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Chapter 14: Marketing Mix

A firm that has just finished producing ten thousand tubes of toothpaste has, at that moment, produced nothing that anyone can buy. The goods sit in a warehouse. Prospective buyers do not know they exist, cannot tell one tube from another, cannot reach a shop that stocks them, and have no price at which they might agree to part with their money. Four decisions stand between a finished good and a completed sale: what is offered, on what terms of price, through which route the goods reach the buyer, and by what message the buyer is informed and persuaded. Taken together, these four decisions are called the marketing mix. They are not independent of one another. A firm that prices a product as a premium article commits itself to packaging, outlets and advertising of a matching standard, and one that sells in scattered rural markets commits itself to a longer chain of middlemen. This chapter examines the marketing mix as a whole and then each of its four elements in turn — product, price, place and promotion — together with the branding, labelling and packaging decisions that surround the product, and the channel and promotional choices that carry it to the buyer.

Figure

Fig. 14.0-1 — Packaged Goods On A Retail Shelf Photograph of a shelf in an Indian retail store stacked with packaged consumer goods, with labels and price tags clearly visible.

14.1 Meaning And Elements Of Marketing Mix

Producing a good does not, by itself, sell it. Between the finished article and the buyer’s money lie four separate obstacles: the buyer must be offered something worth having, at a price worth paying, at a place within reach, and must be told that the offer exists. A firm that clears three of these obstacles and neglects the fourth has still not made a sale.

Every business enterprise therefore prepares a marketing plan, and that plan turns on four decisions — the product to be sold, the price to be charged, the method of distributing the product, and the techniques of promoting sales. The combination of these four elements is called the marketing mix. Because the four are commonly named product, price, place and promotion, they are also referred to as the four Ps of marketing.

NoteDefinition

Marketing Mix Marketing mix is the systematic combination of four elements — product, price, place (distribution system) and promotional activities — used to satisfy the needs of an organisation’s target market and, at the same time, achieve its marketing objectives. — William Stanton

The Four Elements

Product mix covers everything the firm decides about what is offered for sale: the range, quality, size and design of the article, and the branding, labelling, packaging and after-sale service that accompany it. Price mix covers the price to be charged, the discounts and allowances to be offered, and the terms of credit. Place mix, also called the distribution mix, covers the channel through which goods travel to the buyer along with the transport, warehousing and inventory decisions that move them physically. Promotion mix covers advertising, sales promotion, personal selling and publicity — the means by which the buyer is informed and persuaded.

Each element is itself a group of decisions rather than a single choice, and the decisions falling under each are set out in FC 14.1.

Flowchart

FC 14.1 — Elements Of Marketing Mix Marketing Mix → Product Mix, Price Mix, Place Mix, Promotion Mix; Product Mix → Product range, Quality and design, Branding, Labelling, Packaging, After-sale service; Price Mix → Price to be charged, Discounts and allowances, Terms of credit; Place Mix → Channel of distribution, Transport, Warehousing, Inventory control, Order processing; Promotion Mix → Advertising, Sales promotion, Personal selling, Publicity

Why The Elements Cannot Be Settled Separately

The four elements are interrelated, which means a decision taken in one of them forces decisions in the others. A firm that fixes a premium price commits itself to quality, packaging and advertising of a matching standard, because a buyer who is asked to pay more will look for evidence that more is being offered. Equally, a firm that decides to sell in scattered rural markets commits itself to a longer chain of middlemen and to smaller, cheaper pack sizes.

For the same reason the mix is a dynamic arrangement rather than a fixed formula. Customer groups differ in income, education, habits and preferences, and the same mix will not draw the same response from all of them; and as tastes, competition and technology change, an arrangement that worked earlier begins to fail. The mix must therefore be reviewed and altered from time to time.

One Product, Two Mixes The same shampoo is sold in India both as a large bottle in urban supermarkets and as a single-use sachet costing a few rupees in village shops. The formulation is unchanged, but pack size, price, outlet and the style of advertising are all altered, because the buyer being served in each case is different.

Importance Of The Marketing Mix
  1. Customer orientation — the mix is built around the needs and desires of a chosen group of buyers rather than around what the factory finds convenient to produce, so the offer stands a far better chance of being accepted, and sales and profits rise accordingly.
  2. Integration — because the four elements are settled together rather than one at a time, the mix keeps them in balance and prevents a strong decision in one element from being wasted by a weak one in another.
  3. Link with the customer — the mix is the point at which the firm meets the market, since it is through the product, the price, the outlet and the message that the buyer actually experiences the firm.
  4. Adaptability — as the requirements of customers change, the mix is changed with them, which keeps the firm in equilibrium with its marketing environment instead of leaving it selling yesterday’s offer.

14.2 Product Mix: Goods And Services

The product is the most visible element of the marketing mix and the starting point of every other decision, because price, channel and message all follow from what is being offered. Product mix refers to the combination of decisions relating to the article or service to be offered for sale — its range, variety, quality, size and design, along with branding, labelling, packaging, warranty and after-sale service.

A product is anything that can be offered to a buyer to satisfy a need or want. What the buyer actually pays for is not the physical article but the satisfaction it yields: the purchaser of a washing machine wants speed, convenience and freedom from trouble rather than a box of metal, plastic and wiring. Product decisions are directed at a chosen target market rather than at buyers at large, since the range and quality that suit one group of customers will rarely suit another.

NoteDefinition

Product A product is anything that can be offered to a market for attention, acquisition, consumption or use, and that is capable of satisfying a human need or want. It may be a physical object, a service or an idea.

