Chapter Five

Managing Marketing Mix Elements

Marketing mix is a set of marketing tools: product, price place and promotion, which the firm uses to
pursue its marketing objectives in the target markets. Marketing mix planning begins with formulating
an offering to meet target customers’ needs and wants. The customer will judge the offering by three
basic features: the product’s features and attributes along with quality, the offerings price and the
availability and accessibility of the product.
5.1 Product Planning
5.1.1Meaning of a Product
A product is anything that can be offered to a market to satisfy a want or need. Products that are
marketed include physical goods, services, persons, places, organization, and ideas.
5.1.3 Classification of a Product
Products fall into two broad classes based on the types of consumers that use them; consumer products
and industrial products.
Consumer products
Consumer products are products bought by final consumers for personal consumption. These products
can be classified on the basis of consumer shopping habits. Consumer products include convenience
products, shopping products, specialty products and unsought products.
A. Convenience products
Convenience products are consumer products that the consumer usually buys frequently, immediately
with a minimum of comparison and buying effort. Examples include soap, candy, newspaper, fast
food.
Convenience products are usually low priced, and marketers place them in many locations to make
them readily available when a customer needs them.
B. Shopping products
Shopping products are less frequently purchased consumer products that consumers compare carefully
on suitability, quality, price and style. When buying shopping products, consumers spend much time
and effort in gathering information and making comparisons. Example includes furniture, clothing,
used cars major appliances and hotel and airline service. Marketers usually distribute their products
through fewer outlets but provide deeper sales support to help customers in the comparison efforts.
C. Specialty products

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Specialty products are consumer products with unique characteristics or brand identification for which
a significant group of buyers is willing to make a special purchase effort. Examples include specific
brands and types of cars, high priced photographic equipment, designer clothes, and the services of
medical or legal specialists. Buyers normally do not compare specialty products. They invest only the
time needed to reach dealers carrying the wanted products.
D. Unsought products
They are consumer products that the consumer either does not know about or knows about but does not
normally think of buying. Most major new innovations are unsought until the consumer becomes
aware of them through advertising. Classic examples of known but unsought products and services are
life insurance, cemetery plots, and blood donations to the Red cross. By their very nature, unsought
products require a lot of advertising, personal selling and other marketing efforts.
Industrial products: these are also further divided in to three groups.
1. Materials and parts: refers to those products that make up the final product of the company
(component part of the final product). E.g. raw materials, manufactured materials, parts etc.
2. Capital items: are products that aids in the buyers production or operation. They neither make
up the final product of the company nor are consumed but are used to produce the final product
of the company for e.g. installations (buildings, offices, main machineries etc), accessories such
as portable tools and equipment’s etc.
3. Supplies and services: supplies refer to those products that are consumed in the production
process or operation of buyers. E.g. lubricants, oil, paper, pencil, repair and maintenance items
etc. Services refer to maintenance and repair services that the firm purchases from outsiders or
services supplied by outsiders such as legal, management counseling, advertising etc.

5.1.4 Product Life Cycle

Like living beings, products have life cycle. The Product Lifecycle (PLC) is depicted by the sales
curve of the product since its introduction. A product normally passes through (i.e., a PLC has) four
different stages, namely, introduction, growth, and maturity and decline.

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 Sales and Sales
Profit (Birr) volume

Stage I Stage II Stage III Stage IV

Profit
trend
Maturity Decline
Introduction
Growth

Time

Figure: Product life – Cycle

Introduction Stage
The introduction stage of PLC, which starts, with the launching of the new product is characterized by:
1. Low sales because it generally takes some time for a new product to get wide acceptance by
consumers and it also takes time to expand the marketing of the product.
2. High costs per unit because of the low sales and high promotional expenditure.
3. Absence of or low competition if the product is entirely new.
4. Loss or negligible profits because of low sales and high costs.
Growth Stage
The growth stage, which follows the introduction stage, is characterized by:
1. Fast growth in sales because of increasing consumer acceptance and expansion of marketing.
2. Growing profits because of growing sales and fall into incidence of fixed production cost and
marketing cost per unit.
3. Increasing competition.
4. Market segmentation and the introduction of different versions (models) of the product.

