UNIT-III

PRICING
Meaning:-
Price goes by many other names, rent, fare, rate, interest, toll, premium and even bribe but all these
names add up to one thing. What consumers pay for product or services?

Services:-
Price is an offer or experiment to test the plus of market. Prices are always on trail. If customers accepted
the offer then the price is fine. If they reject it, the price is not fine. Price is all around us, we pay rent for
our apartment, tuition for education, and fee to our physician. The air line, railways, taxes and business
companies charge us a fare. In economics theory, we learn that price, value and utility are related
concepts. Utility creates value measures price

Price:-
There are many definition of price
1) Price is a value expressed in terms of dollars, Cents, Rupee or any other monetary medium
of exchange.
2).In summary, price is value placed on goods and services. Price is the amount of money needed to
acquire some combination of other good services.
3) Price is which is exchanged in order to acquire something else of value

MAIN FACTORS AFFECTING PRICE DETERMINATION OF PRODUCT

1. Product Cost:

The most important factor affecting the price of a product is its cost.

Product cost refers to the total of fixed costs, variable costs and semi variable costs incurred during the
production, distribution and selling of the product. Fixed costs are those costs which remain fixed at all
the levels of production or sales.

For example, rent of building, salary, etc. Variable costs refer to the costs which are directly related to the
levels of production or sales. For example, costs of raw material, labour costs etc. Semi variable costs are
those which change with the level of activity but not in direct proportion. For example, fixed salary of Rs
12,000 + upto 6% graded commission on increase in volume of sales.

The price for a commodity is determined on the basis of the total cost. So sometimes, while entering a
new market or launching a new product, business firm has to keep its price below the cost level but in the
long rim, it is necessary for a firm to cover more than its total cost if it wants to survive amidst cut-throat
competition.

2. The Utility and Demand:

Usually, consumers demand more units of a product when its price is low and vice versa. However, when
the demand for a product is elastic, little variation in the price may result in large changes in quantity
demanded. In case of inelastic demand, a change in the prices does not affect the demand significantly.
Thus, a firm can charge higher profits in case of inelastic demand.
Moreover, the buyer is ready to pay up to that point where he perceives utility from product to be at least
equal to price paid. Thus, both utility and demand for a product affect its price.

3. Extent of Competition in the Market:

The next important factor affecting the price for a product is the nature and degree of competition in the
market. A firm can fix any price for its product if the degree of competition is low.

However, when the level of competition is very high, the price of a product is determined on the basis of
price of competitors’ products, their features and quality etc. For example, MRF Tyre company cannot fix
the prices of its Tyres without considering the prices of Bridgestone Tyre Company, Goodyear Tyre
company etc.

4. Government and Legal Regulations:

The firms which have monopoly in the market, usually charge high price for their products. In order to
protect the interest of the public, the government intervenes and regulates the prices of the commodities
for this purpose; it declares some products as essential products for example. Life saving drugs etc.

5. Pricing Objectives:

Another important factor, affecting the price of a product or service is the pricing objectives.

Following are the pricing objectives of any business:

(a) Profit Maximization:

Usually the objective of any business is to maximize the profit. During short run, a firm can earn
maximum profit by charging high price. However, during long run, a firm reduces price per unit to
capture bigger share of the market and hence earn high profits through increased sales.

(b) Obtaining Market Share Leadership:

If the firm’s objective is to obtain a big market share, it keeps the price per unit low so that there is an
increase in sales.

(c) Surviving in a Competitive Market:

If a firm is not able to face the competition and is finding difficulties in surviving, it may resort to free
offer, discount or may try to liquidate its stock even at BOP (Best Obtainable Price).

(d) Attaining Product Quality Leadership:

Generally, firm charges higher prices to cover high quality and high cost if it’s backed by above
objective.

6. Marketing Methods Used:

The various marketing methods such as distribution system, quality of salesmen, advertising, type of
packaging, customer services, etc. also affect the price of a product. For example, a firm will charge high
profit if it is using expensive material for packing its product.
PRICING METHODS

An organization has various options for selecting a pricing method. Prices are based on three dimensions
that are cost, demand, and competition.

The organization can use any of the dimensions or combination of dimensions to set the price of a
product.

Figure-4 shows different pricing methods:

The different pricing methods are discussed below;

Cost-based Pricing:

Cost-based pricing refers to a pricing method in which some percentage of desired profit margins is
added to the cost of the product to obtain the final price. In other words, cost-based pricing can be
defined as a pricing method in which a certain percentage of the total cost of production is added to the
cost of the product to determine its selling price. Cost-based pricing can be of two types, namely, cost-
plus pricing and markup pricing.

These two types of cost-based pricing are as follows:

i. Cost-plus Pricing:

Refers to the simplest method of determining the price of a product. In cost-plus pricing method, a fixed
percentage, also called mark-up percentage, of the total cost (as a profit) is added to the total cost to set
the price. For example, XYZ organization bears the total cost of Rs. 100 per unit for producing a product.
It adds Rs. 50 per unit to the price of product as’ profit. In such a case, the final price of a product of the
organization would be Rs. 150.