Products are of two broad kinds. Goods are the tangible articles a buyer can carry away, while services are the acts and benefits offered for sale that cannot be carried away at all. The distinction matters because almost every marketing decision — whether the offer can be stored, inspected, standardised or returned — turns on it.

14.2.1 Goods

Goods are tangible items that are either consumed directly or used in producing other goods. Bread, toothpaste, raw cotton, iron ore and a motor car are all goods.

Features Of Goods
  1. Tangibility — goods have shape, size, weight and colour, so they can be seen, touched and examined, and a buyer is therefore able to judge quality before paying.
  2. Separability from the producer — the article can be parted from the person who made it, which is what allows goods to be manufactured in one place and consumed in another.
  3. Storability — because a time gap between production and consumption does the goods no harm, they can be held in stock and released as demand arises.
  4. Homogeneity — factory-made goods of the same description are alike in quality, so one unit is an acceptable substitute for another and the buyer need not inspect every piece.
  5. Transfer of ownership — a sale passes ownership of the article itself from the seller to the buyer, who may then use, resell or dispose of it.
Types Of Goods

Goods are classified first by who uses them and then, within consumer goods, by how long they last and how much effort the buyer spends in obtaining them. The full classification is set out in FC 14.2.

Flowchart

FC 14.2 — Classification Of Products Product → Consumer Products, Industrial Products; Consumer Products on the basis of durability → Durable, Non-durable; Consumer Products on the basis of shopping effort → Convenience, Shopping, Speciality; Industrial Products → Raw materials, Operating supplies, Installations, Accessory equipment, Fabricated parts

Consumer products are bought by ultimate consumers and households for personal use. On the basis of durability they are either non-durable products, which are used up in one or a few uses, such as bread, soap and toothpaste, or durable products, which are used repeatedly over a long period, such as a bicycle, a refrigerator or a sewing machine.

On the basis of the time and effort a buyer is willing to spend, consumer products fall into three classes.

  1. Convenience products — bought frequently, at the nearest outlet and with the least possible effort, because their unit price is low and the buyer sees no gain in shopping around for them. Newspapers, soap, salt and tea are examples.
  2. Shopping products — bought only after the quality, price and warranty of competing brands have been compared, because the unit price is high enough to make comparison worth the trouble. Furniture, cloth, a refrigerator or a scooter are examples.
  3. Speciality products — bought with special effort and often from a single exclusive outlet, because the buyer insists on a particular make and is unwilling to accept a substitute. Jewellery and fancy goods are examples.

The three classes are compared in Table 14.1.

Table 14.1 — Convenience, Shopping And Speciality Products | Basis | Convenience Products | Shopping Products | Speciality Products | |—|—|—|—| | Unit price | Low | Medium | High | | Frequency of purchase | Very frequent | Infrequent | Infrequent | | Effort and time taken | Minimum | Moderate | Considerable | | Availability | Nearest shop | Shops in the market | Exclusive outlets | | Planning before purchase | Very little | Deliberate comparison | Considerable | | Number of outlets | Many | Few | Very few |

Industrial products are bought not for personal use but for producing other goods, and they include raw materials, operating supplies such as lubricants and stationery, installations such as heavy machinery, accessory equipment such as hand tools, and fabricated parts such as tyres fitted to a vehicle. Their buyers are few, technically informed and geographically concentrated, and the demand for them is derived — the demand for cotton exists only because there is a demand for cloth.

14.2.2 Services

Services are the activities, benefits and satisfactions offered for sale that have no physical existence of their own. A journey by aeroplane, a consultation with a doctor and the operation of a bank account are all services.

NoteDefinition

Service A service is an intangible act or performance offered for sale by one party to another which satisfies a need without resulting in the ownership of anything.

Features Of Services
  1. Intangibility — a service cannot be seen, touched or tasted before it is bought, so the buyer has nothing to inspect and must rely instead on reputation, price and the appearance of the provider.
  2. Inseparability — production and consumption occur at the same moment, which is why the provider must be present at the point of sale; a repair cannot be carried out without the mechanic.
  3. Perishability — an unused service cannot be stored and sold later, so capacity left idle in a given period is lost for good.
  4. Heterogeneity — quality depends on the individual rendering the service and can rarely be standardised, so the same provider may not deliver identical satisfaction on two occasions.
  5. No transfer of ownership — the buyer obtains the benefit of the service but owns nothing afterwards, which is why a service, unlike a good, cannot be resold.

Where The Service Cannot Wait A seat left empty on a scheduled flight or a train berth left unsold cannot be added to the next day’s capacity and sold twice over. The moment the journey begins, that seat is lost revenue. This is why airlines and railways price seats to fill them rather than hold them back for a better offer.

Types Of Services

Services are commonly grouped as personal services, rendered by house maids, electricians, plumbers and nurses; financial services, rendered by banks, insurance companies, mutual funds and stock brokers; professional services, rendered by doctors, lawyers, chartered accountants and architects; and communication and courier services, rendered by postal and courier firms.

The points on which a product and a service part company are set out in Table 14.2.

Table 14.2 — A Product And A Service | Basis | Product | Service | |—|—|—| | Tangibility | Can be seen, touched and examined | Cannot be seen or touched | | Storage | Can be stored for later sale | Perishes if not used at once | | Separability | Separable from the producer | Produced and consumed together | | Standardisation | Can be standardised | Rarely uniform | | Ownership | Ownership passes to the buyer | No ownership passes | | Examples | Cloth, television, scooter | Banking, teaching, dry-cleaning |

Q. A restaurant serves a meal at the table. Is the restaurant selling a good or a service?

A. Both. The food is a good, but the cooking, serving and surroundings are a service, and the customer pays a single price for the combined offer.