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Maturity stage
The maturity stage is characterized by:
1. Saturation of sales (in the early part of this stage, sales may growth slowly but at the later part
there could even be a fall in sales)
2. Intense completion
3. Failing profits because of high promotional expenditure and falling margins
Decline stage
The last stage is characterized by:
1. Entry of new products, which compete with the product.
2. Decline in sales
3. Decline in profits: profits may even become negative
4. Exit of some of the firms
5.1.5 New Product Development
A company has to be good at developing and managing new products. Every product seems to go
through a life cycle: it is born, goes through several phases, and eventually dies as newer products
come along that better serve customer needs.
A firm can obtain new products in two ways: by acquisition- by buying the whole company, patent or
license etc and the other is through new product development. Here by new products we mean original
products, product improvements, product modifications and new brands the firm develops through its
research and development efforts.
There are some sequential steps that companies need to pass through in developing new product.
1. Idea generation: refers to the systematic search for new product ideas. The company should
develop a framework (clearly defining new product development strategy) through which new product
ideas that correlates with its operation can be generated in order to make the search for ideas
systematic. Ideas for new products can come from interacting with various sources and from using
creativity generating sources. It may emanate from customers, scientists, competitors, employees,
suppliers and distributors etc.
2. Idea Screening: - the purpose of idea generation is to create a large number of ideas. The purpose
of this stage is to reduce that number by accommodating good ideas and dropping poor ones so that the
company can go ahead with the product ideas that will hopefully turn into profitable products. In
screening ideas, the benchmark may be different from company to company but it is at this stage that

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companies should make sure the idea is compatible with the firm’s objective, strategies and resources.
Hence, it is desirable to drop those ideas that do not match with the aforementioned aspects of a
company.
3. Concept Development and Testing: – An attractive idea has to be developed into product
concepts. As opposed to a product idea that is an idea for a product that the company can see
itself marketing to customers, a product concept is a detailed version of the idea stated in
meaningful consumer terms.
This is different again from a product image, which is the consumers’ perception of an actual or
potential product. Once the concepts are developed, these need to be tested with consumers either
symbolically or physically. For some concept tests, a word or a picture may be sufficient; however, a
physical presentation will increase the reliability of the concept test. After being exposed to the
concept, consumers are asked to respond to it by answering a set of questions designed to help the
company decide which concept has the strongest appeal. The company can then project these findings
to the full market to estimate sales volume.
5. Marketing Strategy Development– This is the next step in new product development. The
strategy statement consists of three parts:
 the first part describes the target market, the planned product positioning and the sales market
share and profit goals for the first few years.
 The second part outlines the product’s planned price, distribution, and marketing budget for
the first year.
 The third part of the marketing strategy statement describes the planned long-run sales, profit
goals, and the marketing mix strategy.
5. Business Analysis– once the management has decided on the marketing strategy, it can evaluate the
attractiveness of the business proposal. Business analysis involves the review of projected sales, costs
and profits to find out whether they satisfy a company’s objectives. If they do, the product can move to
the product development stage.
6. Prototype (product) Development– Here, R&D or engineering develops the product concept into a
physical product. This step calls for a large investment. It will show whether the product idea can be
developed into a full-fledged workable product. First, R&D will develop prototypes that will satisfy
and excite customers and that can be produced quickly and at budgeted costs. When the prototypes are

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ready, they must be tested. Functional tests are then conducted under laboratory and field conditions to
ascertain whether the product performs safely and effectively.
7. Test Marketing– If the product passes the function tests, the next step is test marketing: the stage at
which the product and the marketing program are introduced to a more realistic market setting. Test
marketing gives the marketer an opportunity to tweak the marketing mix before the going into the
expense of a product launch. The amount of test marketing varies with the type of product. Costs of
test marketing can be enormous and it can also allow competitors to launch a”me-too” product or even
sabotage the testing so that the marketer gets skewed results. Hence, at times, management may decide
to do away with this stage and proceed straight to the next one.
8. Commercialization – introducing the product to the market-it will face high costs for
manufacturing, advertising and promotion. The company will have to decide on the timing of the
launch (seasonality) and the location (whether regional, national or international). This depends a lot
on the ability of the company to bear risk and the reach of its distribution network.
5.1.6 The concept of Product Mix and Product Line Introduction to Branding, Packaging and
Labeling
5.1.6.1 Product Mix
The product mix is the full list of all the products offered for sale by a company. The product mix may
consist of one or more product lines.
Product line is a group of closely related products because they satisfy a class of need, are used
together, are sold to the same customer groups, are marketed through the same types of outlets, of fall
within given price ranges. A specific version of a product that has a separate designation in the seller’s
list is known as a product item.
The product mix has certain width, depth and consistency.
 The width refers to the average number of items offered by the company within each product line.
 The depth of product mix: refers to how many variants are offered of each product in the line.
 The consistency refers to the extent to which the various product lines are closely related in end use,
production requirements, distribution channels, or in some other ways.
One of the important decisions in international business is the width and depth of the product mix and
the length of each product line. It may vary between markets depending upon the market
characteristics. It is generally observed that companies do not introduce their full range in some
countries, particularly in the developing countries for reasons such as limited competition, lack of