Cost-plus pricing is also known as average cost pricing. This is the most commonly used method in
manufacturing organizations.
In economics, the general formula given for setting price in case of cost-plus pricing is as follows:

P = AVC + AVC (M)

AVC= Average Variable Cost

M = Mark-up percentage

AVC (m) = Gross profit margin

Mark-up percentage (M) is fixed in which AFC and net profit margin (NPM) are covered.

AVC (m) = AFC+ NPM

ii. For determining average variable cost, the first step is to fix prices. This is done by estimating the
volume of the output for a given period of time. The planned output or normal level of production is
taken into account to estimate the output.

The second step is to calculate Total Variable Cost (TVC) of the output. TVC includes direct costs, such
as cost incurred in labor, electricity, and transportation. Once TVC is calculated, AVC is obtained by
dividing TVC by output, Q. [AVC= TVC/Q]. The price is then fixed by adding the mark-up of some
percentage of AVC to the profit [P = AVC + AVC (m)].

iii. The advantages of cost-plus pricing method are as follows:

a. Requires minimum information

b. Involves simplicity of calculation

c. Insures sellers against the unexpected changes in costs

The disadvantages of cost-plus pricing method are as follows:

a. Ignores price strategies of competitors

b. Ignores the role of customers

iv. Markup Pricing:

Refers to a pricing method in which the fixed amount or the percentage of cost of the product is added to
product’s price to get the selling price of the product. Markup pricing is more common in retailing in
which a retailer sells the product to earn profit. For example, if a retailer has taken a product from the
wholesaler for Rs. 100, then he/she might add up a markup of Rs. 20 to gain profit.

It is mostly expressed by the following formulae:

a. Markup as the percentage of cost= (Markup/Cost) *100

b. Markup as the percentage of selling price= (Markup/ Selling Price)*100

c. For example, the product is sold for Rs. 500 whose cost was Rs. 400. The mark up as a percentage to
cost is equal to (100/400)*100 =25. The mark up as a percentage of the selling price equals
(100/500)*100= 20.
Demand-based Pricing:

Demand-based pricing refers to a pricing method in which the price of a product is finalized according to
its demand. If the demand of a product is more, an organization prefers to set high prices for products to
gain profit; whereas, if the demand of a product is less, the low prices are charged to attract the
customers.

The success of demand-based pricing depends on the ability of marketers to analyze the demand. This
type of pricing can be seen in the hospitality and travel industries. For instance, airlines during the period
of low demand charge less rates as compared to the period of high demand. Demand-based pricing helps
the organization to earn more profit if the customers accept the product at the price more than its cost.

Competition-based Pricing:

Competition-based pricing refers to a method in which an organization considers the prices of

competitors’ products to set the prices of its own products. The organization may charge higher, lower, or
equal prices as compared to the prices of its competitors.

The aviation industry is the best example of competition-based pricing where airlines charge the same or
fewer prices for same routes as charged by their competitors. In addition, the introductory prices charged
by publishing organizations for textbooks are determined according to the competitors’ prices.

Other Pricing Methods:

In addition to the pricing methods, there are other methods that are discussed as follows:

i. Value Pricing:

Implies a method in which an organization tries to win loyal customers by charging low prices for their
high- quality products. The organization aims to become a low cost producer without sacrificing the
quality. It can deliver high- quality products at low prices by improving its research and development
process. Value pricing is also called value-optimized pricing.

ii. Target Return Pricing:

Helps in achieving the required rate of return on investment done for a product. In other words, the price
of a product is fixed on the basis of expected profit.

iii. Going Rate Pricing:

Implies a method in which an organization sets the price of a product according to the prevailing price
trends in the market. Thus, the pricing strategy adopted by the organization can be same or similar to
other organizations. However, in this type of pricing, the prices set by the market leaders are followed by
all the organizations in the industry.

iv. Transfer Pricing:

Involves selling of goods and services within the departments of the organization. It is done to manage
the profit and loss ratios of different departments within the organization. One department of an
organization can sell its products to other departments at low prices. Sometimes, transfer pricing is used
to show higher profits in the organization by showing fake sales of products within departments.
PRICING SRATEGIES

A company not sets a single price but a pricing structure that covers different items in its line. This
pricing structure change with products life cycles. The company adjusts product price to reflect changing
costs and situations. There are many price strategies available to management.

1) New product pricing strategies

2) Product mix pricing strategies
3) Price adjustment strategies.

1) New product pricing strategies:-

New product pricing strategies include

(i) Pricing on innovative product.

(a) Market skimming pricing.

A price skimming strategy focuses on maximizing profits by charging a high price for early adopters of a
new product, then gradually lowering the price to attract thriftier consumers. For example, a cell phone
company might launch a new product with an initial high price, capitalizing on some people’s willingness
to pay a premium for cutting-edge technology. When sales to that group slow or competitors emerge, the
company progressively lowers its price, skimming each layer of the market until the low price wins over
even frugal buyers.

Effects of Price Skimming

Price skimming offers four major advantages, according to “The Future of Business: The Essentials.” It
can offer insight into what consumers are willing to pay. It can create an aura of prestige around your
product. If the initial price is too high, you can lower it easily. Finally, late adopters might be pleased to
get your prestigious product at a bargain price, which creates goodwill for your company. A major
disadvantage, however, is that large profits attract competitors, so this price strategy only works well for
businesses that have a significant competitive advantage, such as proprietary technology.

