UNIT ONE

INTRODUCTION TO MARKETING MIX

Unit Coverage

This unit is designed to provide you with the necessary knowledge, skills and attitude
regarding the following content:

1.1 Meaning of Marketing Mix

1.2 Importance of marketing mix.

1.3 Models of Marketing Mix

Unit Learning Outcomes

This unit will assist you to attain the following learning outcomes. Specifically, upon the
completion of this unit, you will be able to:

 Understand the meaning of marketing mix

 Explain the importance of marketing mix

 Identify the marketing mix elements for products and services

Key Terms: Marketing Mix, Product mix, Price Mix, Place Mix, Promotion Mix, People,
Process, Physical Evidence

Introduction

The 4Ps marketing mix which represents Product, Pricing, place and Promotion are widely
employed as a model for marketing of products and services. It shows the company preparing an
offer mix of the product and price, with an integrated promotion mix to reach the target
consumers through the selected distribution channels. The 4Ps of marketing mix are the key
areas where marketing managers allocate scarce corporate resources to achieve the business
objectives. Now a day’s three more Ps have been added to the marketing mix namely People,
Process and Physical Evidence. This marketing mix is known as extended marketing mix.

1.1. Meaning of Marketing Mix

 Dear learners! What is Marketing mix? Can you try to name the elements in the marketing
mix? Let’s see together the definition of Marketing mix.

We can define marketing mix as:-

Marketing mix is the set of marketing tools that the firm uses to pursue its marketing objectives
in the target market. In other words, Marketing Mix is a set of marketing tool or tactics, used to
promote a product or services in the market and sell it. It is about positioning a product and
deciding it to sell in the right place, at the right price and right time. The product will then be
sold, according to marketing and promotional strategy. The four-factor classification of the
marketing mix consist of 4Ps - Product, Price, Place, and Promotion. In the business sector, the
marketing managers plan a marketing strategy taking into consideration all the 4Ps. However,
nowadays, the marketing mix increasingly includes several other Ps for vital development.

Dear learners! So far, marketing mix is defined and its elements are named, now it is your turn
to answer the following self-check question

Self-check 1-1:

1. Define what is marketing mix?

Dear learners! Have you done self-checks? If yes, let us move on to the discussion of
importance of the marketing mix.

1.2. Importance of Marketing Mix

Dear learners! Do you think that marketing mix provides importance to companies? Would
you mention some of the importance of marketing mix? If not, do not worry the whole of the
following discussions help you to answer these questions

The marketing mix is crucial because it provides a strategic framework to approach the market
effectively and meet the needs of the target audience. It helps businesses to craft offers that have
competitive advantage by carefully considering each aspect of the product or service, how it is
priced, where it is available, and how it is promoted. A good marketing mix not only aligns with
the company's overall objectives but also resonates with the target market, driving sales and
building customer loyalty. By adjusting the marketing mix elements in response to market
feedback or changes in the business environment, companies can maintain relevance and
continue to achieve their marketing goals.

Besides, the marketing mix is important for the business in the following ways:

1. It helps in understanding what kind of value the product or services offers to the
customers.

2. Helps in planning a successful product launch.

3. Helps in formulation, development and execution of effective marketing strategies.

4. Helps in the effective use of resources and avoids unnecessary costs.

Dear learners! So far, importance of marketing mix are discussed, now it is your turn to answer
the following self-check question

Self-check 1-2:

1. Discuss why is marketing mix important?

Dear learners! Have you done self-checks? If yes, let us move on to the discussion of marketing
mix.

1.3. Models of Marketing Mix

Dear learners! Can you try to identify the specific components/elements of the marketing mix?
Let’s see together the elements of Marketing mix.

There are different classifications of marketing mix models depending on the number of key
elements Alternative marketing mix models are discussed as follows.

1.3.1. The 4Ps Model of Marketing Mix

The marketing mix is the set of marketing tools the firm uses to pursue its marketing objectives
in the target market. McCarthy classified these tools into four broad groups that he called the
four P’s of marketing: product, price, place and promotion.

Figure 1.1: The 4Ps of Marketing Mix

1. Product Mix

The most basic marketing mix tool is product. The firm’s offering to the market which includes
the product’s quality, design, features, brand, and package. As a part of product offering, some
companies provide various services, such as leasing, delivery, repair, and training. Such support
services can provide a competitive advantage in the competitive market place.

The product element of the marketing mix refers to the tangible or intangible item that a business
is offering to its customers. This includes the product's features, benefits, quality, design,
packaging, and branding

2. Price Mix

A Critical marketing mix tool is price. Price is the amount of money that customers pay for the
product. Company’s has to decide on wholesale, and retail prices, discounts, allowances, and
credit terms. If its price is not competitive, the buyers will turn to competitors’ products.
Price mix concerns how companies price their product or service. Pricing decisions are
influenced by factors such as production costs, market competition, and customer demand. A
well-balanced price allows the company to remain competitive while still creating a good level
of profit.

3. Place Mix

Another key marketing tools is place, which includes the various activities the company
undertakes to make the product accessible and available to target customers. Company’s must
identify, recruit, and link various marketing facilitators to supply its products and services
efficiently to the target market. It must understand the various types of retailers, wholesalers and
physical distribution firms and how they make their decisions.

Place mix highlighting where companies sells its products or services and how it gets those
products or services to their customers. It's also known as distribution.

4. Promotion Mix

Promotion is the fourth marketing- mix tool. Includes all the activities the company undertakes
to communicate and promote its products to the target market. The promotion element of the
marketing mix refers to the strategies and tactics that a business uses to communicate with its
target audience and create awareness about its products or services. This includes advertising,
personal selling, public relations, sales promotion, and direct marketing.

1.3.2. The 7 Ps Model of Marketing Mix

The 7Ps model is a marketing model that modifies the 4Ps model. As Marketing mix 4P is
becoming an old trend, and nowadays, marketing business needs deep understanding of the rise
in new technology and concept. The 7Ps of the marketing mix are an extension of the original
4Ps concept, designed to provide a more comprehensive framework for marketing strategy. They
include Product, Price, Place, Promotion, People, Process, and Physical Evidence. Thus
marketing mix is known as extended marketing mix.

This extended marketing mix allows businesses to delve deeper into the management of their
marketing efforts, ensuring they meet the needs of their target audience more effectively. By
considering these additional elements, companies can enhance customer experience, streamline
service delivery, and adapt their strategies to the digital marketing landscape, ensuring a
successful marketing mix. The Extended Marketing Mix (3 Ps) are discussed as follows:

5. People

The "people" in this category aren't customers, but workers, management, etc. The people
element of the marketing mix refers to the employees and other personnel who interact with
customers and deliver the service. The quality of the service experience is often determined by
the competence, attitude, and helpfulness of the people involved.

6. Process

The process element of the marketing mix refers to the systems and procedures that are used to
deliver the service. The efficiency and effectiveness of the process can have a significant impact
on the customer's experience.

7. Physical Evidence

Physical evidence in the marketing mix refers to the environment in which the service or product
is delivered. The physical evidence element of the marketing mix refers to the tangible elements
of the service that customers can see, touch, or experience. This includes the service
environment, equipment, and other physical facilities

The seller’s 4Ps and the customer’s 4Cs

Four P’s represent the sellers view of the marketing tools available for influencing buyers. From
a buyer’s point of view, each marketing tool is designed to deliver a customer benefit. Robert
Lauterbom suggested that the seller’s four P’s corresponded to the customer’s four C’s.

Four P’s Four C’s

Product__________ Customer solution

Price ____________ Customer cost

Place ____________ Convenience

Promotion ________ Communication

Dear learners! So far, elements of marketing mix are discussed, now it is your turn to answer
the following self-check question
Self-check 1-3:

1. Identify the 4Ps of marketing mix?

2. Identify the 7Ps of marketing mix?

Dear learners! Have you answered the self-check questions? If yes, let us move on to the unit
summary and unit review questions.

Unit Summary

Marketing mix has been defined as the set of controllable marketing tools that a firm uses to
pursue its marketing objectives in the target market. There are different classifications of
marketing mix models depending on the number of key elements. Thus the 4Ps of marketing mix
refers to four broad levels of marketing decisions, namely: product, price, promotion and place.
The 7Ps of Marketing Mix added three more Ps to the marketing mix namely People, Process
and Physical Evidence. This marketing mix is known as extended marketing mix. The seller’s
4P’s also viewed as customers’ 4C’s l.e. customer solution, customer cost, convenience and
communication.
Unit Review Questions

Part One: Multiple Choice Questions

Instruction: Choose the best answer from the given alternatives.

1. Which one of the following is the first element in the company’s marketing mix is?

A. Product C. Place

B. Price D. Promotion

2. ___________ is the amount of money that customers pay for the product.

A. Product C. Place

B. Price D. Promotion

3. _________ includes the various activities the company undertakes to make the product
accessible and available to target customers.

A. Product C. Place

B. Price D. Promotion

4. Which of the following marketing mix element includes advertising, sales promotion,
public relations, and direct marketing?

A. Product C. Place

B. Price D. Promotion

5. The following elements are considered as an extended marketing mix, EXCEPT:

A. Product C. Physical evidence

B. People D. Process

Part Two: Discussion Questions

Instruction: Give your brief answer for the following review questions:

1. What is a marketing mix?

2. Explain the importance of a firm’s marketing mix?

3. Explain the elements of 7Ps of marketing mix?

4. Which of the 4Ps is most important? Explain.

5. Identify the specific components of product mix, price mix, place mix and promotion
mix?
UNIT TWO

PRODUCT MIX DECISIONS

Unit Coverage

This unit is designed to provide you with the necessary knowledge, skills and attitude
regarding the following content:

2.1. Meaning of Product

2.2. Product Classification

2.3. New Product Development Process

2.4. The Product Life Cycle

2.5. Individual Product Decisions

Unit Learning Outcomes

This unit will assist you to attain the following learning outcomes. Specifically, upon the
completion of this unit, you will be able to:

 Understand the meaning of product

 Categorize the various products and services in to their classifications

 Perform the different stages in new product development process

 Explain the product’s characteristics exhibited at the various stages of product life
cycle.

 Conduct individual product decisions

Key Terms: Product, Brand, Packaging, Labeling, Product life cycle,

Introduction:

Product related decisions are the critical elements of marketing and business strategy, since it is
through the sale of products and services that companies survive and grow. It also involves a
systematic decision-making pertaining to all aspects of the development and management of a
firm’s product. Product is the first and most important element of the marketing mix. Product
strategy calls for making coordinated decisions on product mixes, product lines, brands,
packaging and labeling.

2.1. Meaning of Product

Dear learners! Can you try to define what product is? Could you tell some of examples of
product? Now, let’s see together the definition of a product with examples

A product is anything that can be offered to a market for attention, acquisition, use or
consumption and that might satisfy a want or a need. Products may include physical goods,
services, persons, organizations and ideas. For example: A tennis racquet, advice from attorney,
cellphone and accountancy services are all products.

Three levels of products (each add more value for customer)

i. Core product (customer value): defining problem solving service (core benefits) those
consumers seek. It is also the reason why consumers paid.

ii. Actual product: what the core value is turned to, developing features, design, brand,
packaging, etc.

iii. Augmented product: additional service and benefits, creating most value and brand
experience (e.g. aftersales service, warranty, product support, etc.). At this time, most
competition takes place at the product augmentation level. Successfully companies add
benefit to their offers that is not only will satisfy, but also will delight the consumer.

Dear learners! Now it is your turn to answer the following self-check question

Self-check 2.1:

1. Define the term product in your words? Give examples of a product?

2. Explain the three levels of products?

Dear learners! Have you done self-checks? If yes, let us move on to the discussion on how
products are categorized in to classifications.

2.2. Product Classification

Dear learners! How products can be classified? Can you try to categorize different products in
to their classifications? If not, do not worry the whole of the following sub contents revolves
around these two questions. Now, let’s see together the classifications of products with examples

On the basis of their uses, Products can be classified in to consumer goods and industrial goods.
These classifications are discussed as follows:

2.2.1. Consumer Goods Classifications:

Consumers buy a vast array of goods. These goods can be classified on the basis of consumer
shopping habits. They can be classified as convenience, shopping, specialty and unsought goods.

1. Convenience goods: These are goods that the consumer usually purchases with a
minimum of effort, where the buyer has knowledge of the product characteristics prior to
shopping. Convenience goods are generally low in price and frequently purchased by the
customers. The customer does not want additional information because the item has been
bought before and will accept a substitute.

a) Staples – are goods that consumers purchase on a regular basis. For example, one buyer
might routinely purchase bread, soap. etc.

b) Impulse goods – are goods purchased without any planning or search effort. These goods
are usually displayed widely. Examples are chewing gum & magazines.

c) Emergency goods – are goods purchased when a need is urgent. Example: Umbrella
during a rain storm

2. Shopping goods: They are also known as comparison product. In the process of selection
and purchase the customer characteristically compares the product of one business with
its competitors on such basis as quality. Style, price and suitability. Shopping goods are
 purchased less frequently than convince goods. Examples: furniture, clothing and major
appliances.