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demand etc. It has also been a common practice to introduce products in some markets, especially the
developing countries, only at a later stage sometimes only after the product has become obsolete or has
reached the maturity or declining stage in the product life cycle.
5.1.6.2 Branding
A Brand is a name, term, sign, symbol, design, or combination of them which is intended to identify
the goods or services of one seller or group of sellers and to differentiate them from those of
competitors. A brand identifies the seller or maker. It can be a name, trade mark, logo, or other symbol.
In today’s competitive market, branding is one of competitive forces that give edges for companies to
compete. In this regard you can imagine to what extent the difference will be if Sony sells its
television without brand and with brand. In addition, it provides a legal protection for unique product
features that might otherwise be copied by competitors. Apart from this, it enables the company to
segment its market in profitable way. Branding is not only beneficiary for producer but also for
customers. It enables customers to easily identify products that might benefit them. In addition, it will
give them a guarantee that they will get the same features and benefits and quality each time they buy a
given product.
A good name should……
1) Suggest something about the product’s qualities or benefits
2) Be short, easily pronounced, recognized, and remembered
3) Be distinctive
4) Be consistent with the image of the product (or other product)
5) Have no undesirable associations (in English or other languages)
6) Be legally available & legally protectable
5.1.6.3 Packaging
Packaging refers to designing and producing the container or wrapper for a product. It may take
different forms. It may be primary container: a container to be used throughout the life of the product
or secondary container: a container to be thrown away when the product is about to be used or the
shipping package: container necessary to ship or store the product. Traditionally, the primary function
of package was to contain and protect the product. No matter how, in today’s competitive market
environment, packaging concern extended to include issues such as attracting customers, describing
the product, convincing buyers to make sale etc. Developing a good packaging for a product requires
making many decisions. First, the company must establish the packaging concept, which states what

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the package should be or do for the product. Should it mainly offer product protection, introduce a new
dispensing method; suggest certain qualities about the product or something else? Decision then must
be made on specific elements of the package such as size, shape, materials, color, text etc. All these
elements must work together to support the product’s position and marketing strategy. Additionally,
growing environmental concerns in connection to packaging should also be taken in to consideration.
5.1.6.4 Labeling
Labels may range from simple tags attached to product to complex graphics that are part of the
package. They perform several functions. At the very least, the label identifies the product or brand,
such as the name Sunkist stamped on oranges. The label might also describe several things about the
product – who made it, where it was made, when it was made, its contents, how it is to be used, and
how to use it safely. Finally, the label might promote the product through attractive graphics.

5.2 PRICING DECISION

5.2.1 Meaning of Price
In the narrowest sense, price is the amount of money charged for a product or service. More broadly,
price is the sum of all the values that consumers exchange for the benefits of having or using the
product or service.
Price is the only element in the mix that Produces revenue; the other elements produce costs. Price is
also one of the most flexible elements of the marketing mix. Unlike product feature and channel
commitments, price can be changed quickly.
5.2.2 Pricing Objectives
A firm may have various objectives and pricing contributions. And hence, the clearer a firm is about its
objectives, the easier it is to set price. A company can pursue its various objectives through its pricing:
survival, current profit maximization, market share leadership and product quality leadership.
Survival – Companies pursue survival, as their major objective if they are troubled/plagued by
overcapacity, intense competition or changing customer wants. To keep the plant going a company will
set a low price, hoping to increase demand in this case, profits are less important than survival.
However, survival is only a short-term objective, in the long run, the firm must learn how to add value
or face extinction.
Current profit maximization