Figure

Fig. 14.2-1 — Customers Being Attended To At A Bank Counter Photograph of a bank branch in India with staff attending to customers across the counter.

14.3 Product Mix: Branding, Labelling And Packaging

Three decisions surround the article itself and are settled along with it. A good that carries no name cannot be asked for a second time; a good that carries no written particulars cannot be trusted as to what is inside it; and a good that carries no covering may not survive the journey from the factory to the shop. Branding, labelling and packaging exist to remove these three difficulties.

14.3.1 Branding

Branding is the process of giving a product a distinctive name or symbol by which it can be identified and remembered, and by which it is distinguished from competing products. It covers the whole set of activities involved — selecting a name, designing a mark, and building recognition for both.

NoteDefinition

Brand A brand is a name, term, sign, symbol or design, or a combination of these, used to identify the goods or services of one seller and to distinguish them from those of competitors.

A brand has two parts. The brand name is that part which can be spoken, since it consists of words, letters or numbers. The brand mark is that part which can be recognised but not spoken, appearing as a symbol, a design, a mascot or a distinctive colour scheme. A trademark is a brand, or a part of a brand, that has been registered and therefore carries legal protection.

NoteDefinition

Trademark A trademark is a brand or part of a brand that enjoys legal protection. The firm in whose name it is registered obtains the exclusive right to its use in the country, and no other firm may use that name or mark.

The three terms are distinguished in Table 14.3.

Table 14.3 — Brand Name, Brand Mark And Trademark | Basis | Brand Name | Brand Mark | Trademark | |—|—|—|—| | Meaning | The spoken part of a brand | The recognised but unspoken part of a brand | A brand or part of it that is registered | | Form | Words, letters or numbers | Symbol, design, mascot or colour scheme | Either, once registered | | Can it be pronounced | Yes | No | Depends on what is registered | | Legal protection | Only if registered | Only if registered | Protected by law | | Right of use | Open to imitation until registered | Open to imitation until registered | Exclusive right to the owner |

Merits Of Branding To The Marketer
  1. Product differentiation — the brand separates the firm’s article from rival articles that look much the same, which is what allows the firm to secure and hold a market of its own.
  2. Support for advertising — a brand gives advertising something to repeat, so that expenditure on publicity accumulates into recognition instead of being spent afresh on every campaign.
  3. Differential pricing — buyers who have come to prefer a brand are willing to pay a little more for it, so a branded article can be priced above competing unbranded ones.
  4. Easier introduction of new products — a new article launched under a name that buyers already trust is accepted quickly, since the firm need not spend time and money establishing its credentials afresh.
  5. Wider market and lower selling costs — goods that are known by name can be ordered by description without inspection or sampling, and dealers are willing to stock them at a smaller margin.
Merits Of Branding To The Customer
  1. Ready identification — the buyer recognises the article at once and need not examine it on every purchase, which saves both time and effort.
  2. Assurance of quality — a brand commits its owner to a consistent standard, because poor quality would damage the name across the whole range, and this builds confidence in the buyer.
  3. Protection against overcharging — prices of branded and standardised goods are fixed and printed by the manufacturer, so a retailer cannot exploit an uninformed buyer by charging more.
  4. Status — some brands become symbols of standing, and buyers derive satisfaction from being known to use them.

A Name That Carries The Next Product Indian food companies routinely launch new items under a brand name already familiar from an existing product, so that soups, sauces and ready mixes reach the shelf under a name buyers have used for years. The new article needs no introduction; the established name does that work, and the launch costs the firm far less.

14.3.2 Labelling

Labelling means designing a label and putting it on the product or its package. A label is the slip of printed matter carried on the product which states its nature, contents, ownership, directions for use and price. It is the medium through which the manufacturer passes information to a buyer who will never meet him, and it is what makes branding and packaging useful rather than merely decorative. The particulars a good label carries are set out in Spec 14.1.

Spec 14.1 — Information Given On A Product Label Name and address of the manufacturer or dealer · brand name of the product · net weight or measure · ingredients or raw materials used · directions and precautions for use · date of packing and date of expiry · maximum retail price inclusive of local taxes · statutory warning where the law requires one

Merits Of Labelling
  1. Identification of the product — the label gives the article a definite identity, so a buyer can pick out one make from several similar packages on the same shelf.
  2. Information to the buyer — contents, quality, quantity and correct method of use are stated on the label, which allows the buyer to decide whether to purchase and how to use the article safely.
  3. Grading — a manufacturer selling the same commodity in several qualities can distinguish the grades by different labels, so buyers can choose the grade that suits their purse.
  4. Compliance with law — where the law requires particulars such as maximum retail price or a statutory warning to be declared, it is on the label that the requirement is met.
  5. Price control and protection from false claims — a printed maximum retail price prevents a seller from charging more, and a claim printed on the label can be verified and acted upon if it proves untrue.
  6. Promotion — a well-designed label attracts attention at the point of purchase and states a reason to buy, so it works as a silent salesman in a self-service store.

14.3.3 Packaging

Packaging means designing and producing the container or wrapper in which a product is placed for sale, storage and transport. A package is the case, container, bottle, tin or wrapper used for the purpose, and it is more than a carrier — it protects the goods from damage, sun, moisture and pilferage, keeps the contents fresh, carries the brand name and label, and makes the article convenient to handle.

Packaging is done at three levels. Primary packaging is the immediate container of the product, such as a toothpaste tube. Secondary packaging is the additional layer that protects the primary container until the product is put to use, such as the carton around the tube. Transportation packaging is the further covering required to move the goods in bulk, such as the corrugated box in which many cartons are despatched to a retailer.