(b) Market penetration pricing

Penetration pricing occurs when a company launches a low-priced product with the goal of securing
market share. For example, a sponge manufacturer might use a penetration pricing strategy to lure
customers from current competitors and to discourage new competitors from entering the industry. If the
sponge’s price is low enough, consumers will flock to the new product. Competitors who can’t produce
and promote sponges for such a small profit will avoid the market, freeing the sponge company to
maximize brand recognition and goodwill.

Effects of Penetration Pricing

Penetration pricing requires extensive planning. To properly execute a penetration-pricing strategy, the
sponge manufacturer first must gear up for mass production and then launch a sizable advertising
campaign to publicize its new low-priced sponge. Both steps are expensive, so penetration-pricing
strategies might not work well for small businesses. Also, if your company’s forecasts for consumer
demand are off, you could end up with a large stockpile of unwanted products

2) Product mix pricing strategies:-

In this case, the firms, looks for set of prices that maximize the profit on the total productmix
The product mix pricing strategies has to face different degree of competitors

(a) Product line pricing:-

Companies usually develop product lines rather than single product. In this type of pricing
management must determine the price steps to set between the various product in a line.
(b) Optional product pricing:-
Many companies use optional product pricing-offering to sell optional or accessory products
along with their main products. A car buyer can order electric windows etc. Pricing these options
is a problem. Automobile companies must decide to offer options in base price.
(c) Captive product pricing:-
Companies that make product which must be used along with a main product use captive product
pricing e.g., laser blades, camera films and computer software.
(d) Bye product pricing:-
In producing processed needs petroleum products, chemicals and other products. These are often
by products. In the byproduct have no value, this will affect the product pricing, the
manufacturers should accept any price that cover more than cost.
(e) Product brindle pricing:-
Using product brindle pricing sellers often combine several of their products and offer the brindle
at a reduced price.

3) Price adjustment strategies

a)Discounts and allowances:-

Discount and allowances results in a deduction from the list price in the form of cash or something else.

i) Cash discount:-
Cash discount is a price reduction to buyers who pay their bills promptly. The typical example is 2/10;
n/30 which means the buyer can deduct 2% from the cost by paying the bill within 10 days.

ii) Quantity discounts:-

A quantity is a deduction in price to buyers who buy large volume. The discount may be based on dollar
amount. Quantity discounts are offered by seller to encourage customer to buy inlarge amount

iii)Cumulative and non-cumulative quantity:-

A non cumulative discount is based on the size of an individual order of one or more products.
Cumulative discounts are based on the total volume purchased over a period of time.

iv) Trade or functional discounts:-

Trade or functional are offered by manufacturers to trade channel members who performed certain
functions such as selling, storing and record keeping.

v) Promotional discounts:-
These are payments or price reduction to reward dealers for participating in advertising and sale support
programs.
vi) Seasonal discounts:-
A seasonal discount is a price reduction to buyers who buy products or services out of seasons.

vii) Trade-in-allowances:-
These are price reduction granted in a sold item when buying a new one. It is common in automobile
companies.

viii) Allowance:-
Allowance is another type of reduction from list price e.g. promotional allowances, trade-in allowances
etc.

MARKETING CHANNELS

Meaning of Channel of distribution:

A channel of distribution is an organized network or system of agencies and institutions, which, in
combination, perform all the activities required to link producers with users and users with producers to
accomplish the marketing task.

According to Phillip Kotler,”It is a set of independent organizations involved in the process of making a
product or service available for use or consumption.” Thus, a channel of distribution is a path way
directing the flow of goods and services from producers to consumers composed of intermediaries
through their functions and attainment of the mutual objectives.

FUNCTIONS OF MARKETING CHANNEL/DISTRIBUTION CHANNEL

The following points will reveal the function of distribution channel.

1. Creation of Utilities:
Creation of or addition of utility is addition of value to a thing. The major component of physical
distribution is transportation and warehousing. It is transport system that creates place utility, making
goods more useful by bringing them from the places where they are not needed. Warehousing system is
known for creating time utility.
.

[Link] Provider:

Middlemen have a role in providing information about the market to the manufacturer. Developments
like changes in customer demography, psychography, media habits and the entry of a new competitor or a
new brand and changes in customer preferences are some of the information that all manufacturers want.
Since these middlemen are present in the market place and close to the customer they can provide this
information at no additional cost.

[Link] Stability:

Maintaining price stability in the market is another function a middleman performs. Many a time the
middlemen absorb an increase in the price of the products and continue to charge the customer the same
old price. This is because of the intra-middlemen competition. The middleman also maintains price
stability by keeping his overheads low.
4) Promotion:

Promoting the product/s in his territory is another function that middlemen perform. Many of them
design their own sales incentive programmes, aimed at building customers traffic at the other outlets.

5) Financing:

Middlemen finance manufacturers’ operation by providing the necessary working capital in the form of
advance payments for goods and services. The payment is in advance even though the manufacturer may
extend credit, because it has to be made even before the products are bought, consumed and paid for by
the ultimate consumer.

6) Title:

Most middlemen take the title to the goods, services and trade in their own name. This helps in diffusing
the risks between the manufacturer and middlemen. This also enables middlemen to be in physical
possession of the goods, which in turn enables them to meet customer demand at very moment it arises.