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Many companies use current profit maximization as their pricing goal. They estimate what demand
and costs will be at different prices and choose the price that will produce the maximum current profit,
cash flow, or return on investment.
Market share leadership – companies may want to obtain market – share leadership. They believe
that the company with the largest market share will enjoy the lowest costs and highest long run profit
to become the market share leader; these firms set prices as low as possible.
Product quality leadership
A company might decide that it wants to achieve product quality leadership. This normally calls for
charging a high price to cover such quality and high cost of R&D.
4.2.3 Factors Affecting Pricing Decision
A company’s pricing decisions are affected by both internal company factors and external
environmental factors.
Internal factors affecting pricing decisions
Firms have to consider the internal factors in setting their pricing policy. Factors include the
company’s marketing objectives, marketing mix strategy, costs and organizational considerations.
1. Marketing objectives: -before setting a price, the company must decide on its strategy for the
product. If the company has selected its target market and positioning carefully, then its marketing mix
strategy, including pricing will be fairly strait forward. For e.g. if the company decided to target high
income group, this suggests that the price will be higher or if it positioned its product as economical
this requires low price. In addition, the company’s main objective in the market may have implication
on its price. For e.g. a company may set survival as its major objective if it is troubled by too much
capacity, heavy competition or changing consumer needs. To keep the plant operating in such
circumstance, a company may lower its price, hoping to increase demand. (Survival should be only a
short-term objective and in the long run a firm should learn how to add value to its product).
Otherwise, a company may have current profit maximization as a major goal. In doing so a company
will estimate its demand and cost and choose the price level that will produce the maximum current
profit. Apart from this, a company may pursue market share leadership objective and hence may
charge low price to attract more customers. Or else a company may want to achieve product quality
leadership, which normally calls for charging higher prices for superior performance. A company may
also set its price low to prevent competition from new entrants.

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2. Marketing mix strategy: Price is only one of marketing mix elements that a company uses to
achieve its objectives. Hence, price decision must be coordinated with other marketing mix decisions
(product design, distribution and promotion) to form a consistent and effective marketing program.
Decisions made for other marketing mix variable may affect pricing. For e.g. a firm using many
resellers who are expected to support and promote their products may have to build larger reseller
margins into their prices. On the other hand, the decision on high performance quality means that the
seller must charge a higher price to cover higher costs. Or else a firm looking for attracting customers
through promotional campaign may find cutting price as a means to attract customers.
3. Costs: costs set the floor for setting price that a company can charge for its product. Most often
under normal circumstances, companies need to charge a price that both covers all its costs for
producing, distributing and selling the product and delivers a fair rate of return for its effort and risk.
Generally, a company’s cost has paramount implication upon the price the company needs to charge
for e.g. a company interested to charge lower prices cannot do so unless it has lower cost of
production.
4. Organizational consideration: Responsibility for setting prices is different from organization to
organization for e.g. in small companies the top management may be involved in setting prices for
products while in the case of large companies this may be the responsibility area of divisional or
product manager. In any case the organizational set up by itself has implication upon the pricing
aspect.
External factors affecting pricing
1. The market and demand: While cost determines the lower limit of prices, the market and demand
set the upper limit. The sellers’ freedom of setting price varies according to the type of market for e.g.
in a competitive market situation and monopolistic market situation, a company’s freedom of setting
price will not be the same. In the later case, the presence of other producers means that customers will
have other alternatives to satisfy their need, this eventually makes companies appeal customers through
their price and other means. In the first case, the absence of competitors gives the company greater
freedom to the company to set its price. Apart from all this, the demand of the product by itself has
implication up on the price that the company sets. As we all know according to Economists, demand
and price are inversely related, that is the higher the price is the lower the demand will be and vice
versa. Hence, in setting its price a company should take into consideration the resultant demand it will
have for that price as the sales volume basically emanates from the demand level of the company.

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2. Competitor’s costs, prices and offers: A consumer who is considering buying a given company’s
product will evaluate the prices and values of a company against the prices and values of other
companies producing that product. In addition, the company’s pricing strategy may affect the nature of
the competition it faces for e.g. a company pursuing high price, high margin strategy may change the
nature of the competition as compared to a company whose strategy is low price, low margin. To this
end, a company needs to benchmark its costs against its competitor’s costs to learn whether it is
operating at a cost advantage or not. Likewise, it also needs to learn the price and quality of its
competitors so that it can decide on its offers including price in relatively attractive (comparable) way
than competitors.
3. Other external factors: in setting its price, obviously a company should consider its economic
situation such as inflation, deflation, booming etc as such factors affect both the price of the company
and the perception of consumers about the company’s product value and price. In addition, a company
should consider the effect of its price on other parties in its environment such as resellers, government,
etc. Apart from all these, social concerns may have to be taken into consideration.
5.2.3 General Approaches to Pricing
Companies set prices by selecting a general pricing approach that includes one or more of these three
considerations. The price method will then lead to a specific price. We will examine the following
approaches:
1. Cost –plus pricing: is the simplest pricing method that adds a standard markup to cost of the
product in order to determine the price of a product. This method does not take into consideration
the demand and competitors price but it entirely depends on the cost of the company and the
desired profit the company wishes to get thereof. No matter how this weakness, it is a popular one
because sellers in most cases are certain about costs than about demand and it appears to be
somehow fair for both buyer and seller.
2. Break-even or target profit pricing: when a firm tries to set its price at a level that equates its
cost to sale or makes the target profit it is seeking. In this method the company will determine
what price will make it break even or desired profit at a given level of sales. In this regard it takes
into consideration only the cost aspect and the desired profit, it does not take into consideration the
price-demand relationship. Thus, in using this method a company should also consider the effect of
the price it is setting on demand.