3. Specialty goods: are goods with unique characteristics and/or brand identification for
which a significant group of buyers is habitually willing to make a special purchasing
effort. These are particular good or brands in which customers are loyal. Consumers
know the attribute of the product prior to their purchase decision. They are prepared to
make effort, pay a high price and do not accept a substitute. These can be specific brands
and types of fancy goods, cars stereo components, photographic equipment etc.

4. Unsought goods: are goods that the consumer does not know about or knows about but
does not normally think of buying. New products, such as smoke detectors, food
processors, are unsought goods until the consumer is made aware of them through
advertising. The classic examples of known but unsought goods are life insurance,
cemetery plots, gravestones, and encyclopedias etc.

2.2.2. Industrial goods classification:

Organizations buy a vast array of goods and services. Industrial goods can be classified in terms
of how they enter the production process and their relative costliness. They are classified as:
material & parts, capital items, and supplies and business services.

1. Materials and parts: are goods that enter the manufacture’s product completely. They
fall in to two classes; raw materials & manufactured materials and parts.

a) Raw materials are further fall in to two major classes; Farm product (wheat, cotton, frits)
and Natural products fish, lumber, crude oil). Each is marketed some whet differently.
Raw materials are basic materials that actually become part of the physical product. They
are processed when the industrial consumer buys them.

b) Manufactured materials & parts are divided it to two: Component materials and
component parts. Component materials are usually fabricated further, for example yarn is
woven in to cloth while Component parts enter the finish product completely without
further change in form as tires are put on automobiles. Most manufactured materials and
 parts are sold directly to industrial users with orders often placed a year or more in
advance.

2. Capital Item: They are long lasting items that do not go completely in to the production
of the product but they facilitate developing and/or managing the finished product. They
include installations and equipment.

a) Installations consist of building (i.e. factories & offices) and equipment (i.e. generators,
drill presses, computers, elevators). Installations are major purchases. They are usually
brought directly from the producer, with the typical sale preceded by a long negotiation
period.

b) Equipment comprises portable factory equipment and tools (hand tools, life trucks) and
office equipment (e.g. personal computers, desks). These types of equipment do not
become part of the finished product.

3. Supplies and Business Services: are short lasting goods and services that facilitate
developing and/or managing the finished product. They are not go in to the production of
materials.

a) Supplies are of two kinds: Operating supplies (e.g. lubricants, coal, writing paper, pencils)
and Maintenance and Repair items (paint, nails, brooms): supplies are the equivalent of
convenience goods in the industrial field; they are usually purchased with a minimum
effort on a straight re-buy basis.

b) Business services include Maintenance and Repair services (e.g. window cleaning,
typewriter repair etc.). Maintenance services are often provided by small producers, and
repair services are often available from the manufacturers of the original equipment. And
Business advisory service (e.g. legal, management, consulting, and advertising). Business
advisory services are usually purchased in new task-buying situations, and the industrial
buyer will choose the supplier on the basis of the supplier's reputation and people.

Dear learners! Now it is your turn to answer the following self-check question

Self-check 2.2:
 1. Differentiate between consumer products and industrial products?

2. Outline the major classifications of product?

Dear learners! Have you done self-checks? If yes, let us move on to the discussion of how new
products are developed by companies.

2.3. New Product Development Process

Dear learners! How products are developed and introduced to the market? Can you try to tell
the possible stages by which a new product is passes through? Now, let’s address these
questions through discussions on the following topic.

A new product involves an innovation or the modification of an existing product that the
consumer perceives as substantive. For a new product to succeed it must have desirable attribute,
be unique and able to have its features communicate to consumers. New product may be
developed by the company itself or purchased from another firms.

There are various reasons for companies to develop new products. This because there are
consistent threats from competitors, innovative development, saturated market for existing
product and changes in customer taste and need call for new product development.

2.3.1. Stages in New Product Development Process

Companies must set up a clear customer driven new-product development process consisting of
the following eight stages. At each stage, management must decide whether to proceed to the
next stage, abandon the product or seek additional information. The stages are:

Stage 1: Idea generations

This stage involves the continuous and systematic search for new product opportunities. It
involves delineating the sources of new ideas and methods for generating them.

Some of the major sources of new product idea are:

 Customer need: product idea can be originated form unfulfilled need and wants of
customers through conducting market research.
  Competitors: competitors’ products and services are also sources for idea generation by
analyzing the strength and weakness and studying the liking and disliking of customers
associated with competitors’ product.

 Sales representative and intermediaries: since they are closer to customers they can
provide new idea for the organization.

 Other sources: This includes inventors, investors, Universities (Colleges), consultants

and advertising agencies.

Idea generating techniques

 Forced relationship: here two different products are considered and possible
relationships between them are sought and a single product that satisfies both needs is
developed. For example, Photocopier-printer-scanner and fax, watch and calculator,
Photo camera and Video camera

 Attribute listing: refers to the listing of different attributes of a product such as size,
color, design and then trying to modify the attributes as per the customers’ need.

 Brainstorming discussion: people from different stakeholders (customers, experts,

suppliers, agents or distributors) are invited to attend forums where free discussions are
held. The discussion may be recorded and then replayed latter by the new product
development committee to identify new ideas proposed.

Stage 2: Idea screening

At this stage, new product ideas are evaluated to determine which ones warrant further study; or
screening new product ideas to spot good ideas and drop poor ones as soon as possible reducing
the number of ideas from previous stage and going forward with only the profitable ones. In idea
screening poor, unsuitable or unattractive ideas are weeded out form further considerations. In
ideas screening, the process should be handled with great care so as to avoid both the drop error
(a condition where the screening committee drops profitable ideas that can be transferred to
profitable products) and the go error (a condition where non profitable ideas are transferred to
products and commercialized in to the market). A very tight or strict screening may result in a
drop error and the reverse may end up in a go error. The R-W-W framework can be used to
screen ideas where three questions are asked:
  Is it real?

 Can we win? and

 Is it worth doing?

Moreover screening requests for developing a checklist for requirements that the idea must
fulfills and product ideas that do not fulfill the criteria will be rejected.

Stage 3: Concept testing

This is occurred when attractive ideas are developed into a product concept i.e. a detailed version
of the new product idea stated in meaningful consumer terms. A firm needs to acquire consumer
feedback about its product idea so the screened ideas must be tested with appropriate group of
target consumers. Marketers tend to develop a variety of concepts for a new product to identify
the one that appeals to customers most. For this, consumers are asked about the product idea and
express their own opinion and enthusiasm about the product.

This stage involves asking potential consumers to react to the picture, written statement, or oral
description of the product, thus enabling the firm to determine initial attitude of consumer prior
to expensive and time consuming prototype development.

Stage 4: Marketing strategy development

It is designing an initial marketing strategy (4p’s) for a new product based on the product
concept which includes market size measurements, structure and behavior etc. Marketing
strategy statement has three parts. These are:

i. Description of target market, planned value proposition and sales, market share, and
profit growth for next years;

ii. Outline of planned price, distribution, and marketing budget for year one; and

iii. Description of long-run sales, profit goals and marketing mix.

Stage 5: Business analysis

In this stage, the management and new product committee reviews of the sales, costs and profit
projections for a new product (by looking at history of similar ones and conducting surveys) to
find out whether these and other related factors satisfy the company’s overall objectives and
assess the risks.

A surviving idea is expanded in to a concrete business proposal. This means management (a)
identifies product features (b) estimates a market demand, competition, and the products
profitability (c) establishes a program to develop the product, and (d) assigns responsibility for
further study of the products feasibility.

Stage 6: Product development

It is developing the product concept into a physical product to ensure that the product idea can be
turned into a workable market offering and is usually done by the R&D department and includes
testing with actual consumers to ensure presence of required functional and psychological
characteristics. A prototype or trial model production of the new item should be undertaken so as
to satisfy:

 The attributes mentioned in the concept development stage

 The costs estimated

 The psychological aspects

A producer should not only consider the functional features of a new product but also
psychological aspects of the outputs. Accordingly, the following two types of tests can be done
after the initial prototype (sample) production.

i. Functional test: is a laboratory or field test made to evaluate the financial features such
as durability, cost comfort, safety, etc.

ii. Consumer test: refers to the testing of consumers’ reactions to the new product’s
psychological aspects. Example: free sample tests, laboratory visits, etc.

Stage 7: Market testing

It is the stage of new-product development in which the product and its proposed marketing
program are tested in realistic market settings to give the marketer experience and test marketing
program before spending on full introduction. Test marketing can be expensive because it may
often run for months, or even years and often companies do not perform it for simple line
extensions of low production costs. However, when required investment or risks are high, a lot of
test marketing can be done. As an alternative, companies may use controlled or simulated test
markets, where products are either tested on a controlled panel of shoppers in stores or on
shopper in laboratory stores or simulated online environments. Market test findings, including
sales and repeat purchases, are monitored and evaluated by the company that developed the
product. And the product’s design and production plans may have to be adjusted as a result of the
test findings.

Stage 8: Commercialization

After testing is completed, the firm will be ready to introduce the product to its full target
market. In this stage, full-scale production and marketing programs are planned and
implemented. This stage requires considerable expenditure and commitment on promotion and
distribution.

Dear learners! Now it is your turn to answer the following self-check questions

Self-check 2.3:

1. Write the basic steps/stages in new product development process?

2. Explain the purpose of market testing in the development of new products. ?

3. Distinguish between market testing and commercialization stages in new product

development?

Dear learners! Have you done self-checks? If yes, let us move on to the discussion on product
life cycle stages.

2.4. The Product Life Cycle

Dear learners! Do you agree that a product has a life, they are created, grow-up and then die
in the market? How the marketing mix element affected at each stages of the product life
cycle? How do sales and profits vary at each stages of the product life cycle stages? Now, let’s
proceed to the discussions on the product lifecycle stages.
Product like any living things undergo life cycle; Products are created, they live and then they
die. This link is called product life cycle. The concept of product life cycle (PLC) suggests that
any product or service move through identifiable stages including introduction, growth, maturity
and decline. The length of duration in the PLC is not the same for all products. Factors which
affect the length of product life cycle include customer preferences, seasons, technological
changes, competition, and the rate of acceptance of consumers for new product. However, any
product moves though identifiable stages, each of which is related to the passage of time and
each of which has different characteristics.

Product life cycle (PLC) portray the history of a product’s sale and profits over its lifetime and is
used to ensure consistent profit earning from the product. Marketers should consider public
policy issues and regulations regarding acquiring or dropping products.

The discussion on product life cycle describe the sales history of a typical product as follows:

Figu
re 2.2. Product life cycle

2.4.1. Stages in Product Life Cycle

We now look at the characteristics and strategies for each of the stages of the product life cycle.

1. Introduction stage

The introduction stage starts when the new product is first distributed and made available for
purchase. It takes time to a product to get acceptance in several markets, so sales growth is tends
to be slow. In this stage profits are negative or low because of the low sales volume and heavy
distribution and promotion expenses. Promotional expenses are at their highest ration to sales
because of need for a high level of promotional effort to inform the potential consumers of the
new product and to induce trial of the new product.

At this stage of the product life cycle, marketers can adapt the following strategies:

 Set high (skim) pricing is used for making high profits with intention to cover initial cost
in a short period and low pricing is used to penetrate and gain the market share.
Company choice of pricing strategy depends on their goals.

 Obtain Branding, Quality level and intellectual property and protections to stimulate
consumers for the entire product category. Product is under more consideration, as first
impression is the last impression.

 Maintain selective and scattered distribution of the product

 Promotion is done with intention to build brand awareness.

2. Growth stage

The growth stage is marked by a rapid climb in sales. When early adopters like the product, the
middle majority consumer starts following their lead. New competitors enter in to the market
attracted by the opportunities for large-scale production and profit. Price remains where it is or
rise slightly as demand is increasing quite rapidly. Profit also increase during this stage as
promotion costs are spread over large volume of units.

Some of the strategies adapted by a firm so as to keep market growth are:

 The firm improves product quality and adding new product features.

 It enters new market segment

 It enters new distribution channels.

 It shifts its promotion from building awareness to persuading customers.

 It can also lower its price at the right time to attract the next layer of price sensitive
buyers.

3. Maturity stage
At some point the products rate of sales growth will slow down and the producer will enter a
stage of relative maturity. This normally lasts longer than the previous stages, and it poses
formidable challenges to marketers.

The maturity stage can be divided in to three phases. In the first phase, growth maturity the sales
growth rate starts to decline. There are no new distribution channels to fill, although some
laggard buyers (last people to purchase a product) still enter the market. In the second phase,
stable maturity, sales volume becomes level because of market saturation. In the third phase,
declining maturity, the absolute level of sales now starts to decline, and customers start moving
towards other products and substitutes.