7) Help in Production Function:

The producer can concentrate on the production function leaving the marketing problem to middlemen
who specialize in the profession. Their services can best utilized for selling the product. The finance,
required for organizing marketing can profitably be used in production where the rate of return would be
greater.

8) Matching Demand and Supply:

The chief function of intermediaries is to assemble the goods from many producers in such a manner that
a customer can affect purchases with ease. The goal of marketing is the matching of segments of supply
and demand.

LEVELS OF CHANNEL
This indicates the number of intermediaries between the manufactures and consumers. Mainly there are
four channel levels. They are:

[Link] level channel: Here the goods move directly from producer to consumer. That is, no
intermediary is involved. This channel is preferred by manufactures of industrial and consumer
durable goods.

[Link] level channel: In this case there will be one sales intermediary ie, retailer. This is the most
common channel in case of consumer durable such as textiles, shoes, ready garments etc.

3. Two level channel: This channel option has two intermediaries, namely wholesaler and [Link]
companies producing consumer non durable items use this level.

4. Three level channel: This contains three intermediaries. Here goods moves from manufacture to agent
to wholesalers to retailers to consumers. It is the longest indirect channel option that a
company has.
.

FACTORS DETERMINING THE LENGTH OF THE CHANNEL

The following factors will determine the length of the channel of distribution.

1. Size of the market: The larger the market size, longer the channel. Conversely the smaller the
market, smaller the channel.

[Link] lot size: If the average order lot size is small, it is better to have a longer channel and vice versa.

3. Service requirements: If the product and market require a high level of service, and it a major
factor in the buying decision, it is better to keep a shorter channel.

4. Product variety: If a wide variety of the same type of product available in the market, then it is
advisable to select a wider channel.
TYPES OF INTERMEDIARIES
Marketing intermediaries are the individuals and the organizations that perform various
functions to connect the producers with the end users. These middlemen are classified into three:

1. Merchant middlemen, who take title to the goods and services and resell them.
2. Agent middlemen, who do not take title to the goods and services but help in identifying potential
customers and even help in negotiation.
3. Facilitators, to facilitate the flow of goods and services from the producer to the consumer, without
taking a title to them. Eg. Transport companies

CHANNEL FLOWS

Five Channel Flows

[Link] flow: transportation and storage of the product in order to physically deliver the product to
end-user

2. Title flow of goods (negotiation, ownership and risk sharing also):

(i) Ownership: - nominally taking title to the product so that in case the product is damaged or lost due
to any reason ,the loss is accounted for .

ii) Negotiating: - coming to an agreement about the terms of trade with the upstream and down stream
entities in the channel including the customer.
 3. Payment flows (financing and payment):

i) Financing :- taking care of the financial requirement of the members of the channel.
ii) Ordering payment :- receiving and recording the orders, consolidating it and passing it on to
the upstream receiving payments ,recording it, consolidating it , and passing it on to the
upstream

4. Information flow (about goods, orders placed and orders executed)

5. 5 Promotion flows: - promoting the product to the customers in several ways like advertising
,displaying demonstrating ,giving information about ,etc

STRATEGIC CHANNEL CHOICES

An important consideration when formulating channel policy is the degree of market exposure sought by
the company. Choices available include:

Intensive distribution: were products are placed in as many outlets as possible. This is most common
when customers purchase goods frequently, e.g. household goods such as detergents or toothpaste. Wide
exposure gives customers many opportunities to buy and the image of the outlet is not important. The aim
is to achieve maximum coverage.

Selective distribution: where products are placed in a more limited number of outlets in defined
geographic areas. Instead of widespread exposure, selective distribution seeks to show products in the
most promising or profitable outlets, e.g. high-end ‘designer’ clothes.

Exclusive distribution: where products are placed in one outlet in a specific area. This brings about a
stronger partnership between seller and re-seller and results in strong bonds of loyalty. Part of the
agreement usually requires the dealer not to carry competing lines, and the result is a more aggressive
selling effort by the distributor of the company’s products, e.g. an exclusive franchise to sell a vehicle
brand in a specific geographical area, in return for which the franchisee agrees to supply an appropriate
after sales service back-up.

DISTRIBUTION CHANNEL DYNAMICS/ MARKETING CHANNEL SYSTEM

Conventional marketing channels

It comprise autonomous business units, each performing a defined set of marketing functions. Co-
ordination among channel members is through the bargaining process. Membership of the channel is
relatively easy, loyalty is low and this type of network tends to be unstable. Members rarely co-operate
with each member working independently of others. Decision makers are more concerned with cost and
investment relationships at a single stage of the marketing process and tend to be committed to
established working practices. Most food grocery products in the European Union are marketed through
conventional marketing channels; independent food and grocery producers are responsible for growing,
rearing and manufacturing products and brands. These are sold through a series of wholesalers and
retailers such as Sainsbury’s, Aldi, Lidl, Tesco or Carrefour each operating as independent businesses in
the chain and selling to their own customers.
Vertical marketing systems are in contrast to conventional channels where members co-ordinate
activities between different levels of the channel to reach a desired target market. The essential feature is
that participants acknowledge and desire interdependence, and view it as being in their best longterm
interests. For the channel to function as a vertical marketing system, one of the member firms must be
acknowledged as the leader; typically the dominant firm, which can be expected to take a significant risk
position and usually has the greatest relative power within the channel. An example of a vertical
marketing system is that of franchising. The franchiser, usually on the basis of having a powerful brand
or perhaps a patent/copyright, for a fee, allows franchisees to produce or distribute the product or service.
The franchiser effectively controls the channel, including aspects such as product ingredients, advertising
and marketing, pricing, etc. through formal and legally enforceable agreements. Franchising is an
example of what are termed contractual vertical marketing systems which we consider again shortly.