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3. Value based pricing: is a method that the price of a product is decided based on the perception of
consumers rather than sellers cost as the key factor. In this method, price is to be determined in
such a way that the combination of the quality of the product along with its service are reasonable
enough to justify the benefits customers expect to get from the product. (at a fair price).
4. Competition based pricing: is a method that considers the competition as the most important
factor to determine the price of a company. Hence, the company’s price is to be determined in such
a way that it is capable enough to attract consumers than competitors’ products (price that meet the
competition). In perusing this approach, most often companies follow the market leader’s price i.e.
it may charge a little bit greater or lesser than the leader’s price or the same as the leader’s price
and will change their price when the leader changes its price or when the prevailing price in the
market changes.
Pricing Strategies
I. Market Skimming Pricing: Is setting a high price for a new product to skim maximum revenue
layer by layer from the segments (market). Market skimming makes sense only under certain
conditions.
 The products quality and image must support its higher price and enough buyers must want
the product at that price.
 The costs of producing a smaller volume cannot be so high that they cancel the advantage of
charging more.
 Competitors should not be able to enter the market easily and undercut the high price.
II. Market Penetration-Pricing: Setting a low price for a new product in order to penetrate the
market quickly and deeply to attract a large number of buyers quickly and win a large market
share. The high sales volume results in falling costs, allowing the company to cut its price even
further.
 The market must be highly price sensitive so that a low price produces more market growth.
 production and distribution cost must fall as sales volume increase
 The low price must help out competition and the penetration prices must maintain its low
price position otherwise the price advantage maybe only temporary.
5.3 Placing the Product
5.3.1 Meaning and Importance of Distribution

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Distribution channel is a set of interdependent organizations involved in the process of making a
product or service available for use or consumption by the consumer or business user.
A marketing channel performs the work of moving goods from producers to consumers. Channel
members add value by bridging the time, place, and possession gaps that separate goods and services
from those who need or want them. Members of the marketing channel perform a number of key
functions.

Importance of Distribution
 Information: Gathering and dissemination of marketing research and intelligence information
about potential and current customers, competitors and other actors and forces in the marketing
environment.
 Promotions: The development and dissemination of persuasive communications designed to
attract customers to the offer.
 Contract: Finding and communicating with prospective buyers.
 Matching: Shaping and fitting the offer the buyer’s needs, including activities such as
manufacturing, grading, assembling, and packaging.
 Negotiation: Reaching an agreement on price and other terms of the offer so that ownership or
possession can be transferred.
 Ordering: Marketing channel members’ communication of intentions to buy to the
manufacturer.
 Physical distribution: Transporting and storing goods.
 Financing: Acquiring and using funds to cover the cost of the channel work.
 Risk taking: Assuming the risks of carrying out the channel work.
 Payment: Buyers’ payment of their bills to the seller through banks and other financial
institution.
8.3.2 Factors influencing Channel Decision
 Cost
 Accessibility
 Suitability