Some companies give up on matured products, feeling there is little they can do. However,
marketer can apply any one or combination of the following strategies in the stage of maturity

 The marketer can expand the number of brand users in the following ways.

a) Convert the non-users in to users of the product

b) The Company can enter a new market segment

c) The Company can work to attract the customers of its competitor.

 Volume can also be increased by getting current brand users to increase their annual
usage of the brand.

 Marketers also try to turn sales around by modifying the product’s characteristics in a
way that will attract new users.

4. Decline stage

The product’s sales declines as substitutes enter the market or customers become dissatisfied or
shift to other products. As sales and profit decline, some firms withdraw from the market. Those
remaining may reduce the number of product offerings. They may drop smaller market segments
and weaker trade channels. They may also cut promotion budget and reduce their price further.

In this stage there are five strategies available to the firm:

 Maintain the product, Reduce cost and finding new uses of product.
  Harvest the product by reducing marketing cost and continue offering the product to loyal
niche until zero profit.

 Discontinue the product when there’s no profit or a successor is available. Selling out to
competitors who want to keep the product.

Dear learners! The product lifecycle stages and associated marketing strategies have been
discussed earlier, now it is your turn to answer the following self-check questions

Self-check 2.4:

1. Discuss the characteristics of a product at each stages of the PLC?

 2. Discuss the marketing strategies at each stages in the PLC?

Dear learners! Have you done self-checks? If yes, let us move on to individual product
decisions, specifically, branding, packaging and labeling decisions.

2.5. Individual Product Decisions

Dear learners! Let’s begin by posing important questions. What do you mean by branding,
packaging and labeling in the product mix decision? What do you think that the benefits of
branding, packaging and labeling offered to the company? The following discussion focused on
these issues

In developing a marketing strategy for individual product, the marketer has to confront the
branding, packaging and labeling decisions. Obviously there is a close relationship among
labeling, packaging, and branding.

2.5.1. Brand Decisions

Meaning of a Brand

A brand is a name, term, sign, symbol, design or a combination of these that identifies the
products or services of one seller or group of sellers and differentiates them from those of
competitors; customers add meaning to brands and develop relationships with them. Brands can
help buyers to identify products and their benefits, providing legal protection to sellers and
helping them to segment the markets.

 A brand name is the part of brand consisting of words, letters, and/or numbers that can
be pronounced and vocalized.

 Brand Mark is the part of the brand that appears in the form of a symbol, design or
distinctive coloring or lettering that can be seen but not voiced.

 A trademark is defined as a brand that is given legal protection. Therefore, trademark

is a legal term meaning the words, names, or symbols that the law designates as
trademarks. When it used a registered trade mark is followed by letter ‘R’

Example: Coca–cola R
Brand Name Selection

Branding involves the selection and development of brand name and image for a product. A
good name can add greatly to a products' success. However, finding the best brand name is a
difficult task. It begins with a careful review of the product and its benefits, the target market and
proposed marketing strategies. Therefore, the marketer should consider the following desirable
qualities for a brand name:

 It should suggest something about the product's benefits and qualities

 It should be easy to pronounce, recognize and remember.

 The brand name should be distinctive.

 Be extendable to additional product line.

 It should be capable of registration and legal protection

Reasons for branding

 Brands enable consumers to easily identify goods or services.

 Brands also help assure consumers that they will get consistent quality when they
reorder.

 Reputation of a brand also influences customer loyalty among buyers.

 Branding reduces price comparisons and the likelihood of purchase decision being
made solely based on price.

2.5.2. Packaging Decisions

Even after a product is developed and branded, strategies must still be developed for other
product related aspects of the marketing mix is packaging. Thus packaging is a business function
and a package is an item.

Meaning of Packaging

Packaging is the process of designing and producing the container or wrapper for a product. The
container or wrapper is called the package. The package might include up to three levels of
material. Thus a perfume is in a bottle (primary package), that is in carton box (secondary
package) that is in a corrugated box (shipping package) containing dozens of perfume.
In recent times, packaging has become a potent marketing tool. A well-developed package can
create convenience value for the consumer and promotional value for the producer. A product
must be packaged to meet the needs of wholesaling and retailing middlemen. For instance, a
packages size and shape must be suitable for displaying and stacking the product in the store.

Purpose of Packaging

In general, packaging serves the following purposes:

1. It physically protect the products from damage, and spoilage.

2. It helps in identifying the products

3. It encourages impulse buying

4. It is used as an advertising media

5. It serves as an information tool

2.5.3. Labeling Decisions

Labeling which is closely related to packaging, it is another product related decision that requires
managerial attention.

Meaning of Labeling

A label is any written or printed information on the product or its package. Labeling, which is a
set of package, is another product feature or attribute that requires managerial attention. This also
includes tags attached to products as part of packaging; they identify products, describe its
contents, and promote the brand; labels can become the essential element of brand-customer
connection, as well as cause legal concerns since sellers need to ensure to include all the required
information (it carries information about the product and the manufacturer or the seller). The
right label can play an important role in attracting consumer’s attention and encouraging
purchases.

Types of Labels

Labels fall into three primary kinds:

i. A brand label
It is simply the brand name applied to the product or package. Brand labeling is an acceptable
form of labeling, but it does not supply sufficient information to a buyer.

ii. A descriptive label

It gives objectives information about the products' use construction, care, performance, and/or
other pertinent features ingredients and nutritional contents. Descriptive labels provide more
product information but not necessarily all that is needed or desired by a consumer in making a
purchase decision.

iii. A grade label

It identifies the products judged quality with a letter, number, or word. Canned peaches are grade
labeled A, B, C, corn and wheat are grade labeled 1 and 2.

Dear learners! So far, meaning and concepts of product, product classifications, product life
cycle, new product development process and branding packaging and labelling have been
discussed in this unit. Now it is your turn to answer the following self-check questions

Self-check 2.5:

1. Define what is branding? Explain its importance?

2. Define what is packaging? Discuss its benefits?

3. What is labeling decisions? Discuss the types of labels and their purposes?

Dear learners! Have you answered the self-check questions? If yes, let us move on to reading
the unit summary and to answer the unit review questions and perform practical activity.

Unit Summary

A product is anything that can be offered to a market for attention, acquisition, use or
consumption and that might satisfy a want or a need. Products may include physical goods,
services, persons, organizations and ideas. Products are broadly classifies as consumer and
industrial products. Consumer products are goods and services for the final consumer. They can
be classified as convenience, shopping, specialty and unsought goods. These are products that
are differentiated on the basis of consumer awareness of alternatives and their chrematistics prior
to shopping trip. Whereas industrial products are goods/services used in the production of other
good & services, in the operation of the business or for resale. The product life cycle is a concept
that seeks to describe the product’s sales, profit, customer competitor and marketing emphasis
from its inception until its removal from the market and this life cycle goes through four stages:
introduction, growth, maturity and decline. Individual product decisions involves branding,
labeling and packaging decisions. A Brand is a name, term, sign, symbol, or design, or a
combination of them, intended to identify the goods or services of one seller or group of sellers
and to differentiate them from those of competitors. Packaging is the process of designing and
producing the container or wrapper for a product. Labeling which is closely related to packaging,
it is another product related decision that requires managerial attention.
Unit Review Questions

Part One: True/ False Questions

Instruction: Say true for the correct statement and say false for the incorrect statements

______ 1. A grade label provides a detailed description about the product.

______ 2. Shopping goods are these goods that the customer in the process of selection compares
on such basis as suitability, quality, price, etc.

______ 3. Anything offered to market and capable of satisfying a need can be a product.

______ 4. Product package encourages impulse buying.

______ 5. Market testing involves large scale production and sale of the new product.

Part Two: Multiple Choice Questions

Instruction: Choose the best answer from the given alternatives.

1. Which of the following statement is/are true:

A. Based on its purpose, product is broadly classified as tangibility and intangibility.

B. Unsought products require more personal selling than advertising.

C. Consumer goods are these goods purchased for ultimate consumption.

D. All of the above

2. Which of the following products need more time for comparison during purchasing?

A. Shopping products C. Convenience products

B. Specialty products D. Unsought product

3. Identify the incorrect statement (s)

A.  or  denote registered trade mark

B. The label promotes the product through attractive graphics.

C. Packaging is the process of developing a wrapper or a container

D. None of the above

 4. During which stages of a new product development does the firm studies?

A. Idea generation C. Business analysis

B. Testing D. Marketing strategy

5. The final stage in the new-product development process is:

A. Product testing C. Commercialization

B. Market testing D. Product prototyping

6. The stage of the product lifecycle characterized by price reductions, promotion cutbacks,
and competition dropout is:

A. Introduction stage C. Maturity stage

B. Growth stage D. Decline stage

7. At which stage of the product life cycle the company’s sales is increasing at increasing
rate?

A. Introduction C. Maturity

B. Growth D. Decline

8. Which one of the following is not a type of business product?

A. Raw materials C. Major equipment

B. Convenience goods D. Component parts

9. __________ refers to any printed, written or tagged information on the product or its
package.

A. Product C. Label

B. Brand D. Package

10. The following are product decisions. EXCEPT:

A. Branding C. Labelling

B. Packaging D. None of the above

Part Three: Discussion Questions:

Instruction: Give brief answer for the following review questions:

1. Define what is product? Explain the levels of product?

2. Give examples for the various classifications of consumer products?

3. Discuss how new product is developed?

4. Explain the various stages in Product Life Cycle?

5. Discuss the major individual product decisions?

Part Four: Practical Activity:

1. Visit a business/company located in your city or operates in your community, then

conduct an interview or observation or any other means to collect information regarding
the company’s product policy decisions. You are required to write your reflection based
on the data collected and by using any reference materials to support your observation.

Your reflection/report must cover all of the following issues:

 General description/background of the business organization you have visited

 The company’s Product Policy Decisions: it includes

 Type of product(s) produced and offered by the business, its feature and benefits,

 Brand name, brand mark and trademark of the company

 Company’s packaging decisions such as packaging materials, colour and design

of the package, convenience and attractiveness of the package

 The company’s labelling practice

 Additional or after sales services provided by the company

UNIT THREE

PRICE MIX DECISIONS

Unit Coverage

This unit is designed to provide you with the necessary knowledge, skills and attitude
regarding the following content:

3.1. Meaning of Price

3.2. Pricing Objectives

3.3. Factors Influencing Pricing Decisions

3.4. General Pricing Approaches

3.5. Pricing Strategies

3.6. A Pricing Decision Model

Unit Learning Outcomes

This unit will assist you to attain the following learning outcomes. Specifically, upon the
completion of this unit, you will be able to:

 Gain insight in to the meaning of price

 Understand pricing objectives

 Identify factors influencing pricing decisions

 Apply general pricing approaches

 Apply pricing strategies

 Set price for products using a general pricing decision model

Key Terms: Price, Market skimming, Market penetration, Discount, Allowance

Introduction:
All profit organizations and many non-profit organizations set prices on their products. Price is
the only element in the marketing mix that produces revenue. The other elements produce costs.
Price is also the most flexible elements of the marketing mix, is that it can be changed quickly,
unlike product features and channel commitments. At the same time, pricing and price
competition are the number-one problem facing many marketing executives.

A marketer should make a sound decision related to the price of its product or service because
the consumer’s perception of price will affect the business. For instance if buyers perceive a
price to be high, they may purchase competitors brand, leading to a loss of sales. If price is too
low, sales might increase, but profit may suffer.

3.1. Meaning of Price

Dear learners! What is Price? Can you try to define the term ‘price’ based on the lesson on unit
one? Hoping that you have defined it, what about the objectives of pricing, can you try to
mention some of them? Let’s see together the definition and pricing objectives.

Price is the amount of money charged for a product or service or it is the sum of the values that
consumers exchange for the benefit of using the product/service. Therefore pricing represents the
value of a good or service for both the seller and buyers. From business point of view pricing is
important because it is the only revenue generating elements of a marketing mix, others consume
resource. Base price, or list price, refers to the price of one unit of the product at its point of
production or resale.

3.2. Objectives of Pricing

Establishing pricing objectives are pre conditions to the formulation of effective pricing
strategies and policies. In order to fix a price that is most beneficial to the firm, its management
should consciously decide what it is seeking to achieve through the instruments of pricing.

a) Survival or status quo goals: a firm opts for survival pricing objectives when there is a
high competition or changing consumer tastes and also helps:

 To stabilize price

 Meet or prevent competition

Survival is achieved in most cases by setting lower prices and aggressively competition in other
marketing mix elements.

b) Profit oriented pricing objectives: a firm may price its product

 to achieve a specified return on investment (net sales)

 to maximize profit in the short run and determine price levels that maximize current
profit

c) Sales oriented objectives:

 To increase the sales volume

 To increase and maintain market share by setting price levels below competition

Dear learners! Now it is your turn to answer the following self-check questions

Self-check 3.1:

1. Define the term price in your words?

2. What are the objectives of pricing?

Dear learners! Have you done self-checks? If yes, let us move on to the discussion on factors
influencing pricing decisions.