Corporate vertical marketing is when a company owns two or more traditional levels of the channel. In
many economies corporate vertical channels have arisen as a result of a desire for growth on the part of
companies through vertical integration. Two types of vertical integration are possible with respect to the
direction within which the vertical integration moves a company in the supply chain: when a
manufacturer buys, say, a retail chain, this is referred to as forward integration with respect to the chain.

Backward integration is moving upstream in the supply chain, e.g. when a retailer invests in
manufacturing or a manufacturer invests in a raw material source. Although the end result of such
movements is a corporate vertical marketing channel, often the stimulus to such movement is less to do
with channel economies and efficiencies, and more with control over access to supply or demand, entry
into a profitable business or overall scale and operating economies. Much vertical integration activity
which took place during the 1990s in many economies resulted in lower overall profitability levels, and
in some cases, the demise of companies involved, as companies overextended themselves and/or moved
into areas where they had little expertise. Because of this, many companies have now turned their
attention towards contractual systems for achieving growth and more control through the vertical
marketing system.

Many of the large oil companies are examples of corporate vertical mar keting. They prospect for oil,
extract it, process it, distribute and retail it through their petrol stations. Other companies operate partial
corporate vertical marketing systems in that they integrate only one way. Zara (the clothing retailer) is
integrated vertically backward with manufacturing facilities. Firestone (the tyre manufacturer) on the
other hand, is vertically integrated forward owning its own tyre retailers. Many companies formalize their
obligations within channel networks by employing legitimate power as a means of control achieved by
using contractual agreements. Nearly all transactions between businesses are covered by some form of
contract, and as such the contractual agreement determines the marketing roles of each party within the
contract. Indeed, the locus of authority usually lies with individual members. The most common form of
contractual agreement are franchises and voluntary and co-operative groups.

Franchises are where the parent company grants an individual person or relatively small company the
right or privilege to do business in a prescribed manner over a certain time period in a specified place.
The parent company is referred to as the franchiser (or franchisor) and may occupy any position in the
channel network. The franchise retailer is termed the franchisee. There are four basic types of franchise
system:

 Manufacturer/retailer franchise, e.g. service stations where most of the garage petrol stations such
as Shell and Esso are franchisees of the large oil exploration and refining companies. n
Manufacturer/wholesaler franchise: e.g. Coca-Cola sell drinks they manufacture to franchised
wholesalers, who in turn bottle and distribute soft drinks to retailers. This type of arrangement is
common in the food and drinks markets with many of the large companies franchising part of
their manufacturing and or wholesaling activities to others.
 The wholesaler/retailer franchise. Many retail chains are franchisees of large wholesalers. These
wholesalers saw the value of securing a measure of control, and of course a share of the retail
 profits, from marketing their products and brands. The most notable example is ‘Spar’ which
advertises itself as ‘Spar, your 8.00 till late shop’, and of course all retail members must abide by
this promise.
 The service/sponsor retailer franchise e.g. McDonald’s, Kentucky Fried Chicken, Subway, Car
Rental companies like Avis and Hertz and services like DynoRod and Prontaprint. This is the best
known and certainly most ubiquitous of franchising arrangements and it has enabled many
organizations to rapidly expand their global operations.

There are different types of franchise arrangement, e.g. McDonald’s insists that franchisees purchase
from official suppliers; they provide building and design specifications, help locate finance for
franchisees and impose quality standards to which each unit must adhere in order to hold its franchise

Voluntary and co-operative groups emerged in the 1930s as a response to competition from chain
stores. The scope of co-operative effort has expanded from concentrated buying power to the
development of programmes involving centralized consumer advertising and promotion, store location
and layout, financing, accounting and a package of support services. Generally, wholesale sponsored
voluntary groups have been more effective competitors than retail sponsored co-operative groups.

Administered vertical marketing systems (VMS) do not have the formal arrangements of a contractual
system or the clarity of power dependence of a corporate system. It is a co-ordinated system of
distribution channel organization in which the flow of products from the producer to the end user is
controlled by the power and size of one member of the channel system rather than by common ownership
or contractual ties. Member organizations acknowledge the existence of dependence and adhere to the
leadership of the dominant firm, which may operate at any level in the channel. Large retail organizations
like Marks & Spencer typify this system. In administered systems like Marks & Spencer, units can exist
with disparate goals, but there is informal collaboration on inclusive goals.