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  Nature of the product
5.3.3 Channel design decisions
The design of the channel depends on how consumers make decisions about the particular product, the
number and dispersion of consumers, the amount of goods to be sold and their value, the cost of
various channel options, the task that must be performed and competitive practices. Generally, in
designing their channel, companies need to assess the following sequential steps so that their channel
will be able to address what it is supposed to.
1. Analyze customers’ desired service output levels: this refers to assessing the level of services that
target market customers expect from the company’s distribution channel. This may take different
aspects. For e.g. the lot size (the number or size of products) that a typical customer wants to buy on
one occasion and product variety: the assortment breadth provided by the marketing channel should be
looked in to. In the same way, the average time (waiting time) that customers should wait for receipt of
the goods should as well be assessed. Likewise, the spatial convenience: the degree to which the
marketing channel should make it easy for customers to purchase the product is also one of the factors
to be considered. As well, the company should also consider if there are possible service backups that
customers may expect from the channel or may attract customers such as delivery, credit, ordering etc.
2. Establish channel objectives and constraints: channel constraints and objectives should be
assessed taking in to account the targeted service output level to customers. The ultimate objective of
channels is to provide products available to targeted customers effectively and efficiently. But in
today’s competitive environment, it may not be enough. In addition to this basic and traditional
purpose, channels may be designed to accommodate additional aspects such as additional services like
transportation, on line ordering etc, risks associated with the transfer of values etc so that the channel
will be more conducive to customers than competitors’ channels do. Abreast with this, channel
constraints should be considered in light with the characteristics of the products under consideration.
For e.g. if the product is perishable or bulky in nature, or non-standardized such as custom-built
machineries, it may not be that much feasible to keep and distribute such item through elongated
intermediaries. Likewise, if the product by its very nature requires installation or maintenance services
or high unit value product, to distribute it thorough traditional intermediaries may not be so viable.
Rather, it may be reasonable to use company’s own institution or franchised dealer. On the other hand,
if the product is somehow perishable and low unit value product, it may be feasible for intermediaries
to carry the product and provide the necessary services down to customers. Additionally, under

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competitive environment, channel institutions should be arranged in such a way that the total channel
cost with respect to the desired level of service will be minimized. Apart from all these, in assessing
channel objectives and constraints, the larger environment with in which the business is to be practiced
should be taken into account i.e. economical, legal, technological etc situations.
3. Identify major channel alternatives: companies can choose from a wide variety of channel for
reaching customers- from company’s own sales force to agents, distributors, internet etc. Each of these
options will have their own unique strength as well as weakness. Company’s own sales force can
handle complex products and transactions but they are too expensive. Distributors can create sales but
the company will lose direct contact with customers and the final price that will be charged on
customers will be relatively high as compared to companies own sales force. Likewise, internet may be
much less expensive but may not handle complex products and transactions. Generally, as far as the
alternatives of channels concerns, they can be categorized into two broad options: direct marketing
(distribution) and indirect marketing (distribution). A company is said to use direct marketing
(distribution) if it uses its own sales force and institutions to distribute its products and indirect
distribution if it uses external parties (intermediaries) to distribute its products. If a company
distributes its products by itself, it may turn out to be advantageous as it enables the company to keep
direct interaction with its customers and the possible price that reaches to final consumers will not be
that much inflated. Contrary to this, even if they may be considered as disadvantageous from the above
point of view, in today’s situation it almost become infeasible for a company to distribute its products
by itself owing to the advantages of intermediaries that outraces their disadvantages. Hence, most
producers do not sell their goods directly to the final users. Between producers and consumers stands
one or more marketing channels, a host of marketing intermediaries performing a variety of functions.
This is so primarily because intermediaries are more efficient in making goods available to target
customers in areas where they are in need of than that of the company itself. Through contacts,
experience, specialization, and scale of operation, intermediaries usually offer products to customers
more than the organization can achieve on its own. Additionally, intermediaries smooth the flows of
products to buyers by performing the key functions of informing, promoting, and physical possession
(including negotiation, title, payment, risk taking and financing. The information function involves
gathering and distributing marketing research and intelligence about the environment for planning
purposes. Scanner technology provides a great amount of information. The promotion function
involves developing and spreading persuasive communications about an offer. The physical