3.3. Factors Influencing Pricing Decisions

Dear learners! Let’s begin by posing important questions. While setting price for the products,
a marketer should consider certain factors influencing his/her decisions. Can you try to mention
some of the factors influencing pricing decisions?
A company’s pricing decision is affected by both internal company factors and external
environmental factors. These factors will be discussed in detail:

3.3.1. Internal Factors Affecting Pricing Decision

a) Marketing Objectives: The Company’s marketing objective has a great influence on the
pricing decision of the firm. These objectives might include; ensuring survival, maximize
current profit, maximize market share, etc.

b) Marketing Mix Strategy: Price decision must be coordinated with product design,
distribution and promotion decision to form a consistent and effective marketing
program. Decision made for other marketing mix elements may affect pricing decision.
Thus, the marketer must consider the total marketing mix when setting prices.

c) Cost of a Product: Pricing of a product should consider its cost. A product's unit cost is
made up of several types of costs, each reacting different to changes in the quantity
produced.

3.3.2. External Factors Affecting Pricing Decisions

The external environmental factors, which affect pricing decision, are;

a) Demand: The relationship between price and consumer purchase decision can be
explained by the economists’ law of demand which state that consumer usually buy more
units at lower price and less units at higher prices.

b) Competition: The level of competition also affects pricing. Therefore in order to set or
change prices, the firm must consider its competition and how competition will react to
the price of the product.

c) Government Regulations: Prices of certain goods and services are regulated by state
and federal governments. Public utilities such as gasoline, taxi-fare are examples of state
regulations of prices.

Dear learners! Now it is your turn to answer the following self-check questions

Self-check 3.2:
 1. Discuss the internal and external factors affecting pricing decisions?

Dear learners! Have you done self-checks? If yes, let us move on to the discussion regarding
the methods by which marketers determine price for the product.

3.4. General Pricing Approaches

Dear learners! Let’s begin by posing important questions. Do you know the general approaches
most companies use to establish their prices? If not, do not worry, the following topic discusses
about the general approach for setting price.

Pricing decisions are subject to complex environment and competitive forces. To determine their
selling price, most companies establish their prices using one of the following methods:

I. Perceived Value-Based Pricing

Setting price based on buyers’ perceptions of value rather than on the seller’s cost. Value-based
pricing occurs when the marketer sets the price before setting marketing program. The price is
set according to target customers’ needs and perceptions of value. However, it can be hard to
measure the value perceived by customers as it is variable and subjective. Manufactures use the
non-price variables in the marketing mix to build up the perceived value in the buyers mind.

II. Cost-Based Pricing Approach

Setting prices based on the costs for producing, distributing and selling the product plus a fair
rate of return for effort and risk. Companies with lower costs can set lower prices, and although
their margins are low, sales and profits are high. Other companies pay higher costs claiming
higher prices due to more value and have higher margins. When using this approach, the
following cost elements are required:

 Fixed costs (overhead) - costs that do not vary with production or sales level.

 Variable costs - costs that vary directly with the level of production

 Total costs - the sum of the fixed and variable costs for any given level of production.

There are two cost based pricing methods:

 1. Cost-plus pricing (mark-up pricing): is the simplest method and entails adding a
standard mark-up to the cost of a product. Mark-up does not produce the best price as it
does not take into consideration demand and competitor pricing. But it is popular;
because sellers are surer of costs, than of demand; if all firms in an industry use such
pricing, price competition is minimized; it may be perceived as fairer to buyers and
sellers.

Formula:

When mark up is based on selling price, the formula used is:

Markup Price = Unit Cost

(1 - Desired return on sales)

OR

Cost plus pricing when it is based on cost, the formula used is:

Markup Price =Unit Cost + % Unit Cost

Unit Cost = Unit Variable Cost + Fixed Cost

Total unit sales

Example: Suppose a company has 6% marginal profit on sales, 4 Birr unit variable cost, 2000
Birr fixed cost and 200 expected unit sales.

Required: Calculate

a. Unit cost

b. Unit price

Solution:

a. Unit cost = unit variable cost + Fixed cost

Total unit sales

= 4 + 2000 =14 birr

200

b. Unit price = unit cost + % unit cost

 = 14 + 14* 6%

= 14.84 birr

2. Break-even pricing (target return pricing) - setting price to break even on the costs of
making and marketing a product or setting price to make a target return. Different prices
should be considered to estimate volumes, demands and profits.

Target return pricing = unit cost + desired return * invested capital

Total unit sales

Example: Suppose “x” manufactures produces shoes and has the following costs, unit sales
expectation and invested 2 million birr in the business and wants to set a price that earns 20%,

Required:

a. Calculate breakeven price for “x” manufactures

Solution:

Where:

Variable cost per unit = 20 birr

Fixed cost = 800,000 birr

Expected unit sales = 40,000 units

Target return pricing = unit cost + desired return * invested capital

Total unit sales

= 40 birr + 0.2*2million

40,000

= 50 Birr

III. Competition-Based Pricing

Setting prices based on competitors’ strategies, prices, costs and market offerings. No matter
what price is charged in this case, the company needs to make sure it provides customers with
superior value. The two methods are:

1. Going rate pricing-

under this approach,
the manufacturers
sets its prices largely
on the competitors’
price with less
attention paid to its
own costs and
demand. This
approach is
applicable usually
when:

 It is not easy to determine the exact cost of the product.

 The competitors’ response is uncertain.

2. Sealed bid pricing-

is used when
companies, to win a
contract, use their
expectations of how
the competitors price
their bid as a base for
pricing.

Dear learners! Now it is your turn to answer the following self-check questions

Self-check 3.1:

1. Compare the three methods for setting prices?

Dear learners! Have you done self-checks? If yes, let us move on to the discussion on pricing
strategies.

3.5. Pricing Strategies

Dear learners! Do you know the different strategies available for companies to set price for
their products? The following topic revolve around these pricing strategies

Pricing strategies refers to the basic strategies that are used to set a particular product. Setting a
price for a particular product is too challenging and too important for a manufacturers and the
price that a manufacturer charges will be somewhere between the one that is too high to produce
profit and one that is too low to produce and attract demand. The pricing strategies are discussed
as follows:

3.5.1. New product pricing strategies

Pricing strategies usually alter as a product passes through its life. Companies bringing out a new
product face challenge of setting price for the first time. And they can adopt one of the following
techniques.

a) Market Penetration Pricing

Market-penetration pricing is setting a low price for a new product to attract a large number of
buyers and a large market share. Companies following such strategy set a low initial price in
order to penetrate the market quickly and deeply to attract a large number of buyers and win a
large market share. This strategy can be achieved if the company can raise its price as consumer
acceptance grows.

b) Market Skimming Pricing

Market-skimming pricing (price skimming) is setting a high price for a new product to skim
maximum revenues layer by layer from the segments willing to pay the high price; the company
makes fewer but more profitable sales. It should provide healthy profit margins and it is intended
primarily to recover research and development costs.

3.5.2. Product mix pricing strategies

The strategy for setting a product’s price is often influenced when the product is part of a product
mix. Product mix pricing strategies should help a firm in setting prices that maximize profits on
total product mix. The following are the major product mix pricing strategies:

a) Product line pricing (price lining)

The pricing authority or department must decide on the price steps to set between various
products in a product line based on cost differences between the products, customer evaluations
of different features and competitors’ prices. A company can use a well-established price points
for the products in their line. For example, products in a given line can be charged Br.3000,
Br.5000, and Br.7500 etc. The main task is to establish perceived quality differences that support
the price differences.

b) Optional product pricing

Many companies offer optional products or features with the main product. They must decide
which items to include in the base price and which to offer as an option. If buyers can’t afford for
the main product with optional, they can avoid and hence get the price of the main product low.

Example: Automobiles CD/VCD players

c) Captive product pricing

Companies often price the main product low to attract customers and place high markup on the
captive products. For example; setting low price for blades and high markup on a razor, setting
low price for camera and high markup on a film. Companies that use this strategy must be
cautious in finding the right balance between product and captives. Customers forced to buy
expensive captive may begin resenting the brand.
 d) By-product pricing

It is about setting a price for by-products to make the main product price more competitive. The
price of by-product should cover at least cost of delivery and storing. Examples include meat
processing, petroleum manufacturers (e.g. the skin, as by product, supports the price of meat -
the main product).

e) Product bundle pricing

Is combining several of the products and offering the bundle at a reduced price. Price bundling
can promote the sales of products consumers might not otherwise buy, but the combined price
must be low enough to get them to buy the bundle. For example, internet service providers sell
packages that include web access, web hosting, email, and an internet search program

3.5.3. Price-adjustment strategies

Price-adjustment strategies are used to adjust basic prices to various customer differences and
situations. These strategies are:

a) Discount:

It is a straight reduction in price on purchases during a stated period of time or of larger

quantities.

b) Allowance:

Promotional money paid by manufacturers to retailers in return for an agreement to feature the
manufacturer’s products in some way. Promotional allowances are price reduction to reward
dealers for participating in advertising and sales support. Trades in allowances are price
reductions granted for returning an old item when buying new one i.e. to reward loyal customers.

c) Discriminatory pricing:

Price discrimination occurs when a company sells a product or service at two or more prices
based on certain variables such as location, time, customer type, etc.

d) Psychological pricing (Odd pricing):

Setting price at uneven amounts, such as 9.99 birr instead of 10.00 birr, 99.99 birr rather than birr
100.00and the like. Odd pricing, another psychological strategy is commonly used in retailing.
The rationale for odd pricing is that it suggests lower prices and as a result yields greater sales
than even pricing.

e) Promotional pricing:

Involves temporary pricing products below the list price and sometimes even below cost, to
increase short-run sales. It can be in form of discounts, special-event prices, and limited-time
offers. Manufacturers may offer cash rebates, low interest financing or free maintenance.

Dear learners! Are you very clear about the different strategies used by companies to set price?
Well and good! Let you attempt the following questions as a check for your learning progress.

Self-check 3.4:

1. What are the available pricing strategies at introduction stage of the new product?

2. Explain the major product mix pricing strategies?

Dear learners! So far, the general pricing approaches are discussed, let us move on to the
discussion of the steps in the general pricing decision model.

3.6. A General Pricing Decision Model

Dear learners! If the marketing manager assigned you to set price for the company’s product,
what steps would you follow to determine price for the product?

It is clear that effective pricing decision involves the consideration of many factors and
depending on the situation any of these factors can be the primary considerations in setting price.
In addition, it is difficult to formulate an exact sequencing of when each factor should be
considered. However, the following pricing decision model views pricing decision as a step
sequence.

Step 1: Define target markets: Any marketing decision making activity should begin with a
definition of segmentation strategy and identification of potential customers.

Step 2: Estimate market potential: The maximum size of the available market determines what
is possible.

Step 3: Develop product positioning: The firms brand image in the market place provide
important constraints on the pricing decision as the firm attempts to obtain a unique competitive
advantage by differentiating its product offering from that of competitors.

Step 4: Designing marketing mix: Developing marketing mix element defines the role to be
played by pricing in relation to and in support of other marketing variables.

Step 5: Estimate all relevant costs: while straight cost plus pricing is to be avoided because it is
insensitive to demand, pricing decisions must take in to account necessary plant investment,
investment in R&D, and investment in market development, as well as variable costs of
production and marketing.

Step 6: Analyze environmental factors and set pricing objectives: pricing decisions are
constrained by industry practices and legal requirements so the pricing decision must be clear
statements of objectives that recognize environmental factors and define the role of pricing in the
marketing strategy of the firm.

Step 7: Develop the price of the product: At this step the price of the product can be
determined and will define selling prices of the product.

Dear learners! Are you very clear about the steps to be followed to determine price. Well and
good! Let you attempt the following questions as a check for your understanding.

Self-check 3.5:

1. List out the various steps involved in the general pricing decision
model to determine product’s price?
Dear learners! So far, critical issues in price mix have been discussed and the self-check
questions are addressed, let us move on to reading the unit summary, answer the unit review
questions and perform practical activity.

Unit Summary

Price is the amount of money and/or other items with utility needed to acquire a product. When
setting price, a company should establish pricing objectives pertinent to survival, sales and profit.
Besides the firms pricing objectives, other key factors that influence price setting are (1) demand
for the product, (2) competitive reactions (3) strategies planned for other marketing mix
elements, and (4) cost of the product. Three major methods used to determine the base prices are
cost-based, perceived value-based and competition based pricing. For cost plus pricing to be
effective, a seller must consider several types of costs and their reactions to changes in the
quantity produced. After deciding a pricing goals and setting the base price, marketers must
establish pricing strategies that are compatible with the rest of the marketing mix. When a firm is
launching a new product, it must chase a market skimming or a market-penetration pricing
strategy. Market skimming uses a relatively high initial price, market penetration is low.
Strategies must be devised for discounts and allowances–deductions from the list price. In order
to attract its customers, management is setting different prices– optional product pricing, odd
pricing, by-product pricing, bundle pricing, product line pricing, captive product pricing etc.
Unit Review Questions

Part One: True/ False Questions

Instruction: Say true for the correct statement and say false for the incorrect statements

______ 1. The alternative name for cost plus pricing is mark-up pricing.

______ 2. Quantity discount offer to buyers to encourage bulk purchase which is in the form of
quantity only.

______ 3. Going rate pricing is a method that takes into consideration the competitors price.

______ 4. Profit is earned when the selling price of a product equals to its cost.

______ 5. Market skimming pricing calls charging initially high price for existing product

Part Two: Fill in the blank questions

Instruction: write the appropriate answer for the following questions on the space given.