CHANNEL DYNAMICS

Marketing is characterized by constant change, and there is a need for the marketer to adapt to these
changes, making marketing channels subject to change and innovation. Channels represent a dynamic
area of marketing as they are constantly evolving to meet changing customer and market needs which
reflect underpinning wider changes and trends in demography and lifestyles. Marketers must be aware of
the changing nature of channels and respond to them. An example of recent developments that are
indicative of the innovation and changing nature of this area is the growth of multi-channel systems of
direct marketing and Internet marketing

The growth of multi-channels

Companies now use a variety of channel arrangements to reach their target customers. Once, companies
tended to use only one type of channel configuration in their marketing; now they use several. The use of
multi-channel systems can be for a number of reasons:

 to increase market coverage by reaching new customers;

 to reduce costs of selling to certain customers where for example such customers require less
service than that provided through the company’s normal channels;
 to achieve a more customized service to particular customers than would be available through the
company’s normal channels.

In multi-channel marketing, a company might sell to one group of customers using telephone selling and
no intermediaries, while another target group may be marketed to through a network of dealers, since
these customers require after-sales service and technical advice. Although there are advantages to be
gained through using several different channel configurations to different target customers, multi-
channels can give rise to increased costs if not controlled. They can also give rise to problems of conflict
between different channel members where several channels are used, particularly where one type of
channel member feels that their contractual rights are being infringed. An example is where the marketer
uses a system of ‘appointed’ distributors for the company’s products. In return for being granted
‘exclusive’ distribution rights in a particular geographical area a retailer may enter into a formal
agreement with a supplier. In exchange for these ‘exclusive’ rights, the dealer may agree not to stock and
supply other competitive brands. Unsurprisingly, ‘exclusive’ dealers feel aggrieved if they find that the
brand they have been appointed to sell in a given are can be purchased direct over the Internet often at a
price the dealer cannot hope to match.

Growth of direct channels

Besides being an element of the promotional mix, direct forms of marketing can be considered as sales
channels. Clearly, the growth of direct marketing methods such as catalogue selling and direct mail are
examples of developments in channels as well as promotion. In addition to direct marketing channels,
another key area of growth in direct distribution is the development of home shopping mainly through the
Internet.

Internet channels

The Internet has brought about significant changes to existing channels e.g. traditional booksellers, travel
agents and record stores have had to cope with major changes in how customers purchase. Jeff Bezos
founded Amazon in Seattle in 1994. It started as an Internet bookseller and shocked traditional retailers.
From virtually nothing, Amazon built substantial sales in a very short space of time. Without having to
support expensive retail outlets, Amazon was able to undercut the prices of conventional book retailers.
The company added the facility for buyers to write their own book reviews. People began to look at
Amazon as more of an on-line community and not just a place to make purchases. Amazon diversified
into DVDs, video games, toys, clothing, beauty products, household goods and other items.

A fast growing area of home shopping has been shopping channels on the television. Cable television in
particular has fostered this growth; in the United Kingdom many television companies have a shopping
channel where customers view products and services and buy direct using only the television, a credit
card and the telephone. Home shopping is advantageous for the elderly and infirm and it is likely that this
type of retailing will continue to grow.

FACTORS INFLUENCING CHOICE OF DISTRIBUTION CHANNEL

It is very important to select a channel for the distribution of goods and services to the ultimate
consumers in an effective way. The marketer has to select the most suitable channel. While selecting the
channel of distribution, the marketer has to consider the following factors:

[Link] of Product: The selected channel must cope up perish ability of the product. If a commodity is
perishable, the producer prefer to employs few middlemen. For durable and standardized goods, longer
and diversified channel may be necessary. If the unit value is low , intensive distribution is suggested. If
the product is highly technical, manufacture is forced to sell directly, if it is no t highly
technical, intensive distribution can be selected. Seasonal products are marketed through wholesalers.

[Link] of market: If the market is a consumer market, then retailer is essential. If it is an industrial
market, we can avoid retailer. If consumers are widely scattered large number of middlemen are
required. When consumers purchase frequently, more buyer seller contacts are needed and middlemen are
suggested.

[Link]’ Channel: The distribution channel used by the competitors will influence the channel
selection. There is nothing wrong in copying the channel strategy of the competitor if it is a right one.

[Link] financial ability of channel members: Before selecting the channel, the manufacture has to think
about the financial soundness of the channel members. In most of the case financial assistance are
required to the channel members in the form of liberal credit facilities and direct financing.

[Link] Company’s financial position: A company with a strong financial background can develop its
own channel structure. Then there is no need to depend other channel intermediaries to market their
product.

[Link] of Channel: The cost of each channel may be estimated on the basis of unit sale. The best type
of channel which gives a low unit cost of marketing may be selected.

[Link] factors: The economic conditions prevailing in the country have bearing on channel
selection decision. During the period of boom, it is better to depend channels directly. During the
periods of deflation direct relation with the consumers are desirable.

[Link] legal restrictions: Before giving the final shape to channels of distribution, we have to consider
the existing legal provisions of the various Acts. For eg. MRTP Act prevent channel arrangements
that tend to lessen competition, create monopoly and those are objectionable to the very public interest.

[Link] policy of the company: The marketing policy of the company have a greater and deeper
bearing on the channel choice. The marketing policies relating to channels of distribution are advertising,
sales promotion, delivery, after sale service and pricing. A company has a heavy budget on advertising
and sales promotion, the channel selected is bound to be direct as it requires a few layers of people to
push the product.