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possession function consists of the transporting and storing of products. This activity involves the
negotiations for reaching an agreement on price and other terms. The title is the actual transfer of
ownership from one organization or person to another. The payment involves buyers paying their
bills. The risk taking function assumes the risk of carrying the product and receiving payment. The
financing function involves acquiring and using funds to cover costs. Without an intermediary, each
buyer has to negotiate and exchange with each seller. Intermediaries reduce the number of contacts
necessary to complete a transaction. Thus, the use of intermediaries is extremely efficient for the
consumer and the manufacturer. Likewise, most manufacturers produce a single line of products
(narrow assortment) and sell them in large quantities. Intermediaries reduce this quantity discrepancy
by matching supply and demand. They buy in large quantities and sell in smaller quantities. They help
to smooth the distribution path for goods by creating utility, performing marketing functions, and
cutting costs. Producers do not have to deal directly with a large number of end-users. Instead,
marketing intermediaries handle the tasks involved. They are often specialists in certain functions and
can perform these activities more efficiently than producers can. Consumers need an assortment of
products and intermediaries resolve this assortment discrepancy by gathering products from several
manufacturers to offer a broad assortment to consumers. By representing numerous producers,
marketing intermediaries cut the costs of buying and selling. Because they can consolidate orders,
they may also be able to negotiate better prices than individual consumers could. No matter how all
this, today, in order to make balanced benefit out of both options, today some companies are
accustomed to make use of both options but significant numbers of companies have already shown a
tendency to use intermediaries owing to its capitalized benefits as compared to drawbacks.
4. Evaluate the different alternatives and choose the conducive one: We can view channel design
process as follow. First the firm must identify what customers expect to be provided through the
firm’s channel and then should asses the constraints associated with delivering the desired function to
customers in light with the product’s nature and other characteristics and finally decides on whether to
sell direct or through intermediaries. This decision in turn depends up on how well each channel option
can perform the expected distribution functions for the firm in managing the distribution of its goods
and for customers in providing what they expect. In addition each of the available options should be
evaluated against economic, control and adaptive criteria. Each channel alternative will produce a
differential level of sales and cost. Hence, each of the options should be evaluated from the potential
sales and cost perspective. Apart from this, control and adaptive criteria should be seen. Using sales

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agency posses a control problem. Intermediaries are independent parties seeking to maximize their
profit. Hence, in some circumstances, these intermediaries may act against the company’s desire in
their effort to capitalize their benefit and this in turn may put the company’s business at the odd.
Hence, the company should also consider to what extent it can influence and control the activities of its
intermediaries before choosing intermediaries. After all these assessments, if management decides to
sell through intermediaries, then it must choose the breadth of coverage needed to reach customers.
There are three possibilities in this regard: intensive distribution, exclusive distribution and selection
distribution.
Intensive distribution: it is a strategy to use as many outlets (intermediaries) as possible. This is
feasible and advantageous especially for convenience products because the most important
consideration that customers care about is to get the products available in areas where they are in need
of on timely basis with compatible size. So, companies pursuing this strategy will make their products
available in the hands of every possible intermediary.
Exclusive distribution: By contrast, some producers purposefully may limit the number of their
intermediary in a given region to one intermediary in which the intermediary will have the exclusive
right to distribute the company’s products in the specified region.
Selective distribution: In some circumstances, companies may not limit the right to distribute their
products to only one or specific intermediary and as well may not allow all possible and potential
intermediaries to distribute their products but limit the right to distribute their products for
intermediaries more than one but fewer than all.
Generally, no matter what system is designed, the firm’s channel of distribution should be designed in
such a manner that it is capable enough to make products available and easily accessible to areas where
customers are in need of effectively and efficiently so as to enhance customer satisfaction.
5.4 Promoting the Product
5.4.1 Meaning of promotion
Promotion is a form of corporate communication that uses various methods to reach a targeted
audience with a certain message in order to achieve specific organizational objectives.
WHAT IS PROMOTION?
A firm communicates with its middlemen, consumers, and various publics. Its middlemen
communicate with their customers and various publics. Consumers engage in words-of-mouth

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communication with other consumers and publics. Meanwhile each group provides communication
feedback to every other group. Thus communication requires mutual understanding.
Promotion is a technique of communication related to the selling effort in order to express the merits of
a product so as to enhance sales.
Promotion, also called marketing communication, is defined as the element of marketing mix that
assists and/or persuades a prospective customer to buy a product or to act favorably up on and that has
commercial significance to the seller.
It is a firm’s marketing activity used to inform, persuade, or remind people about its products, services,
image, ideas, community involvement, or impact on society.
For new products customers must be informed about the items and their attributes to make them
develop favorable attitude toward them. For products that customers are aware of, the emphasis of
promotion is or persuasion the conversion of product knowledge to product liking(tasting). For well-
entrenched products the emphasis is on reminder promotion reinforcement of existing consumer beliefs
and attitudes.
Marketing communication includes brand names, packaging, personal sales force, trading stamps,
coupons, mass media (newspapers, television, radio, direct mail, billboards, and magazines). It can be
paid or non paid, company sponsored or controlled by independent media.
A firm should also consider the mechanism of the words of mouth communication; i.e., the process by
which people expresses their opinions and product-related experiences to one another. This
communication goes on between a firm and various groups such as consumers, stockholders,
government, middlemen, and the general public; and each group has distinct knowledge, needs and
goals.
The promotional activities must be coordinated and consistent with the other elements of the marketing
strategy. It should be integrated with the product, price, and distribution activities with regard to
company resources and other factors.
5.4.2 The Purpose of Promotion
 Build Awareness & Provide Information – New products and new companies are often
unknown to a market, which means initial promotional efforts must focus one establishing an
identity.
 Create Interest – Moving a customer from awareness of a product to making a purchase can
present a significant challenge. The focus on creating messages that convince customers that a