1. ________ is setting relatively initially high price for a new

product.

2. ________is setting relatively lower price for a new product.

3. ________ involves temporary pricing products below the list price

to increase short-run sales.

4. ________ a pricing method says that the price should represent a

high value offer to consumers.

5. ________ is about setting a price for by-products to make the main

product price more competitive.

Part Three: Discussion Questions:

Instruction: Give brief answer for the following review questions:

1. Discuss the various factors influencing pricing decisions?

2. Explain the three general pricing approaches for setting price?

3. Explain the pricing strategies for new product?

 4. Explain the various product mix pricing strategies?

5. Discuss the various price adjustment strategies?

6. Outline the steps to set price using the general pricing decision model?

Part Four: Practical Activity

Instruction: Understand the questions clearly and perform the following activities.

1. A retailer pays a supplier Br.10 for a product and marks it up to sell at Br.15.
based on the information given, you are required to:

Task 1: Calculate the percentage of markup?

Task 2: Calculate the retailer’s gross margin

Task 3: If the operating costs of the store are Br. 4 per unit, calculate the retailer's profit margin
in Birr amount?

2. Suppose a manufacturer, whose unit cost of the product is Br.16, wants to earn
a 20 percent markup on sale.

Task 1: Calculate the mark up price?

UNIT FOUR

PLACE MIX DECISIONS

Unit Coverage

This unit is designed to provide you with the necessary knowledge, skills and attitude
regarding the following content:

4.1. Meaning of Place ( or Distribution)

4.2. Distribution Strategy

4.3. Nature of Marketing Channel

4.4. Types of Channels

4.5. Factors Influencing the Choice of Distribution Channels

Unit Learning Outcomes

This unit will assist you to attain the following learning outcomes. Specifically, upon the
completion of this unit, you will be able to:

 Understand the meaning of place/distribution

 Gain insight in to the firm’s distribution strategies

 Explain the nature and functions of marketing channel

 Choose appropriate channels for distributing a product

 Examine factors influencing the choice of distribution channels

Key Terms: Place, Marketing channels, Middlemen, Direct channel, Indirect channel.
Wholesaler, Retailer.

Introduction:
Distribution role within a marketing mix is getting the product to its target market. The most
important activity in getting a product to market is arranging of its sale and transfer of title from
producer to final customer. Other common activities (or functions) are promoting the product,
storing it, and assuming some to the financial risk during the distribution process. A producer
can carry out these functions; however, firms called middlemen perform some of these activities
on behalf of the consumer or the producer. A middleman is a business firm that renders services
related directly to the sale/or purchase of a product as it flows form producer to consumer.

4.1. Meaning of Distribution

Dear learners! Can you try to define the term ‘Place’ which is one of the marketing mix
element? How manufacturers make their products available to end users? Hoping that you
have defined and explain it. Now let’s see the definition.

Distribution (or Place) in a marketing mix refers to the various activities the company undertakes
to make the product accessible to target customers. Distribution is fundamentally concerned with
ensuring that products reach target customers in the most direct and cost efficient manner. In the
case of services, distribution is principally concerned with access.

4.2. Distribution Strategy

Prior to designing a distribution system, the planner needs to determine what the distribution
channel is to achieve in broad terms. The overall approach to distributing products or services
depends on a number of factors including the type of product, especially perishability; the market
served; the geographic scope of operations and the firm's overall mission and vision. The process
of setting out a broad statement of the aims and objectives of a distribution channel is a strategic
level decision. In an intensive distribution approach, the marketer relies on chain stores to reach
broad markets in a cost efficient manner. Strategically, there are three approaches to distribution:

a) Mass distribution: also known as intensive distribution. When products are destined for
a mass market, the marketer will seek out intermediaries that appeal to a broad market
 base. In it is the approach to sale products via wide variety of outlets including
supermarkets, convenience stores, vending machines, cafeterias and others.

b) Selective distribution: A manufacturer may choose to restrict the number of outlets

handling a product. For example, a manufacturer may choose to deal with department
stores and independent outlets that can provide added value service level required to
support the product.

c) Exclusive distribution: In an exclusive distribution approach, a manufacturer chooses to

deal with one intermediary or one type of intermediary. The advantage of an exclusive
approach is that the manufacturer retains greater control over the distribution process.
Another definition of exclusive arrangement is an agreement between a supplier and a
retailer granting the retailer exclusive rights within a specific geographic area to carry the
supplier's product.

Dear learners! So far, Place (or Distribution) is defined and distribution strategies are discussed,
now it is your turn to answer the following self-check questions

Self-check 4-1:

1. Define Place or distribution by your own words?

2. Differentiate among the three distribution strategies?

Dear learners! Have you answered self-check questions? If yes, let us move on to the discussion
of the marketing channels.

4.3. Nature of Marketing Channel

Dear learners! Do you know anything about marketing channel? Can you try to differentiate
between wholesaler and retailer? What functions these marketing intermediaries can perform in
the distribution system? If not, do not worry the whole of the following topic revolves around
these basic issues?
Distribution of products takes place by means of a marketing channel, also known as a
distribution channel. A marketing channel is the people, organizations, and activities necessary
to transfer the ownership of goods from the point of production to the point of consumption. It is
the way products get to the end-user, the consumer. This is mostly accomplished through
merchant retailers or wholesalers or, in the international context, by importers. In certain
specialist markets, agents or brokers may become involved in the marketing channel.

Typical intermediaries involved in distribution include:

Wholesaler: they are one of the important middlemen in the channel of distribution who deals
with the goods in bulk quantity. They buy goods in bulk from the producers and sell them in
relatively smaller quantities to the retailers. In some cases they also sell goods directly to the
consumers if the quantity to be purchased is more. They usually deal with a limited variety of
items and also in a specific line of product, like iron and steel, textiles, paper, electrical
appliances, etc.

Retailer: they are the traders who buy goods from wholesalers or sometimes directly from
producers and sell them to the consumers. They usually operate through a retail shop and sell
goods in small quantities. They keep a variety of items of daily use.

Agent: An intermediary who is authorized to act for a principal in order to facilitate exchange.
Unlike merchant wholesalers and retailers, agents do not take title to goods, but simply put
buyers and sellers together. Agents are typically paid via commissions by the principal. For
example, travel agents are paid a commission of around 15% for each booking made with an
airline or hotel operator.

Jobber: A special type of wholesaler, typically one who operates on a small scale and sells only
to retailers or institutions. For example, rack jobbers are small independent wholesalers who
operate from a truck, supplying convenience stores with snack foods and drinks on a regular
basis.

Using intermediaries enables producers to deliver goods to end customers more efficiently.
Economically, marketing intermediaries are there to transform the assortments of products of
manufacturers into those wanted by customers. They buy larger quantities from producers, and
offer consumers to buy smaller ones. Channel intermediaries add value (utility) by closing the
gap in time, place and possession between goods and consumers.

Marketing channel members, in addition to the above major benefits, also perform the following
basic functions.

 Information function: gathering and distributing marketing research and intelligence

information about people and forces in the marketing environment, this aids marketing
planning

 Promotion function: a distributor also helps in developing and spreading a persuasive

communication about a product or service.

 Contact: finding and communicating with prospective buyers

 Matching: shaping and fitting the offer to the buyer’s needs, including grading,
assembling and packaging

 Negotiation: reaching an agreement on price and other terms of the offer so that
ownership or possession can be transferred.

 Physical distribution: transporting and storing goods

 Financing: acquiring and using funds to cover the costs of the channel work

 Risk taking: assuming the risks of carrying out the channel work.

 Sorting is transforming the assortments of products made by producers into the

assortments of products wanted by the buyers. That is, intermediaries may buy large
quantities from many producers and break them down to smaller quantities and broader
assortments wanted by consumers.

Dear learners! Now it is your turn to answer the following self-check questions.

Self-check 4-3:

1. Distinguish between wholesaler and retailer?

2. Discuss the basic functions of marketing channel members?

Dear learners! Have you answered self-check questions? If yes, let us move on to the discussion
about the types of channels?

4.4. Types of Channels

Dear learners! Let’s begin by posing questions. How companies distribute their products in a
direct channel or in an indirect channels?

Normally goods and services pass through several hands before they come to the hands of
the consumer for use. But in some cases producers sell goods and services directly to the
consumers without involving any middlemen in between them, which can be called as direct
channel. So there are two types of channels, one direct channel and the other, indirect channel.
The following discussion emphasizes how direct and indirect channels looks like for
distributing consumer goods and industrial goods.

4.4.1. Channels for Consumer Goods

The conventional channel of distribution pattern for consumer goods market is shown below:

Manufacturer Consumers

Manufacturer Retailer Consumers

Manufacturer Wholesaler Retailers Consumer

Manufacturer Agent Retailer Consumer

Manufacturer Agent Wholesaler Retailer Consumer

Figure 4.1: Conventional Channels for Distribution of Consumer Goods

Some manufacturers use a direct channel, selling directly to a market. Using a direct channel,
called direct marketing increased in popularity as marketers found that products could be sold
directly using a variety of media. These media include direct mail, telemarketing, direct-action
advertising, on-line selling and direct selling through demonstrations at home or work place.

In other cases, one or more intermediaries may be used in the distribution process. A common
channel for consumer goods is one in which the manufacturer sells through wholesalers and
retailers. Small manufacturers may also use agents, since they don’t have sufficient capital for
their own sales forces. The final channel in the above figure is used primarily when small
wholesalers and retailers are involved.

4.4.2. Channels for Business Goods

In contrast to consumer products, industrial goods have a conventional channel of distribution.

The conventional distribution channels of industrial goods are shown below:

Manufacturer Organizational user

Manufacturer Industrial Distributors Organizational user

Manufacturer Agent Organizational users

Manufacturer Agent Industrial Distributor Organizational user

Figure 4.2: Conventional distribution channel for industrial products.

A variety of channels are available to reach organizations that incorporate the products into their
manufacturing process or use them in their operations. In the distribution of business goods, the
term industrial distributor and merchant wholesaler are synonymous

The direct channel is often used in the distribution of Industrial goods. The reason for this steams
from the structure of most business markets, which often have relatively few but extremely large
customers. Also, many industrial products such as computers, need a great deal of presale and
post-sale service. Distributions are used in business markets when the number of buyers is large
and the size of the buying firm is small. As in the consumer good, agents are used in business
markets in case where manufactures don’t wish to have their own sales force. Such arrangement
can be used by small manufacturers or when the market is geographically dispersed.

Dear learners! Now it is your turn to answer the following self-check question

Self-check 4-4:
 1. Most of consumer goods are distributed in an indirect channel. Explain the reasons?

2. Discuss the situations in which direct channel is suitable?

Dear learners! Have you answered the self-check questions? If yes, let us move on to the
discussion about the determinants for the choice of channels.

4.5. Factors Influencing the choice of Channels

Dear learners! Let’s begin by posing questions. If you are assigned responsibilities to select
channels for distribution, what considerations would you take in to account while choosing
channels?

If a firm is customer oriented, its channel is determined by consumer buying patterns. The nature
of the market should be the key factor in choice of channels. Other considerations are the
product, the middlemen, and the company itself.

1. Market considerations:

A logical starting point is to consider the target market its needs, structure and buying behavior.

a) Type of market: because ultimate consumers behave differently than business users,
they are reached through different distribution channels. And retailers, by definition,
serve ultimate consumers, so they are not in channels for business goods.

b) Number of potential customers: manufacturers with few potential customers may use
its own sales force to sell directly to ultimate consumers.

c) Geographic concentration of the market: when most of a firm’s prospective customers

are concentrated in few geographic areas, direct marketing is practical. Sellers may
establish sales branches in densely populated markets and use intermediaries in less
concentrated markets.
 d) Order size: when either order size or total volume of business is large, direct distribution
is economical.

2. Product considerations:

The following product related factors are mainly considered in channel decisions.

a) Unit value: products with low unit price are distributed through one or more
intermediaries. High unit price items can be affordably sold through company’s sales
persons by making calls to prospective buyers.

b) Perishability: perishable products require direct or very short channels.

c) Technical nature of products: a business product that is highly technical is often

distributed directly to business users and provision of presale and post-sale services is
compulsory.