Features Of Good Packaging
  1. Convenient — the package should be easy to open, close, handle and store, since a container that is awkward in use discourages repeat purchase.
  2. Protective — it should be strong enough to guard the contents through storage, transport and use, because damage in transit is a loss the seller ultimately bears.
  3. Attractive — good design, neatness and colour should catch the eye at the point of purchase, where the package must compete for attention with rival packages on the same shelf.
  4. Distinctive — it should establish an identity appropriate to the product, so that buyers recognise the article by its container alone.
  5. Truthful — the size and appearance of the package should reflect what is actually inside, since a container that suggests more than it holds destroys the buyer’s confidence.
  6. Economical — the cost of the package should bear a sensible relation to the value of the product, as elaborate packaging on an inexpensive article merely raises its price.

Figure

Fig. 14.3-1 — Goods Packed For Despatch Photograph of corrugated cartons stacked and sealed at the loading bay of a warehouse in India, ready for despatch to retailers.

Case 14.1 — The Pouch That Gave Way Anjali Foods sells mango pickle in thin polythene pouches printed with the firm’s name alone. Retailers complain that pouches burst during transport, and several buyers have written to say they could not tell how long the pickle would keep or how it should be stored after opening. Q. Name the two product decisions the firm has handled badly, and state one merit of each that it is presently losing.

14.4 Price Mix

Price is the one element of the marketing mix that brings money in; the other three only spend it. It is also the point at which buyer and seller must actually agree, because however good the article and however well it is advertised, no sale takes place until a figure acceptable to both is settled.

Price is the money value of a product or service — the amount a seller asks for what is offered and the amount a buyer is willing to part with for it. Pricing is the process of translating the value of a product into money, and it settles not only a base figure but also the terms and conditions of sale, such as transport charges, mode of payment, discounts and allowances. Price mix therefore covers the price to be charged, the discounts and allowances to be offered, and the terms of credit granted to buyers.

NoteDefinition

Price The price of an article or service is its market value expressed in terms of money. — Clark

A firm cannot succeed with a price that is either too low or too high. Too low a price fails to cover cost and starves the business of profit, while too high a price drives buyers to substitutes. Price also affects every other element: the quality that can be built into the product, the discount a dealer can be offered and the advertising that can be afforded all depend on what the article is expected to fetch.

14.4.1 Factors Determining Price

Some of the influences on price arise inside the firm and can be controlled by it; others arise outside and must simply be accepted. The two groups are set out in FC 14.3.

Flowchart

FC 14.3 — Factors Determining Price Factors Determining Price → Internal Factors, External Factors; Internal Factors → Pricing objective of the firm, Cost of the product, Quality and service offered, Other elements of the marketing mix; External Factors → Demand and utility, Degree of competition, Buying motives of customers, Government regulation

Internal Factors
  1. Pricing objective of the firm — a firm aiming at maximum profit in the short run will charge as much as the market bears, while a firm aiming at a large share of the market will set a low price and look for its profit in volume and in later years.
  2. Cost of the product — cost sets the floor below which price cannot fall for long, since production, distribution and selling expenses must all be recovered; in the long run the price must cover total cost per unit, and in the short run it must at least cover variable cost.
  3. Quality and service offered — an article of exceptional quality, or one sold with installation, free delivery or after-sale service, can be priced well above its competitors, because the buyer is paying for more than the article alone.
  4. Other elements of the marketing mix — the package, the channel and the promotional effort all cost money and all raise what the buyer expects, so a heavily advertised article distributed through exclusive outlets cannot carry an ordinary price.
External Factors
  1. Demand and utility — demand sets the ceiling, since price cannot exceed the value buyers place on the article; where demand is inelastic, because the article is a necessity or has no close substitute, a higher price can be charged without much loss of sales.
  2. Degree of competition — the prices charged by rival firms act as a guide, and under intense competition price tends to settle at a lower level, because a buyer who finds the article dearer here will simply buy it elsewhere.
  3. Buying motives of customers — where an article is bought for status or prestige rather than for use, a high price is itself part of the attraction, and the price must therefore be consistent with the public image the product is meant to carry.
  4. Government regulation — the prices of certain products are regulated in the public interest, and every firm must in any case observe the laws relating to price, so this factor can override the firm’s own judgement altogether.

14.4.2 Pricing Strategies

A pricing strategy is the approach a firm adopts in deciding what to charge its target customers. The strategies in common use are named in FC 14.4.

Flowchart

FC 14.4 — Pricing Strategies Pricing Strategies → Cost-plus pricing, Competitive pricing, Price-skimming, Penetration pricing, Value-based pricing

  1. Cost-plus pricing — the selling price is fixed by adding a fixed percentage of expected profit, called the markup, to the cost of producing the article.
  2. Competitive pricing — the price is fixed by reference to the prices charged by competitors for similar products, and may be set equal to, above or below them.
  3. Price-skimming — a newly launched product is introduced at a high price to attract early buyers, and the price is lowered gradually to draw in more price-sensitive customers.
  4. Penetration pricing — a product is introduced at a very low price in order to enter a competitive market and gain a large share of it quickly.
  5. Value-based pricing — the price is fixed according to what customers are willing to pay for the benefit they perceive, rather than according to the cost of production.

Priced Low To Get In When a new mobile network entered the Indian telecom market, it offered calls and data at rates far below those then prevailing. The object was not immediate profit but subscribers, and once a large base had been built the tariffs were revised upward. Established operators were forced to cut their own prices in response.