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 need exists has been the hallmark of marketing for a long time with promotional appeals
targeted at basic human characteristics such as emotions, fears, sex, and humor.
 Stimulate Demand – The right promotion can derive customers to make a purchase. In the case
of products that a customer has not previously purchased or has not purchased in a long time,
the promotional efforts may be directed at getting the customer to try the product.
 Reinforce the Brand – Once a purchase in made, a marketer can use promotion to help build a
strong relationship that can lead to the purchaser becoming a loyal customer. For instance,
many retail stores now ask for a customer’s email address so that follow-up emails containing
additional product information or even an incentive to purchase other products from the retailer
can be sent in order to strengthen the customer-marketer relationship.
 Promotion enables a firm to establish an image, interact with channel members, provide
customer service and complement other marketing activities. It also improves employment
opportunities. The major advantages of promotion can be listed as follows:
 establishing a company or product / service image, such as, prestige, discount or innovative
 creating awareness for new products
 keeping existing products popular
 repositioning the images or uses of faltering products
 locating where products can be purchased
 justifying prices
 providing after sales service for consumers
 Placing the company and its products or services in a favorable light relative to competitors.
5.4.3. Promotional Mix Elements
The promotion mix is the specific blend of advertising, sales promotion, public relations, personal
selling, and direct-marketing tools that the company uses to persuasively communicate customer value
and build customer relationships. The marketing communications mix (also called the promotion mix
consists of five major modes of communication:
5.4.3.1 Advertising
Advertising- any paid form or non-personal presentation and promotion of ideas, goods or services by
an identified sponsor. It can reach masses of geographically dispersed buyers at a lower cost per
exposure and it enables the seller to repeat the message many times. B/c of advertising’s public nature,
consumers tend to believe that advertised products are more legitimate than unadvertised. It can be

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used to build up a long-term image of the company or it may also be used to trigger quick sales. No
matter how all this advantages, its impersonalness connote that it is not as directly persuasive as
company sales people.
5.4.3.2 Sales Promotion
Sales promotion- is a variety of short-term incentives to encourage trial or purchase of a product or a
service. It refers to the use of a wide assortment of tools – coupons, contests, cents-offs deals,
premiums, and others- all of which have many unique qualities. They attract consumers’ attention,
offer strong incentives to purchase and can be used to dramatize product offers and to boost sagging
sales. Its effect is short term, however, often are not as effective as advertising or personal selling in
building long run brand preference.
5.4.3.3 Public Relations
Public relations - a variety of programs designed to promote and/or protect a company’s image or its
individual products (by building good relations with the company’s various publics).
5.4.3.4 Personal Selling
Personal selling - face-to-face interaction with one or more prospective purchasers for the purpose of
making presentations, answering questions and procuring orders. It involves personal interaction
between two or more people, so each person can observe the other’s needs and characteristics and
make quick adjustments. It allows all kind of relationships to develop beginning from short term up to
long term relation with customers.
5.4.3.5 Direct Marketing
It includes using of mail, telephone, fax, e-mail, and other non personal contact tools to communicate
directly with or solicit a direct response from specific customers and prospects.
Promotion mix strategies
Marketer can choose from two basic promotion strategies: push and pull strategies. A push strategy
involves pushing the product through distribution channels to final consumers. The producer directs its
marketing activities (primarily personal selling and trade promotions) toward channel members to
induce them to carry the product and to promote it to the final consumers. Where as in Pull strategy,
producer directs its marketing activities (primarily advertising and consumer promotion) toward the
final consumer to induce them to buy the product. If the pull strategy is effective, consumers will then
demand the product from channel members, who will in turn demand it form producers. Thus under
pull strategy, consumers demand pulls the product through the channel.

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