CURRENT TRENDS IN WHOLESALE

[Link] SELLING

Although the process of selling through multiple channels online and offline is nothing new to the eCommerce
world, more and more B2B businesses are starting to embrace omnichannel selling. Omnichannel selling is set to
take multichannel selling a step further by offering consumers a streamlined and connected buying experience
across all platforms. The key difference between multichannel and omnichannel selling is that omnichannel is
much more consumer-centric. It focuses on enhancing the customer experience by offering more flexibility to
consumers in engaging with brands however they like.

a customer is shopping online on a mobile device or offline at a physical store, omnichannel is

about providing both continuity and consistency of the customer experience.
2. GROWING E-COMMERCE

B2B sellers are investing more and more in eCommerce technology, so that they can provide the same easy
ordering and customer experience that online retailers enjoy. Online wholesale stores will become increasingly
discoverable through search engines, price negotiations could happen in real time, and the ordering process will
take place virtually using online catalogs and payment gateways. As B2B businesses evolve to a more traditional
retail approach, they will be able to offer wholesale customers the same sophisticated level of services that
retailers have been taking advantage of for years.

3. EXPANDING INTO GLOBAL MARKETS

Expanding into global markets is a “must” for the B2B eCommerce market as we expect to see more and more
B2B businesses expanding overseas . As customers continue to make purchases internationally, wholesalers need
to focus on the digitalization of their buying and supply chain workflows, ensure their online marketplaces are
transforming cross-border trade, implement integrated cross-channel marketing strategies, and streamline their
cross-border payment technologies. Wholesalers will need to adapt in order to stay competitive.

[Link] AND ORDER MANAGEMENT TRANSPARENCY

Wholesalers are increasingly implementing new inventory management technologies that allow them to make
data-driven business decisions and handle business operations centrally. To maintain a competitive edge, B2B
businesses must focus on investing time and money into “integration friendly” inventory management systems,
changing the supply chain, and marrying B2B selling with the B2C customer experience. Exp: As the Amazon
experience continues to drive the evolution of B2B eCommerce

5. AUTOMATION

Automation and tracking innovation allows wholesalers to more effectively manage operations and make
informed decisions about shipping, staffing, and warehousing. Thanks to technology, shipping for wholesalers
stands to be more efficient. Likewise, increased growth in AI(Artificial Intelligence) and machine learning will
give B2B wholesalers the ability to easily manage and analyze data. This will allow for better planning and reduced
operational costs. Looking ahead, more businesses will begin to utilize mobile apps and other connected devices
to make operations easy to oversee.

RETAILING
Retailing can be defined as the buying and selling of goods and services. It can also be defined as the
timely delivery of goods and services demanded by consumers at prices that are competitive and
affordable.

Retailing involves a direct interface with the customer and the coordination of business activities from
end to end- right from the concept or design stage of a product or offering, to its delivery and post-
delivery service to the customer. The industry has contributed to the economic growth of many countries
and is undoubtedly one of the fastest changing and dynamic industries in the world today.
Retailing is one area of the broader term, e-commerce. Retailing is buying and selling both goods and
consumer services. With more number of educated and literate consumers entering the economy and
market, the need for reading the pulse of the consumers has become very essential.

Retail marketing is undergoing radical restructuring. This is because of increase in gross domestic
product, increase in per capita income, increase in purchasing power and also the ever changing tastes
and preferences of the people. The entry of plastic money, ATMs, credit cards and debit cards and all
other consumer finances, the taste for the branded goods also added for the evolution of retail marketing.

Retail marketing is not just buying and selling but also rendering all other personalized consumer
services. With the RM picking up it has given a new look for various fast moving capital goods (FMCG)
goods. This not only increased the demand for various goods in the market but also made retail marketing
the second largest employment area, the first being agriculture.

In store vs. non store Retailing

 In Home Retailing, selling via personal contacts with customers in their own home. Avon,
Electrolux, Amway, Encyclopedias. Either cold calling, or calling on a lead.
Can demonstrate the product. Becoming less popular, moving more toward office party plan etc,
since more dual earning families. Party plan-Tupperware
 Telemarketing, direct selling of goods and services by phone, generate sales leads, increase
customer service, raise funds for non-profit organizations, gather marketing data $13.6 bn per
year telemarketing. Successful when combined with other strategies.
Long distance telephone companies.
 Mail Order Retailing, sell by description. Compact discs. LL Bean. Eliminate personal selling
and store [Link] for specialty products.
Key is using customer databases to develop targeted catalogs that appeal to narrow target
[Link] convenience (Place utility), no parking or long lines etc.
Buy from anywhere, retailer has low rent, small sales staff and no shop lifting.
Postal rates increased cost of delivery by 14%.
Automated Vending, less than 2% of retail sales. Most impersonal way of retailing. Convenience
Products. High repair costs, restocking cost. Pizza. ATMs, Purnell's basement, Restrooms, gas
[Link] higher than in stores, consumers pay for [Link] products, no human
contact.

 Television shopping, . Total market currently worth $2 + bn per year, projected $25 bn by end of
[Link] networks looking to create a "store" atmosphere, as opposed to a studio
atmosphere, looking for more affluent customers.
Use has depends on
o Limited Cable Channel capacity

o Waiting for improvements in technology, i.e. interactivity.