Case 14.2 — Two Ways Into The Same Market Vaidya Appliances launches a water purifier of a new design at a high price, expecting buyers who want the latest model to pay it, and plans to reduce the price after six months. In the same season, Kritika Electricals enters the purifier market with a plain model priced below every competing brand in order to build a customer base quickly. Q. Name the pricing strategy adopted by each firm and state what each is trying to achieve.

14.5 Place Mix

Goods are produced in a few places and wanted in thousands. Between the factory and the buyer lie a gap of distance, a gap of time and a gap of ownership, and a product that does not cross all three is not bought however good it is or however cheaply it is priced. The place element of the marketing mix exists to close these gaps, and it involves two broad decisions: the choice of the channel through which the product will travel, and the physical distribution that actually moves and stores it.

The choice of channel is a long-term commitment and is not easily reversed, since dealers once appointed cannot be dropped at will and a firm that builds its own selling network has sunk money into it. It also affects the rest of the mix, because the channel selected determines the margins that must be allowed, the promotional support the firm must provide and the price at which the article finally reaches the buyer.

14.5.1 Channels Of Distribution

A channel of distribution, also called a trade channel, is the route along which a product travels from the producer to the ultimate consumer. It begins with the producer and ends with the consumer, and in between there may be one or more middlemen who assist in moving the goods or the title to them.

NoteDefinition

Channel Of Distribution A distribution channel consists of the set of people and firms involved in the transfer of title to a product as it moves from the producer to the ultimate consumer or business user. It includes the producer, the final user and the agents and merchant middlemen in between. — William Stanton

Three separate things flow along the channel. Goods flow downwards from the producer to the consumer; cash flows upwards from the consumer to the producer in payment; and marketing information flows in both directions, carrying news of new products down and complaints, suggestions and demand patterns back up.

Functions Performed By Middlemen
  1. Sorting — middlemen obtain goods of different quality and size from several sources and sort them into homogeneous lots, which is work no single producer is placed to do.
  2. Accumulation — they build up a stock large enough to maintain a continuous flow of supply, so that a break in one producer’s output does not empty the shelves.
  3. Allocation — they break bulk, dividing large consignments into the small packs in which households actually buy.
  4. Assorting — they assemble goods of different kinds in the combination customers want, which is why a household can buy its whole month’s grocery from one retailer.
  5. Promotion — they push sales through personal selling, display and word of mouth in their own locality, where the producer has no presence.
  6. Risk taking — merchant middlemen take ownership of the goods and with it the risk of spoilage, damage and price fluctuation, which is a burden lifted off the producer.
Levels Of Channel

Channels are described by the number of independent middlemen standing between producer and consumer. The four common arrangements are set out in FC 14.5.

Flowchart

FC 14.5 — Levels Of Distribution Channel Channels of Distribution → Zero level, One level, Two level, Three level; Zero level → Manufacturer → Consumer; One level → Manufacturer → Retailer → Consumer; Two level → Manufacturer → Wholesaler → Retailer → Consumer; Three level → Manufacturer → Agent → Wholesaler → Retailer → Consumer

  1. Zero level or direct channel — the producer sells straight to the consumer through his own retail outlets, door-to-door salesmen, mail order, the internet or vending machines. It is the shortest and simplest route, but it requires heavy investment in selling facilities, which is why it suits firms with large output, buyers who purchase in bulk or are concentrated in one area, and goods that are perishable or technical.
  2. One level channel — the manufacturer sells to retailers who in turn sell to consumers. It is used for consumer durables and other goods of high value, where the producer wants a wide market but still needs control over how the article is sold and serviced.
  3. Two level channel — the manufacturer sells in bulk to wholesalers, who sell to a large number of retailers. This is the commonest route for convenience goods such as soap, salt, tea and toothpaste, and it suits a producer with limited finance, a narrow product line and buyers scattered over a wide area.
  4. Three level channel — a selling agent is interposed above the wholesalers, and the producer hands over his entire output to that agent. It is the longest route and is chosen when the manufacturer wishes to be relieved of the problem of distribution altogether.

The two families of channel are compared in Table 14.4.

Table 14.4 — Direct And Indirect Channels | Basis | Direct Channel | Indirect Channel | |—|—|—| | Middlemen | None | One or more | | Length | Shortest | Longer, up to three levels | | Control over selling | Complete control with the producer | Control shared with middlemen | | Investment required | Heavy, in the firm’s own outlets and staff | Light, as middlemen bear the cost | | Contact with the buyer | Direct and continuous | Through the dealer | | Suitability | Bulk buyers, concentrated markets, perishable and technical goods | Scattered markets, small and frequent purchases |

Two Routes From One Dairy Cooperative dairies in India sell packaged milk through booths they own and operate themselves, so that the customer buys directly from the producer with no middleman in between. The same dairies sell butter, cheese and ice cream through distributors and neighbourhood retailers, because those goods must reach shops the dairy could never own.

Q. A shoe manufacturer sells only through its own website. Which level of channel is this?

A. Zero level. The website is the producer’s own means of reaching the buyer, not an independent middleman, so no level is added.

14.5.2 Choice Of Channels Of Distribution

No single channel suits every product or every firm. The factors weighed in making the choice fall into four groups.

14.5.3 Physical Distribution

Choosing a channel decides who will handle the goods; physical distribution decides how they will actually be moved and held. It is the set of interrelated activities concerned with the movement, storage and control of goods so that they are available at the right place and at the right time.

NoteDefinition

Physical Distribution Physical distribution involves planning, implementing and controlling the physical flow of materials and final goods from points of origin to points of use to meet customer needs at a profit. — Philip Kotler

Physical distribution is also known as supply chain management or marketing logistics. Its four elements are named in FC 14.6.