3. Intermediary consideration:

a) Services provided by an intermediary: a producer should select a channel offering

those marketing services that the producer either is unable to provide or can’t
economically perform.

b) Availability of desired channels: the intermediary preferred by a producer may not be

available. They may carry competing products, and, as a result not want to add another
line.

c) Producer’s and intermediary’s policies: when an intermediary is unwilling to join a

channel because they consider a producer’s policies are unacceptable, the producer has
fewer channel options. Some retailers or wholesalers, for example, will carry a
producer’s item only if they receive assurance that no competing channel members will
carry a producer’s item only if they receive assurance that that no competing channel
members will carry the item in the same territory.

4. Company consideration:

Before choosing a distribution channel for a product, a company should consider its own
situations.
 a) Desire for channel control: some producers establish direct channels because they want
to control their product’s distribution, even though a direct channel may be more costly
than an indirect channel.

b) Services provided by the seller: some producers make decisions about their channels
based on the distribution functions desired by intermediaries. For example, several retail
chains will not stock a product unless it is presold through heavy advertising by the
producer.

c) Ability of management: many companies lacking marketing know how turn the
distribution job to the intermediaries.

d) Financial resources: a business with adequate finance establishes its own sales force,
grant credits, warehouses its products. A financially weak firm uses intermediary’s to
provide those services.

Dear learners! Now it is your turn to answer the following self-check question

Self-check 4-5:

1. Write the factors to be considered in choice of channels?

Dear learners! So far, marketing channels, intermediaries and their functions in distribution
system, types of channels and factors in choice of channels are discussed in this unit, let us move
on to reading the unit summary, answer the unit review questions and perform practical activity.

Unit Summary

Distribution or place is one of the four elements of the marketing mix. Distribution is the process
of making a product or service available for the consumer or business user who needs it. This can
be done directly by the producer or service provider, or using indirect channels with distributors
or intermediaries.
Marketing channel members perform basic functions like promotion, negotiation, risk taking,
sorting, physical distribution, financing, etc.

Developing a coherent distribution plan is a central component of strategic planning. At the

strategic level, there are three broad approaches to distribution, namely mass, selective and
exclusive distribution. In an intensive distribution approach, the marketer relies on chain stores
to reach broad markets in a cost efficient manner.

Channels of distribution is a set of peoples and firms involved in the flow of title to the product
as it moves from point of production to ultimate consumption. A channel includes producers,
final customers and any middlemen that participate in the process.

The number and type of intermediaries selected largely depends on the strategic approach. The
overall distribution channel should add value to the consumer.

The overall approach to distributing products or services depends on a number of factors

including the type of product, especially perishability; the market served; the geographic scope
of operations and the firm's overall mission and vision.
Unit Review Questions

Part One: Multiple Choice Questions

Instruction: Choose the best answer from the given alternatives.

1. Which of the following statement is/are true?

A. Wholesaler are usually sale directly to consumers.

B. Distribution provides a place and time utility

C. Agents take title to goods

D. Intermediaries are involved in a direct channel.

2. In _____________ approach, a manufacturer chooses to deal with one intermediary or

one type of intermediary.

A. Mass distribution C. Selective distribution

B. Exclusive distribution D. Direct distribution

3. Which of the following factors influence manufacturers to choose direct channel of

distribution?

A. When a product is highly technical

B. When customers are geographically dispersed.

C. Large volume order

D. All except B

4. ____________ is a merchant middlemen that buy products from producer and sale these
products to consumers in a large quantity?

A. Wholesaler C. Agent

B. Retailer D. Jobber

5. Company intermediaries represent:

A. those parties consult and suggest management

B. those parties who might receive financial assistance from the company
 C. those parties concerned with promoting the company’s product

D. A and C

Part Two: Discussion Questions:

Instruction: Give brief answer for the following review questions:

1. What is a distribution channel? Discuss the factors determining the choice of channel?

2. Discuss the basic functions performed by marketing channel members?

3. Identify and discuss the various types of channel used to distribute consumer goods?

4. Identify and discuss the various types of channel used to distribute industrial goods?

5. Distinguish among the typical intermediaries involved in distribution?

Part Three: Practical Activity:

1. Visit a business/company located in your city or operates in your community, then

conduct an interview or observation or any other means to collect information regarding
the company’s Distribution decisions. You are required to write your reflection based on
the data collected and by using any reference materials to support your output.

Your reflection must cover all of the following issues:

 General description/background of the business organization you have visited

 The company’s place (or distribution) decisions: it includes

 The company’s distribution strategy?

 The company’s distribution coverage?

 What types of channels the company used to reach consumers?

 What kind of intermediaries are participated in the company’s distribution

system?
 Additional or after sales services provided by the company
UNIT FIVE

PROMOTION MIX DECISIONS

Unit Coverage

This unit is designed to provide you with the necessary knowledge, skills and attitude
regarding the following content:

5.1. Meaning of Promotion

5.2. Functions of Promotion

5.3. Promotional Strategies

5.4. Planning Promotion

5.5. The Promotional Mix Elements

5.6. Concept of Integrated Marketing Communications (IMC)

Unit Learning Outcomes

This unit will assist you to attain the following learning outcomes. Specifically, upon the
completion of this unit, you will be able to:

 Understand the meaning of promotion

 Explain functions of promotion

 Describe promotional strategies

 Develop promotion plan

 Gain insight in to the promotional mix elements

 Explain Integrated Marketing Communications (IMC)

Key Terms: Promotion, Pull Strategy, Push Strategy, Advertising, Personal Selling, Sales
Promotion, Publicity, Direct Marketing, Integrated Marketing Communication.

Introduction:
Promotion is a critical ingredient of the marketing Mix-with promotion activities the firm
directly communicates with customers, unlike the other elements of marketing mix. A good
promotional activity also compliments the product, distribution and price. Modern marketing
calls for more than developing a good product, pricing it attractively, and making it accessible to
target customers. Companies must also communicate with their present and potential customers,
retailers, supplies and other stakeholders and the general public.

Promotion serves to inform, persuade, and remind the market of a product and/or the
organization selling it, with the hope of influencing the recipients’ feelings, beliefs, or behavior.
Promotion includes all those activities which are aimed at creating or stimulating demand.

5.1. Meaning of Promotion

Dear learners! Can you try to recall the term promotion as one of the element of marketing
mix from the previous lesson on unit one? Hoping that you have remembered them.

Promotion can be defined as the “coordination of all seller initiated efforts to setup channel of
information and persuasion to facilitate the sale of goods or services, or acceptance of an idea”.
Thus, promotion is a marketing activity which is aimed at informing, persuading, and inducing
the consumer to buy goods or services. So to be successful a marketer must not offer a good
product at a reasonable price but also communicate with potential customers about the product
and where they can buy it.

5.2. Functions of Promotion

Some of the major functions accomplished by promotion are:

 Promotion establishes an image such as prestige for the company.

 Communicate features of goods and services.

 It creates awareness for new good and service.

 Keeps existing goods and service popular.

 Explains where goods and service can be purchased.

 Justify the prices of goods and services.

  Places the company and its good and services in a favorable light relative to competitors.

Dear learners! Now it is your turn to answer the following self-check questions

Self-check 5-1:

1. Define promotion? And write the major functions of promotion?

Dear learners! Have you answered the self-check questions? If yes, let us move on to the
discussion about promotional strategies.

5.3. Promotional Strategies

Producers aim their promotional mix at both middlemen and end users. A promotional program
aimed primarily at middlemen is called a push strategy, and a promotion program directed
primarily at end users is called a pull strategy.

5.3.1. Push Strategy

Using a push strategy means a channel member directs its promotion primarily at the middlemen
that are the next link forward in the distribution channel. A producer promotes a particular
product to channel members, who in turn promote it to final consumers. The product is "pushed"
through the channel.

Manufacture
Wholesaler Retailer Consumer
rs promotes
promotes to promotes to promotes to
to
retailer consumer retailers
wholesalers

Orders to manufacturer

Figure 5.1: A push strategy

5.3.2. Pull Strategy

With a pull strategy, promotion is directed at end users usually ultimate consumers. The intention
is to motivate them to ask retailers for the product. The retailers, in return will request the
product from the wholesalers, and the wholesalers will order it from the producer. In effect,
promotion to consumers is designed to "pull" the product through the channel. This strategy
relies on heavy advertising and various forms of sales promotion such as premiums, samples, or
in-store demonstration.

Manufacturers Consumer Retailer Wholesaler

promotes to demands demands demands
consumers product product product from
from from manufactur

Orders to manufacturer

Figure 5.2: A pull strategy

Dear learners! Now it is your turn to answer the following self-check question

Self-check 5-2:

1. Differentiate between pull and push promotional strategies?

Dear learners! Have you answered the self-check questions? If yes, let us move on to the
discussion about designing promotional plan.

5.4. Developing Promotional Plan

There are eight steps in developing an effective total communication and promotion program.

Step 1: Identify the Target Audience

A marketing communicator must start with a clear target audience in mind. The audience could
be potential buyer of the company’s product, current users, deciders or influencers. The audience
could be individuals, groups, special public or the general public. The target audience will
critically influence the communicator’s decision on what to say, how to say it, when to say it,
where to say and who to say it.

Step 2: Determining the Communication Objective

Once the target market has been defined, the marketing communicator must decide on the
desired audience response. The desired ultimate responses are purchase, but purchase behavior is
the end result of a long process of consumer decision-making. The marketing communicator
needs to know how to move the target audience to higher states of readiness to buy.

The target consumer may be in any of the six buyers-readiness state, the state consumer normally
pass through on their way to making a purchase. These states include;

1. Awareness – If most of the target market is unaware of the object the marketer task is to
build awareness, perhaps just name recognition. This task can be accomplished with
simple messages repeating the product name.

2. Knowledge – The target market might have company or product awareness but not know
much more. At this stage, the objective is to build product knowledge.

3. Liking – If target market knows about the product, how do they feel about it? If the target
market looks unfavorably on the company’s product, the marketer has to find out why
and then develop a communication campaign to shore up favorable feelings,

4. Preference – The target market might like the product but not prefer it to others. In this
stage, the marketer must try to build consumer preference.

5. Conviction – A target market might prefer a particular product but not developed a
conviction about buying it. The marketer job is to build conviction among interested
customers.

6. Purchase – Finally, Some members of the target market might have convictions but not
quite get around making the purchase. They may wait for more information to plan or act
later. The marketer must lead these consumers to take the final step. Action might include
 offering the product at a low price, offering a premium, or letting consumers try in on a
limited basis.

Step 3: Designing the Message

Having defined the desired audience response, the communicator moves to developing an
effective message. Ideally, the message should gain attention, hold interest, arouse desire and
elicit action. In practice, few messages take the consumer all the way from awareness through
purchase.

In putting the message together, the marketing communicator must solve four problems; what to
say (message content), how to say it logically (message structure), how to say it symbolically
(message format) and who should say it (message source).

 Determining message content: in determining the best message content, management

searches for an appeal or theme. There are there types of appeals: rational, emotional and
moral.

a) Rational appeals- relates to the audience self-interest. They show that the product will
produce the desired benefit. Examples are messages demonstrating a product’s quality,
economy value or performance. It is widely believed that industrial buyers are most
responsive to rational appeals.

b) Emotional appeals–attempts to strip up negative or positive emotions that will motivate

purchase. The product may be similar to the competitors offering but has unique
association for consumers so communication should appeal to these associations. In
addition, communicators have worked with negative appeals such as fear, guilt, and
shame to get peoples to do things they should (eg. Brush their teeth) or stop doing things
they should not (e.g. Stop smoking). Communicators also use positive emotional appeals
such as humor, love, pride and joy.

c) Moral appeal–are directed to the audience’s sense of what is right and wrong. They are
often used to urge people to support social cause, such as a cleaner environment and
fighting HIV.

 Determining message structure: There are three issues in determining message

structure:
 a) Deciding on whether to draw conclusion or leave it to the audience

b) Whether to present one-sided argument (only the product’s strengths) or a two-sided

argument (telling the product’s strengths and shortcomings). One sided argument is
commonly used.

c) Whether to present the strongest argument first or last: presenting them first gets strong
attention but may lead to an anticlimactic ending.

 Determining message format: Strong format is also needed for effective promotion.
Examples are:

o Print advertisements: this involves deciding on headline, copy, illustration, colors,

eye catching and pictures etc.

o Communication on radio: choice of words, voices, and sounds etc.

o Television promotion: all the above elements plus body languages like facial
expressions, gestures, dress, posture, and hairstyle etc.

 Decide the message source:

The effect depends on how target audience views the communicators. Message delivered
by attractive or popular sources achieve higher attention and recall. Advertisers often use
celebrities as spokespeople. Celebrities are likely to be effective when they personify a
key attribute. But what is equally important in the spokesperson is credibility. Message
delivered by highly credible sources are more persuasive.

