product, place & promotion are used to build-up
perceived value in the minds of the customers. A company develops a product for a particular
target market with a particular market positioning in mind with respect to price, quality & service.
3. Competition-oriented Pricing Methods: also known as market-oriented pricing methods. These are based
on the competitor’s prices. The methods can be:
a. Meet Competition Method: Equal to competitor’s price. This method is used where there are
many sellers of similar products. Prices of agricultural and mineral products are similar. It is going
rate pricing.
b. Below Competition Method: Price is below than the competitor’s price. The objective is to
attract more customers. The customers may admire the products as low in quality.
c. Above Competition Method: Price is set above the competitor’s price level. This method is used
in speciality products like Rolex watch, Mercedes Benz car , Apple laptop & some others.
Manufacturers differentiate such products by positioning.
d. Sealed-bid Pricing Method: This type of pricing is used where firms compete on the basis of
bids. The bid is the firm’s offer price & is set confidentially. For winning contracts, lower price
than competitors’ is required. The price is based on
expectations of how competitors will price their bids.
DISTRIBUTION (or Place)
Concept of Distribution (Place): Distribution is the place element of marketing mix. It relates to business activities
getting the product from the place of manufacturing to the place of consumption. It involves marketing channels and
physical distribution. Marketing channels (wholesalers, retailers) make the product available to the customers.
Physical distribution (order processing, warehousing, material handling, inventory management, transportation)
makes the product accessible(reachable) to the channel members and customers.
In the words of Philip Kotler, “ Distribution includes the various activities the company undertakes to make the
product accessible and available to the target market”.
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Objectives of Distribution
1. Movement of products: distribution makes movement of products from manufacturer to channel members
and customers. It facilitates exchange relationship, which is an essential activity of marketing. Products
have to reach the market before they are sold.
2. Availability of goods: distribution channels like wholesalers and retailers make the goods available to
customers. Distribution channels have key roles in maintaining regular supply according to demand of
products.
3. Protection of products: distribution aims to properly store and handle products so that
it can reach to the buyers in good condition. Material handling and warehousing contribute in the protection
work.
4. Efficiency improvement: distribution achieves marketing efficiency. It facilitates assortment (searching) of
goods. It reduces number of transactions between manufacturer and customers. Marketing costs decrease
by proper storage and handling of good.
5. Customer satisfaction: effective distribution contributes to customer satisfaction. It adds value to the
product. It facilitates better service to customers and delivers value to target customers.
Components of Distribution (or Elements of distribution)
A. Marketing Channels. B. Physical distribution
A. Marketing Channels: are middlemen, who makes product available to customers. They are
partners in serving customers. They can be:
1. Merchants: they buy, take title to and resell products. Wholesalers and retailers are merchant
middlemen.
i. Wholesalers: link between manufacturers and retailers. They deal with retailers and
not to customers.
ii. Retailers: link between wholesalers and customers. They deal with large numbers of
customers.
2. Agents: they search for customers and make negotiations but do not take title to the product.
Sales agents, brokers and sales representatives are agent middlemen.
3. Facilitators: they help in the distribution process. They neither take title to the products nor
make negotiations. Transporters, banks, insurance companies, advertising agencies and
warehouses are facilitators.
B. Physical distribution: makes the product accessible (reachable) to customers. It moves the
products from producers to customers. Activities involved are order processing, warehousing,
material handling, inventory management, and transportation.
1. Order processing: receiving, handling, filling orders.
2. Warehousing: storage facility until the product is sold.
3. Material handing: movement of products.
4. Inventory management: control of costs and levels of inventory.
5. Transportation: carrier type and mode for transport of product.
Methods of Distribution
1. Direct 2. Indirect
2. Direct marketing: Concept and forms
Concept: direct marketing is marketing without middlemen. It is direct persuasion by
manufacturer to specific customer for purchase order. It is home shopping and non-
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