Flowchart

FC 14.6 — Elements Of Physical Distribution Physical Distribution → Warehousing, Transportation, Inventory control, Order processing

  1. Warehousing — the storage of finished goods from the time they are produced until the time they are sold.
  2. Transportation — the physical carriage of goods from the producer to the buyer by road, rail, water, air or pipeline.
  3. Inventory control — the regulation of the size of stock held, so that sales are never lost for want of goods and no more capital than necessary is locked up in them.
  4. Order processing — the handling of a customer’s order from its receipt through recording, despatch and billing to the receipt of payment.

Figure

Fig. 14.5-1 — Stock Held In A Distribution Warehouse Photograph of the interior of a warehouse in India with cartons stacked on racks and a forklift in use.

14.6 Promotion Mix

A product may be well made, sensibly priced and stocked in every shop, and still remain unsold if buyers do not know it exists or are not convinced that it is worth having. Promotion is the process of communicating with potential buyers in order to inform, persuade and influence them, and it is the element of the marketing mix that removes this last obstacle. The need for it has grown as competition has increased, tastes have changed and the distance between the manufacturer and the consumer has widened.

Promotion is not a single activity but a combination of four tools, and the combination a firm settles on is its promotion mix. There is no ideal promotion mix that suits all firms or all occasions. The nature of the product, the number and location of buyers, the stage the product has reached in its life, the funds available and the effectiveness of each tool at a given stage of the buying process all decide the weight given to each. Advertising and publicity work best at creating awareness, while personal selling and sales promotion are stronger at converting that awareness into an actual sale. The four elements are named in FC 14.7.

Flowchart

FC 14.7 — Elements Of Promotion Mix Promotion Mix → Advertising, Sales promotion, Personal selling, Publicity

14.6.1 Advertising

Advertising is any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor. The message that is put out is called an advertisement.

NoteDefinition

Advertising Advertising is any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor, intended to induce people to act in a manner beneficial to the advertiser.

Features Of Advertising
  1. Paid form — the advertiser buys the space or time used, and it is this payment that separates advertising from publicity.
  2. Non-personal — there is no face-to-face contact with the buyer, so the message cannot be adjusted to the person receiving it.
  3. Identified sponsor — the name of the advertiser appears in the message, which is why the firm can be held to what it claims.
  4. Mass communication — one message reaches a very large number of people at the same time, so although the total outlay is heavy the cost per person reached is low.
  5. Wide choice of media — newspapers, magazines, radio, television, cinema, hoardings and the internet are all available, and the medium is chosen to match the buyers being sought.
Objectives Of Advertising
  1. To introduce a new product by creating awareness and interest among prospective customers.
  2. To build loyalty for a brand, so that buyers return to it instead of treating every purchase as a fresh decision.
  3. To meet competition by reminding customers of the firm’s product when rival products are being pressed on them.
  4. To prepare the ground for the salesman, who then calls on a buyer who has already heard of the article.
  5. To reach buyers whom salesmen cannot reach, and to enter new markets or attract a new group of customers.

14.6.2 Sales Promotion

Sales promotion covers all those activities, other than advertising and personal selling, that stimulate consumer purchasing and dealer effectiveness. Free samples, price-off offers, coupons, premium and bonus offers, prize contests, exchange offers, demonstrations and incentives to dealers and to the sales force are all instances of it.

Features Of Sales Promotion
  1. Non-routine — these activities are occasional and are not part of the firm’s regular selling effort, which is why they attract notice when they are announced.
  2. Short-term incentive — the offer is deliberately limited in time, so that the buyer who wants the benefit must act at once.
  3. Supplementary — sales promotion supports advertising and personal selling rather than replacing them, since an incentive is of little use to a buyer who has not heard of the product.
  4. Directed at both consumers and dealers — the consumer is offered a reason to buy and the dealer a reason to stock and push the article.
Objectives Of Sales Promotion
  1. To induce on-the-spot buying by offering a benefit available only now.
  2. To increase immediate sales and lift a slack sales volume.
  3. To clear old stock and make room for new lines.
  4. To generate demand during the off-season, when the product would otherwise sell slowly.
  5. To support advertising and personal selling by converting interest into purchase.

Advertising and sales promotion are often confused because both are impersonal and both are addressed to many buyers at once; they are distinguished in Table 14.5.

Table 14.5 — Advertising And Sales Promotion | Basis | Advertising | Sales Promotion | |—|—|—| | Meaning | Paid non-personal presentation of the product | Short-term incentive offered to stimulate purchase | | Objective | To build a favourable image of the firm and its product | To raise current sales | | Time horizon | Long-term technique | Short-term technique | | Nature | Regular and repetitive | Occasional and non-repetitive | | Effect | Attracts the customer towards the product | Pushes the product towards the customer | | Tools used | Press, radio, television, cinema, outdoor media | Samples, coupons, discounts, contests, exchange offers |

14.6.3 Personal Selling

Personal selling is the process of informing, assisting and persuading a buyer to purchase a product through direct personal contact. The people who do this work are called salespersons or sales representatives, and the process runs through several steps — pre-sale preparation, prospecting, approach, presentation, handling objections, closing the sale and follow-up.