Step 4: Selecting the Communication Channels

The communicator must select efficient channel of communication to carry the message. There
are two broad types of communication channels; personal and non-personal.

a) Personal communication channels–This involves two or more persons communicating

directly with each other. They might communicate face–to–face, over the telephone or
through mail.

b) Non-personal communication channels–This carry message without personal contact or

interaction. They include media, atmosphere and events.
  Media consists of print media (newspaper, magazine, and direct mail), broadcast media
(radio, television), electronic media (audio tape, videotape) and display media
(billboards, posters).

 Atmospheres are “packaged environments” that create and reinforce the buyer’s learning
towards product purchase.

 Events are occurrences designed to communicate particular messages to target audiences.

New conferences, grand openings and sport sponsorships are events designed to achieve
specific communication effect to target audiences.

Step 5: Establishing the Total Promotional Budget

Budget setting is also one phase in developing effective promotional campaign. Setting budget
for promotion is a challenging task. To make this task easy four alternative techniques are sited.
These are:

a) All you can afford method: In this technique fund will be allocated for every element of
marketing mix except for promotion. Whatever fund left over is placed in promotion
budget. This method holds least potential for making sound promotional decision. There
is also high risk of having no promotion budget, if no funds are left over.

b) Percentage of sales method: Using this method the company ties the promotion budget
to sales revenue. In this case sales volume determines promotional budget rather than
planning the promotional budget to achieve some desired sales objectives. The limitations
of this method are; there is no relationship to objectives, promotion is used as a sales
follower not as a leader and it also provides too large budget during high sales period and
too small budget during low sales period.

c) Competitive parity method: Some company’s set their promotion budget to achieve
share–voice parity with their competitor. That is, the company’s promotion budget is
raised or lowered according to the action of competitors. The method is a market–
oriented approach. However, it is a following not a leading approach.
 d) Objective and task method: This method calls up on marketers to develop their
promotion budget by defining their specific objective, determining the task that must be
performed to achieve these objectives and estimating the cost of performing these task.
The sum of these costs is the proposed promotion budget.

Consequently, managers must always be aware that there is no universally accepted method of
setting budget. It is unlikely for a firm to employ a certain method as a sole means of
establishing the promotional budget.

Step 6: Deciding on the Promotional Mix

Promotion mix is the specific mix of advertising, personal selling, sales promotion, publicity and
direct marketing, that a company uses to pursue its marketing objectives. It is possible to achieve
a given sales level with varying promotion mixes. Each of the promotional tool elements has
unique characteristics and plays a distinctive role in an integrated promotion.

The promotion mix (also called the marketing communications mix) consists of five major
modes of communication: The five promotional tools are;

a) Advertising: Any Paid form of non-personal presentation and promotion of ideas, goods,
or services by an identified sponsor

b) Sales promotion: A variety of short-term incentives to encourage trial or purchase of a

product or service

c) Public relation & Publicity: A variety of programs designed to promote and/or protect a
company's image or its individual products.

d) Personal selling: Face-to-Face interaction with one or more prospective purchasers for
the purpose of making presentation, answering questions, and processing orders.

e) Direct Marketing: Use 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

Step 7: Implement the promotion plan

This step is about changing the promotional plan in to action.

Step 8: Measuring the Promotion’s Results

After implementing the promotional plan, the communicator must measure its impact on the
target audience. This involves asking the target audience whether they recognize or recall the
message, how many times they saw it, what points they recall, how they feel about the message,
and their previous and current attitude towards the product and company.

Dear learners! Now it is your turn to answer the following self-check question

Self-check 5-3:

1. Demonstrate steps in developing promotional plan?

2. List the objectives of promotion?

3. Give example of the emotional and rational appeal of promotional

messages?

4. Discuss the techniques for establishing promotional budget?

Dear learners! Have you answered the self-check questions? If yes, let us move on to the
discussion about promotional tools.

5.5. The Promotional Mix Elements (Marketing Communication)

Dear learners! Can you try to recall the promotional mix elements that we were discussed on
unit one? Hoping that you have remembered them. The following discussion emphasis on the
promotional mix elements.

The promotion mix elements refer to those basic forms of promotion that a company uses for
reaching target market and to stimulate and create demand for its products. It consists of five
tools that have unique characteristics and costs that determine in which situations it will be most
effective. For each category specific promotional tools can be used to communicate with
consumers. But marketing goes beyond the promotional tools, as all features of the product
communicate something to consumers. The five promotions mix elements are:
5.5.1. Advertising

Advertising is one of the most common tools companies use to direct persuasive communication
to target buyers and publics. Advertising can be defined as follows:-

"Advertising is any paid form of non-personal presentation and promotion of ideas, goods, or
services by an identified sponsor."

Advertising can reach masses of geographically dispersed buyers at a low cost, says something
positive about seller’s size, popularity and success, but it cannot be as persuasive as people and
lacks personal touch. It can be used to build up long-term image and can trigger quick sales. It
includes not only business organizations, but also museums, charitable organizations,
governmental agencies that direct messages to target publics.

Advertising, sales promotion, and public relations are the mass communication tools available to
customers. As its name suggests, mass communication uses the same message for everyone in an
audience.

Generally, all advertisements have four features.

 A verbal and/or visual message

 A sponsor who is identified.

 Delivery through one or more media

 Payments by the sponsor to the media carrying the message.

Advertising then, consists of the activities involved in presenting to an audience a non-personal,

sponsor identified, paid for message about a producer or organization.

Objectives of Advertising

All in all, advertising objectives can be classified according to whether their aim is to inform,
persuade and remained.

o Informative advertising: an aim to create awareness and knowledge of new products or

new features of existing product; or it is often used when introducing a new product when
the objective is to build primary demand.
 o Persuasive adverting: an aim to create liking, preferences, conviction and purchase of a
product or service; or it is more used when competition is increasing and helps for
building selective demand. It can become comparative advertising in which the company
directly or indirectly compares the brand to competition. It should be used with caution,
as it can result in advertising war.

o Reminder advertising: an aim to stimulate repeat purchase of a product or service; or it

is relevant for mature products and is used to maintain customer relationships. Its major
goal is to help customers to move through the buying process, for instance moving them
to immediate action or changing the way they think.

Types of Advertising

a. Brand advertising: an advertising that promotes specific brand-name of products.

b. Institutional advertising: an advertising that promotes a firm’s long term image, not a
specific product.

c. Retail advertising: advertising by retailers designed to reach end users of a consumer

product.

d. Cooperative advertising: an advertising in which a manufacturer together with a retailer

or wholesaler advertise in order to reach customer.

e. Industrial advertising: advertising by manufactures designed to reach other

manufactures’ professional purchasing agents and managers of firms buying raw
materials and /or components.

f. Trade advertising: advertising by manufacturers designed to reach potential wholesalers

and retailers.

Types of Advertising Media

Advertisers must choose media that can effectively and efficiently transmit message to target
customers. Media is a vehicle through which an advertiser communicates their message to likely
customers or prospects with a view to influencing them in terms of the advertising objectives.
The advertising media can be classified on the following basis.
 a) Indoor Advertising or Broadcast media

Indoor advertising includes, television, radio, in slides and cinema as a media to disseminate
advertising messages.

b) Press Advertising

Press advertising includes advertising in newspaper, magazines, trade journals, and business
directory. The newspaper is the most popular form of advertising.

c) Direct Mail

Direct mail, also known as direct marketing, is the most personal and selective of all media.
Direct mail goes only to the people the advertiser wishes to contact; there is almost no wasted
coverage.

d) Outdoor Advertising

Advertising which are noticed by persons when he is outdoors. This media includes bill boards,
posters, vehicular advertisement, sky advertising, and electrical signs. But because it is seen by
people "on the go" outdoor advertising is appropriate only for brief messages.

5.5.2. Personal Selling

As personal selling is a personal communication, it involves salespersons. A salesperson is an

individual representing a company to customers by performing one or more of the following
activities: prospecting, communicating, selling, services, information gathering and relationship
building.

Personal selling can be defined as follows:-

“Personal selling is the personal communication of information to persuade somebody to buy

something"

“Personal selling is a promotional element that involves personal (face to face) presentations to
one or more prospects by the firm’s sales force for the purpose of making sales and building
customer relationships.”
The personal selling process is logical sequence of steps that a sales person takes in dealing with
prospective buyer for some desired customer action. The desired action usually is to get the
customer to buy a good or a service. Personal selling allows a variety of customers and forces the
buyer to listen and respond. However, it is most costly out of all tools.

Distinctive Qualities of Personal Selling:

• Personal interaction: involves an immediate and interactive relationship between two or

more persons. Each party is able to absorb the others reaction.

• Cultivation: permits all kinds of relationship to spring up, ranging from a matter of fact
selling relationship to deep personal friendship.

• Response: makes the buyer feel under some obligation for having listened to the sales
talk.

The Personal Selling Process

The selling process consists of steps that salespeople follow when selling, which include the
following seven steps:

Step 1: Prospecting and Qualifying

Prospecting refers to the identification and listing of potential buyers. Qualifying is the
evaluation of prospects on the bases of financial capacity, volume of businesses, location and
possibilities for growth and categorizing them as good or poor prospects.

Step 2: Pre-approaching

It involves research and preparation. A salesperson learns as much as possible about a

prospective customer before making a sales call. This may be their specialty needs, buying
styles, the time convenient for them. The salesperson needs to set call objectives, determine best
approach and overall sales strategy.

Step 3: Approaching
During this step, the salesperson meets the customer for the first time. This step involves the
sales person’s appearance, opening lines and the follow-up remarks. Good appearance, positive
opening lines, and a very need tailored questions that are carefully monitored are effective
approaching techniques.

Step 4: Presentation and demonstration

A salesperson tells the product “value story” to the buyers, showing how the company’s offer
solves the customer’s problems. Customer-solution approach is fitting for relationship marketing.
The approach calls for listening and applying problem-solving skills to develop solutions to
present. Lastly, salespeople need to plan their presentation methods, employing advanced
presentation technologies.

Step 5: Handling objections

A salesperson needs to use positive approach to seek out, clarify and overcome customers’
objections to buying and turning them into reasons for buying. A sales person should encourage
buyers to state their objections. Then the sales person has an opportunity to meet the objections
and to bring at additional product benefits or reemphasis previously stated points.

Step 6: Final Close

Salespeople need to know how to recognize closing signals from the buyer and can use several
closing techniques such as asking for the order, review points of agreement, offer help to write
up the order, ask which model the buyer wants, or note the buyer will lose out if the order is not
placed immediately.

Step 7: Post Sale Services

An effective selling job does not end when the order is written up. The final stage of a selling
process is a series of post-sale activities. That can build customer good will and lay the
groundwork for future business.

This step also involves salesperson follows up after the sale to ensure customer satisfaction and
repeat business. For example, to avoid dissatisfaction due to wrong installation, repair etc.

5.5.3. Sales Promotion

Sales promotion is a key ingredient in marketing campaign.

It can be defined as follows:

‘Sales promotion is short-term incentives to encourage the purchase or sales of product or

service’.

"Sales promotion consists of a diverse collection of incentives tools mostly short term designed
to stimulate quicker and/or greater purchase of particular products by consumer or the trade."

In other words sales promotion is a demand stimulating devices designed to supplement

advertising and facilitate personal selling. Whereas advertising and personal selling offer reasons
to buy a product or service, sales promotion offers reasons to buy now.

Sales promotion should be included in a company's promotion plans, along with advertising and
personal selling.

Objectives of Sales Promotion

The basic objectives of sales promotions are:

 To introduce new products

- To induce buyers to purchase a new product, free samples may be distributed or money
and merchandise allowance may be offered to business to stock and sell the product.

 To attract new customers

- New customers may be attracted through issue of free samples, premiums, and contests
and similar

 To induce present customers to buy more

- Present customers may be induced to buy more by knowing more about a product, its
ingredients and uses.

 To help firm remain competitive

- Sales promotions may be undertaken to meet competition from a firm.

 To increase sales in off season

 - Buyers may be encouraged to use the product in off seasons by showing them the variety
of uses of the product.

 To increase the inventories of business buyers

- Retailers may be induced to keep in stock more units of a product so that more sales can
be effected devices.

Major Sales Promotion Tools

Developing sales promotion plan involves selection of appropriate sales promotion techniques.
Common sales promotion techniques/tools used by a company based on the target market are as
follows.