 Electronic Shopping Using computer on-line services

Problems:Security of monetary transactions
Types of Retail Formats in India

Mom-and-pop Stores
These are small family-owned businesses, which sell a small collection of goods to the customers. They
are individually run and cater to small sections of the society. These stores are known for their high
standards of customer service.

Department stores
Department stores are general merchandisers. They offer to the customers mid- to high-quality products.
Though they sell general goods, some department stores sell only a select line of products. Examples in
India would include stores like "Westside" and "Lifestyle"--popular department stores.

Category Killers
Specialty stores are called category killers. Category killers are specialized in their fields and offer one
category of products. Most popular examples of category killers include electronic stores like Best Buy
and sports accessories stores like Sports Authority.

Malls
One of the most popular and most visited retail formats in India is the mall. These are the largest retail
format in India. Malls provide everything that a person wants to buy, all under one roof. From clothes and
accessories to food or cinemas, malls provide all of this, and more.

Discount Stores
Discount stores are those that offer their products at a discount, that is, at a lesser rate than the maximum
retail price. This is mainly done when there is additional stock left over towards the end of any season.
Discount stores sell their goods at a reduced rate with an aim of drawing bargain shoppers.

Supermarkets
One of the other popular retail formats in India is the supermarkets. A supermarket is a grocery store that
sells food and household goods. They are large, most often self-service and offer a huge variety of
products. People head to supermarkets when they need to stock up on groceries and other items. They
provide products for reasonable prices, and of mid to high quality.

Street vendors
Street vendors, or hawkers who sell goods on the streets, are quite popular in India. Through shouting out
their wares, they draw the attention of customers. Street vendors are found in almost every city in India,
and the business capital of Mumbai has a number of shopping areas comprised solely of street vendors.
These hawkers sell not just clothes and accessories, but also local food.

Hypermarkets
Similar to supermarkets, hypermarkets in India are a combination of supermarket and department store. These
are large retailers that provide all kinds of groceries and general goods. Saravana Stores in Chennai, Big Bazaar
and Reliance Fresh are hypermarkets that draw enormous crowds.
Kiosks
Kiosks are box-like shops, which sell small and inexpensive items like cigarettes, toffees, newspapers
and magazines, water packets and sometimes, tea and coffee. These are most commonly found on every
street in a city, and cater primarily to local residents.
PRIVATE LABEL
A private label product is manufactured by a contract or third-party manufacturer and sold under a retailer’s
brand [Link] the retailer, specify everything about the product – what goes in it, how it’s packaged, what the
label looks like – and when delivered to your store.
Examples: Clean Mate,Priya Pickles,Tasty Treat,John Miller are private label brands

PRIVATE LABEL CATEGORIES

Almost every consumer product category has both branded and private label offerings, including:
 Personal care
 Beverages
 Cosmetics
 Paper products
 Household cleaners
 Condiments and salad dressings
 Dairy items
 Frozen foods
ADVANTAGES
Retailers interested in filling their shelves with products featuring their brand name have good reason.
Some of the biggest advantages of private label products include:
[Link] over production - Third-party manufacturers work at the retailer’s direction, offering
complete control over product ingredients and quality.
[Link] over pricing - Thanks to control over the product, retailers can also determine product cost
and profitable pricing.
[Link] - Smaller retailers have the ability to move quickly to get a private label product in
production in response to rising market demand for a new feature, while larger companies might not be
interested in a niche product.
[Link] over branding - Private label products bear the brand name and packaging design created by
the retailer.
[Link] over profitability - Thanks to control over production costs and pricing, retailers therefore
control the level of profitability its products provide.

DISADVANTAGES
The disadvantages of adding a private label line are few, as long as you have the financial resources to
invest in developing such a product. The main disadvantages include:
[Link] dependency - Since production of your product line is in the hands of a third-party
manufacturer, it’s important to partner with well-established companies. Otherwise, you could miss out
on opportunities if your manufacturer runs into problems.
[Link] building loyalty - Established household brands have the upper hand and can often be found
in a variety of retail outlets. Your product will only be sold in your stores, limiting customer access to it.
Of course, limited availability could also be an advantage, giving customers a reason to come back and
buy from you. Although private label products are typically sold at a lower price point than their name
brand brethren, some private label brands are now being positioned as premium products, with the higher
price tag to prove it.
LOGISTICS OR PHYSICAL DISTRIBUTION

It refers to the art of managing the flow of products or material from producer or supplier to the customer
or user and is thus concerned with the creation of time and place utility

Objectives of Logistics
• Reduction in Inventory costs
• Economy of freight-Reduce Transportation costs
• Timely delivery to customers
• Minimum damage to products
• Quicker and faster response to customers
• Lower the cost of distribution to make
• the selling price more competitive
• Efficiency in warehousing and perfect stock maintenance

Function of Logistics
• Processing of orders received from the customers
• Inventory planning, control and management
• Warehousing
• Logistical Packaging
• Transportation
• Material handling and storage
• Information

Logistics in three stages

• Inbound Logistics before manufacturing
• Process logistics-Storage and movement
• Outbound Logistics after manufacturing-

3 PL Logistics services
• Transportation
• Warehousing
• Freight forwarding
• Customs Clearance
• Material handling
• Shipping
• Invoicing and Delivery
• Many other value added services