Features Of Personal Selling
  1. Personal interaction — seller and buyer meet face to face, so the seller can read the buyer’s response and answer it.
  2. Two-way communication — the buyer can question and object and the seller can reply at once, which is why doubts are settled on the spot instead of remaining unanswered.
  3. Flexibility — the presentation is tailored to the needs and motives of the individual customer, so no two calls need be alike.
  4. Selective and costly — only a limited number of persons can be contacted, and the cost per contact is therefore high.
  5. Lasting relationship — the object is not one sale but a permanent customer, since a satisfied buyer returns and brings others.
Objectives Of Personal Selling
  1. To convert into demand the interest and desire that advertising has created.
  2. To introduce technical products through demonstration and explanation, which no advertisement can do adequately.
  3. To redress the grievances and answer the objections of customers.
  4. To persuade dealers to stock the brand and to persuade buyers to switch from rival brands.
  5. To collect feedback from customers about the product and about competing offers.

The two personal and impersonal tools are compared in Table 14.6.

Table 14.6 — Advertising And Personal Selling | Basis | Advertising | Personal Selling | |—|—|—| | Nature of communication | Non-personal, with no face-to-face contact | Personal, face to face | | Direction | One-way message | Two-way conversation | | Message | The same message for everyone | Tailored to each customer | | Coverage | Very large number of persons | Limited number of persons | | Cost per contact | Low | High | | Feedback | Delayed and indirect | Immediate | | Suitability | Consumer goods with scattered buyers | Industrial and technical goods, few buyers |

14.6.4 Publicity

Publicity is news about a firm, its product or its activities carried by the mass media without payment by the firm. The company may prepare and release the news, but the media decide whether to carry it and in what terms, and the report may therefore be favourable or unfavourable.

NoteDefinition

Publicity Publicity is any form of non-paid, commercially significant news or editorial comment about ideas, products or institutions. — American Marketing Association

Features Of Publicity
  1. Not paid for — the firm does not buy the space or time, so the cost of publicity is nil even though the firm may spend on preparing the news.
  2. Message originates with the media — the sponsor is not identified as an advertiser, and the report reaches the public as news rather than as a claim.
  3. Outside the firm’s control — the media control the content and timing, which is why publicity can turn against the firm as easily as it can favour it.
  4. More credible — because readers know the firm has not paid for it, a favourable report carries more weight than an advertisement making the same claim.
Objectives Of Publicity
  1. To inform the public about the organisation and its work.
  2. To highlight the organisation’s contribution to society.
  3. To draw public attention to a noteworthy event connected with the firm.
  4. To build and maintain a favourable public image.

News The Firm Did Not Pay For Reports in the Indian press about pesticide residues in soft drinks were followed by a marked fall in the sales of the brands named. No competitor had paid for the coverage and none of the companies could withdraw it. Favourable publicity works the same way in reverse, and costs nothing either.

The paid and unpaid forms of mass communication are distinguished in Table 14.7.

Table 14.7 — Advertising And Publicity | Basis | Advertising | Publicity | |—|—|—| | Payment | The advertiser pays the media | No payment is made by the firm | | Sponsor | Clearly identified | Not identified as a sponsor | | Source of the message | Originates with the advertiser | Originates with the media | | Control | The firm controls content and timing | The media control content and timing | | Purpose of the message | Persuasive, meant to favour the product | Informative, presented as news | | Credibility | Less credible | More credible |

Figure

Fig. 14.6-1 — Outdoor Advertising In A City Market Photograph of hoardings and signboards along a busy market road in an Indian city.

Case 14.4 — Two Budgets, Two Tools Tanvi Instruments manufactures laboratory equipment bought by colleges and hospitals, and employs trained representatives who visit each institution, demonstrate the machine and answer objections on the spot. Its associate firm, Tanvi Care, makes a tooth powder sold in thousands of small shops and spends almost its entire promotion budget on television and press. Q. Name the element of the promotion mix each firm relies on and state, in each case, the feature of its market that makes that choice appropriate.

14.7 Summary

  1. Marketing mix is the combination of four elements — product, price, place and promotion — by which a firm satisfies the needs of its target market and achieves its marketing objectives.
  2. The four elements are interrelated, so a decision taken in one forces decisions in the others, and the mix is dynamic because customer groups differ and their requirements change over time.
  3. An appropriate marketing mix keeps the firm customer-oriented, holds the four elements in balance, forms the link between the firm and its buyers, and is altered as the marketing environment alters.
  4. Product mix covers the range, quality, size and design of what is offered, together with branding, labelling, packaging, warranty and after-sale service. A product is anything offered to satisfy a need, and what the buyer pays for is the satisfaction it yields rather than the article itself.
  5. Goods are tangible, separable from the producer, storable, largely homogeneous, and their sale passes ownership to the buyer. They are classified as:
  1. Consumer products, subdivided by durability into durable and non-durable, and by shopping effort into convenience, shopping and speciality products.
  2. Industrial products, bought for use in producing other goods, whose demand is derived from the demand for consumer goods.
  1. Services are intangible, inseparable from the provider, perishable and heterogeneous, and their sale transfers no ownership. Personal, financial, professional and courier services are the common types.
  2. Branding gives a product a distinctive identity. The brand name is the part that can be spoken, the brand mark the part that can be recognised but not spoken, and a trademark is a brand or part of a brand that is registered and legally protected.
  3. Branding benefits the marketer through product differentiation, support for advertising, differential pricing, easier launch of new products and lower selling costs; it benefits the customer through ready identification, assurance of quality, protection from overcharging and status.
  4. Labelling supplies the particulars a buyer needs — contents, quantity, directions for use, price and any statutory warning — and thereby assists identification, grading, compliance with law, price control and promotion at the point of purchase.
  5. Packaging is the designing and producing of the container or wrapper. A good package is convenient, protective, attractive, distinctive, truthful about its contents and economical in relation to the value of the product.
  6. Price is the money value of a product. Cost sets the floor below which price cannot fall for long and demand sets the ceiling above which it cannot rise.
  7. Price is determined by internal factors — the pricing objective of the firm, cost, quality and service, and the other elements of the mix — and by external factors — demand and utility, competition, buying motives and government regulation.
  8. The pricing strategies in common use are cost-plus pricing, competitive pricing, price-skimming, penetration pricing and value-based pricing.
  9. A channel of distribution is the route along which a product travels from producer to consumer. Goods flow down it, cash flows up it, and information flows both ways; middlemen along it perform sorting, accumulation, allocation, assorting, promotion and risk taking.
  10. Channels are described by the number of independent middlemen: zero level or direct, one level through retailers, two level through wholesalers and retailers, and three level through an agent as well.
  11. The channel is chosen after weighing product-related factors, market-related factors, company-related factors and middlemen-related factors, and the choice is a long-term commitment that is difficult to reverse.
  12. Physical distribution moves and stores the goods so that they are available at the right place and time. Its elements are warehousing, transportation, inventory control and order processing.
  13. Promotion informs and persuades prospective buyers. Its four elements are advertising, sales promotion, personal selling and publicity, and no single mix of them suits all firms or all stages of a product’s life.
  14. Advertising is a paid, non-personal message from an identified sponsor carried by mass media; sales promotion offers a short-term, non-routine incentive to consumers and dealers; personal selling is a flexible, two-way, face-to-face process aimed at a permanent customer; and publicity is unpaid news carried by the media, which is more credible but outside the firm’s control.

The chapter in one view is set out in Table 14.8.

Table 14.8 — The Four Elements And What Each Settles | Basis | Product Mix | Price Mix | Place Mix | Promotion Mix | |—|—|—|—|—| | Question answered | What is offered | On what terms | By which route | With what message | | Obstacle removed | The buyer is offered nothing worth having | Buyer and seller cannot agree on a figure | The goods are out of the buyer’s reach | The buyer is unaware or unconvinced | | Decisions covered | Range, quality, branding, labelling, packaging | Price, discounts, terms of credit | Channel of distribution, physical distribution | Advertising, sales promotion, personal selling, publicity |

14.8 Points To Ponder

  1. Branding costs money — the name must be advertised, registered and defended — and that cost is recovered from the buyer in the price. Is the purchaser of a branded soap paying for assured quality, or paying for the name itself?
  2. A well-funded entrant using penetration pricing can hold a price below the level at which smaller established sellers are able to trade. Is this ordinary competition working as it should, or a cost the buyer meets later once the smaller sellers have gone?
  3. Every middleman in a channel takes a margin, yet a producer who removes them must build and finance a distribution network of his own. Under what conditions does a longer channel actually deliver goods to the buyer more cheaply than a shorter one?
  4. Advertising is defended as the means by which buyers learn what is available and criticised as an expense that adds nothing to the article. Does advertising create demand that would not otherwise have existed, or only direct demand that already exists towards one brand?
  5. Good packaging protects the product, and discarded packaging becomes waste that no one has paid to deal with. Where should the limit on packaging be fixed, and should it be fixed by the firm, by the buyer’s preference, or by law?

14.9 Objective Questions

  1. Sharma Textiles sells its cloth to wholesalers, who supply it to retailers in several districts. The decision described here belongs to which element of the marketing mix? [1]
  1. Product mix
  2. Price mix
  3. Place mix
  4. Promotion mix
  1. A company introduces a newly designed music system at a high price aimed at buyers who want the latest model, and reduces the price steadily over the following year. The strategy adopted is: [1]
  1. Penetration pricing
  2. Price-skimming
  3. Cost-plus pricing
  4. Competitive pricing
  1. Read the assertion and the reason given below and choose the correct option: [1] Assertion (A): Publicity is generally regarded as more credible than advertising. Reason (R): The firm whose product is mentioned does not pay the media for publicity.
  1. Both (A) and (R) are true and (R) is the correct explanation of (A).
  2. Both (A) and (R) are true but (R) is not the correct explanation of (A).
    1. is true but (R) is false.
    1. is false but (R) is true.
  1. Fill in the blank: The part of a brand which can be recognised but cannot be spoken is called the ______. [1]
  2. Match the items in Column A with those in Column B: [1]
Column A Column B
a. Storage of finished goods until they are sold i. Allocation
b. Breaking bulk into small marketable packs ii. Trademark
c. A short-term incentive offered to clear old stock iii. Warehousing
d. A brand registered under law iv. Sales promotion

14.10 Check Your Concepts

  1. Name the factor that sets the floor and the factor that sets the ceiling of the price of a product, and state briefly why each does so. [2]
  2. Distinguish between advertising and publicity on any three bases. [3]
  3. A grower of fresh fruit and a manufacturer of packaged salt are advised to use channels of different lengths. State the channel suited to each and give the reason in each case. [3]
  4. ‘The elements of the marketing mix cannot be settled one at a time.’ Evaluate this claim with the help of two examples. [4]
  5. What is meant by branding? Explain any four merits of branding to the marketer. [6]

14.11 Case-Based Questions

  1. Meghna Woollens manufactures blankets and at present sells them only through the two showrooms it owns in the town where its factory stands. The firm now wishes to sell across northern India, but it has limited working capital and cannot afford a sales force of its own. It also proposes to announce an exchange offer for one month before the winter season in order to move the stock left over from last year.
  1. Name the channel of distribution the firm should now adopt and give two reasons, drawn from the case, for that choice. [2]
  2. Identify the element of the promotion mix used in the exchange offer and state two features of that element. [2]