1. Consumer promotion tools

Consumer promotions are sales promotion tools used to boost short-term customer buying and
involvement or enhance long-term customer relationships or build long term market share. They
include:

o Samples: are the most effective, but also most expensive as a way to introduce new products
or boost popularity of existing one. Samples are offers of a free or a small amount or trial of a
product to consumers. The sample might be delivered door to door, sent in the mail, picked
up in a store, found attached to another product or featured in an advertising offer.

o Coupons: (a saving certificate that obtains buyers when they specified products at lowest
price) are loved by consumers and can help to promote new brand or stimulate sales of
existing one, but lead to coupon clutter.

o Cash refunds (rebate): are similar to coupons but price reduction occurs after purchase. It
offers purchase to refund part of the purchase price of a product to consumers who send a
“proof of purchase” to the manufacturers. Cash refunds have been used for major products
such as automobiles as well as for packaged goods.

o Price packs (money-off deals/ cents off deal): offer consumers reduced prices directly on
the package or label and are most effective in stimulating short term sales. These are offers to
consumers of savings off the regular price of a product, flagged on the label or package. They
may take the form or a reduced-price pack which is single packages sold at a reduced price
 (such as two for the price of one) or a banded pack, which is two related products banded
together (such as a tooth brush and tooth paste). Price packs are very effective in stimulating
short term sales, even more than coupons.

o Premiums: (goods offered either free or at low cost) are incentives to buy a product.

o Promotional products: are items imprinted with brand name, logo or message and given for
free to consumers.

o Point-of-sales (POS) promotions: (displays and demonstrations that takes place at the point
of sale) offered by manufacturers to retailers

o Patronage reward: cash or other award for the regular use of a certain company’s products
or services.

o Contests, sweepstakes and games: promotional events that give consumers the chances to
win something – such as cash, trips, or goods-by luck or through extra effort.

o Event marketing (event sponsorship): means creating a brand-marketing event or serving

as a sole or participating sponsor of events created by others. This is considered the fastest
growing area in promotion linking events and sponsorship to brand value proposition.

2. Trade promotions

Trade promotions (i.e. promotion for channel members) are sales promotion tools used to
persuade retailers to carry a brand, give it shelf space, promote it in advertising and push it to
consumers. Due to scarce shelf space manufacturers often offer price-offs, allowances, buy-back
guarantees, or free goods. Several promotion tools can be used such as discounts (a straight
reduction in prices on purchases during a stated period of time), allowances (promotional money
paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s
products in some way), free goods; push money or free specialty advertising items.

3. Sales force promotion

There is overlap between the devices directed at middlemen and those designed for the
producer's own sales force. Sales contests are probably the most significant of these. The most
common incentive is cash, used in over half of all contests

5.5.4. Publicity
Publicity is any communication about an organization, its products, or policies, through the
media that is not paid for by the organization. Publicity usually takes the form of a news story
appearing in the media or an endorsement provided by an individual either informally or in a
speech or interview. Publicity is the disseminating of information by personal or non-personal
means and is not directly paid by the organization and the organization is not the source.

Publicity has high credibility, news stores and features are more authentic and credible to readers
than advertising. And also publicity can reach prospects that prefer to avoid sales person and
advertising.

Major public relations tools

Publicity can be conducted through the following techniques:

Press relation: Presenting news and information about organization in the most positive light

Product publicity: Sponsoring various efforts to publicize specific products

Corporate Communication: Promoting understanding of the organization with internal and

external communications

Lobbying: Dealing with legislators and government officials to promote or defeat legislation
and regulation

Counseling: Advising management about public issue and company positions and image. This
includes advising in the event of a product mishap when the public confidence in a product is
shaken.

Advantages of publicity

 It can help to accomplish any communication objectives that can be used to announce
new products, new policies, describe research breakthroughs.

 It has much credibility than advertising

 It has lower costs than advertising or personal selling. Publicity usually costs less because
there are no media or tame costs for conveying the message and no sales people to
support it.
  It increases readership; Publicity is presented as editorial materials or news, so it gets
greater readership.

 It contains more information; because it is presented as editorial material, it can contain

greater details than advertising. More information and persuasive communication is
included in the message.

5.5.5. Direct Marketing

Direct marketing is defined as connecting directly with carefully targeted segments of individual
consumers, often on a one-to-one, interactive basis. For most companies, direct marketing is a
supplemental channel, but for others it is a complete model for doing business. There are several
major forms of direct marketing.

Benefits of Direct Marketing

Benefits to buyers: direct marketing is convenient, easy and private. Customers can shop
anything anywhere and anytime. Direct marketing gives access to a huge variety of products as
well as comparative information. It also is immediate and interactive giving consumers more
control.

Benefits to sellers: direct marketing is a helpful tool for building customer relationships giving
companies an opportunity to interact with customers. It is a low-cost, fast and efficient way of
reaching target markets, handling of channel and logistic functions. It also provides an
opportunity for greater flexibility in making adjustments to price and programs. Digital
environment provides tools for building close personalized interactive customer relationships,
giving access to buyers that would otherwise not be reached.

Forms of direct marketing

There are several major forms of direct marketing. These are:

o Direct-mail marketing: direct marketing by sending an offer, announcement, reminder or

other item to a person at a particular physical or virtual address. It is to be used well for direct
 one-to-one communication as it is flexible, can be personalized and allows for high target
market selectivity and easy measurement of results.

o Catalogue marketing: direct marketing through print, video or digital catalogues that are
mailed to select customers, made available in stores, or presented online. Digital catalogues
are gaining popularity and eliminate printing and mailing costs as well as can offer unlimited
merchandise. They also offer more presentation formats and allow real-time merchandising.
However, printed catalogues are still thriving as they create an emotional connection and
drive online sales.

o Telemarketing: it entails using the telephone to sell directly to customers and to business
customers. Companies use outbound telemarketing to sell directly and inbound to receive
orders. The benefits of telemarketing include purchasing convenience, increased product and
service information. However, consumers have been annoyed by telemarketing and the
government introduced do-not-call law which has been hurting the telemarketing industry.

Dear learners! Now it is your turn to answer the following self-check question

Self-check 5-4:

1. Define advertising? And discuss the objectives of advertisements?

2. What is sales promotion? Discuss the various tools of sales promotion?

3. Define personal selling? And explain the steps involved in selling process?

4. Discuss the meaning and purposes of publicity?

5. What is direct marketing? Discuss the forms of direct marketing?

5.6. Integrated Marketing Communications (IMC)

 Dear learners! We have discussed in detail about the concept of marketing communication in
this unit. Based up on the discussion, can you try to explain what Integrated Marketing
Communication mean? Hoping that you have tried your level best. The following discussion
emphasis on Integrated Marketing Communication.

Several factors are changing today’s marketing communication. First, consumers are changing:
they are better informed and more empowered. Also, marketing strategies are shifting away from
traditional mass marketing. Communications technology is changing the way companies and
customers communicate with each other. The changes come together in a need for integrated
marketing communications (IMC).

Integrated marketing communications (IMC) which involves carefully integrating and

coordinating the company’s many communication channels to deliver a clear, consistent and
compelling message about an organization and its products.

Integrated marketing communications (IMC): is the process of unifying a brand’s messaging to

make it consistent across all media that the brand uses to reach its target audience.

Integrated marketing communication (IMC): is a strategic approach that integrates various

marketing channels to create a consistent brand message.

5.6.1. Importance of Integrated Marketing Communication (IMC)

 Constant Brand Communication: IMC makes ensuring that a single brand message is
communicated over all channels of communication, supporting the maintenance of the
brand’s identity and core values at different touch points.

 Improved Consumer Participation: IMC helps businesses engage consumers more

successfully by combining marketing initiatives, which builds stronger bonds and
relationships.

 Efficient Resource Allocation: By coordinating marketing initiatives, reducing effort

duplication, and optimizing the impact of each campaign, IMC makes it possible to
allocate resources efficiently.

 Enhanced Brand Loyalty: IMC’s consistent and well-coordinated communication

fosters consumer trust and loyalty, which promotes advocacy and repeat business.
  Competitive Advantage: Organizations that successfully integrate IMC stand out from
the competition by offering a smooth and engaging brand experience that appeals to
customers.

5.6.2. Components of the Integrated Marketing Communications (IMC)

1. Advertising: Advertising is the paid marketing of goods, services, or brand messaging

across a range of media, including print, radio, television, internet platforms, and outdoor
billboards.

2. Public Relations (PR): Its main goals are to manage and shape the public’s opinion of a
brand through effective relationship-building and communication strategies. To improve
a brand’s credibility and reputation, this includes influencer relationships, events, and
sponsorships, press releases, and media relations.

3. Direct Marketing: Using media like email, direct mail, telemarketing, and SMS, direct
marketing is communicating directly with specific customers or target populations. With
this individualized strategy, marketers may reach out to customers directly with
customized offers, promotions, or messaging, encouraging a more prompt and
personalized reaction.

4. Sales Promotion: Using temporary incentives like discounts, coupons, competitions,

samples, or loyalty programs, sales promotion strategies aim to boost sales right away or
foster customer involvement.

5. Virtual Marketing: Virtual/Digital marketing reaches and interacts with customers

through online platforms and channels including social media, websites, mobile
applications, and search engines. This include techniques to improve brand awareness,
create leads, and drive traffic online, including as pay-per-click (PPC) advertising, social
media marketing, content marketing, and search engine optimization (SEO).

6. Content Advertising: To draw in and hold on to a well-defined audience, content

marketers create and disseminate valuable, pertinent, and consistent information. This
material is intended to inform, entertain, or inspire customers while discreetly advertising
 the business. It can come in a variety of formats, including articles, blogs, videos, info-
graphics, and podcasts.

7. Social Media Marketing: Social media marketing is connecting and interacting with
customers via the use of social media platforms like YouTube, LinkedIn, Instagram,
Facebook, and Twitter. Social media is a tool that brands utilize to distribute content,
engage with followers, create communities, and show off their personalities and beliefs in
order to humanize their business.

8. Partnerships and Sponsorships: In order to broaden their audience, increase brand

awareness, and establish their reputation, brands frequently work with other brands,
companies, or individuals through partnerships and sponsorships. This might be
contributing to co-branded campaigns, supporting events as a sponsor, or teaming up with
influencers to promote goods or services.

Dear learners! Now it is your turn to answer the following self-check question

Self-check 5-5:

1. What is integrated marketing communication? What factors contribute for the increasing
use of IMC? What benefits IMC provides for companies?

Dear learners! So far, promotion planning, promotional mix elements and integrated marketing
communication are discussed in this unit, let us move on to reading the unit summary, answer the
unit review questions and perform practical activity.

Unit Summary

Promotion is one of the four major elements of the company’s marketing mix. The main
promotional tools – advertising, personal selling, sales promotion, publicity and direct marketing
work together to achieve the company’s communication objectives.
In preparing marketing communications, the communicator first task is to identify the target
audience and its characteristics. Next the communicator has to define the response sought:
whether it is awareness, knowledge, liking, preference or purchase. Then a message should be
constructed with an effective content, structure and format. Media must be selected, both for
personal and non-personal communication. Next, the communicator must collect feedback by
watching how much of the market become aware, tries the product and is satisfied in the product.

The company has to decide how much to spend on promotion. The most popular approaches are
to spend what the company can afford, to use the percentage of sales method, to base promotion
on competitors spending, or to base it on the communication objective or task. However these
techniques have their own advantage or limitation. In order to offset the limitation of one method
by the advantage of the other, the techniques must be used in combination.

Technological development force marketers to change their ways to communicate their products
to target audience. Therefore marketers use integrated marketing communications (IMC) which
involves carefully integrating and coordinating the company’s many communication channels to
deliver a clear, consistent and compelling message about an organization and its products.
Unit Review Questions

Instruction: Answer for the following review questions:

Part One: Choose the best answer from the given alternatives.

1. Which of the following is the main promotion tool used by

business market?

A. Personal selling C. Public relation

B. Sales promotion D. Advertising

2. If the marketer is concerned with buyer conviction and action,

his/her best choice of promotional tool would be:

A. Advertising C. Publicity

B. Sales promotion D. Personal selling

3. In a "pull" promotional strategy

A. Advertising and sales promotion will be used more heavily than the sales force.

B. The target of promotion is the trade channel

C. The purpose is to get intermediaries

D. All of the above

4. Which of the following denotes the objective of advertising

A. The main objective is to inform customers about the existing of the product

B. The main objective is to persuade customers

C. The main objective is to remind customers

D. All of the above

5. Prospecting and qualifying of the personal selling technique

involves:

A. Efficiently selling the existing customers

B. Identify and select potential buyers for the company’s products

 C. Making sales call and persuading the existing customer to buy more

D. Making effective communication

Part Two: Discussion Questions

Instruction: Give your brief answer for the following questions

1. What are the major functions of promotion?

2. Distinguish among advertising, publicity, personal selling, and sales promotion..

3. Write the objectives of sales promotion?

4. Define what is integrated marketing communication (IMC)? Write its

importance? And also mention some of the elements of IMC?

5. A consumer views an advertisement but does not make a purchase. Has the
advertisement failed? Explain your answer.

Part Three: Practical Activity -1-

1. Visit a business/company located in your city or operates in your community, then

conduct an interview or observation or any other means to collect information regarding
the company’s promotional decisions. You are required to write your reflection based on
the data collected and by using any reference materials to support your output.

Your reflection must cover all of the following issues:

 General description/background of the business organization you have visited

 Focus on the most recent experience of the company regarding promotion, and ask for
how the company make the promotional decisions: it includes, but not limited to:

 Who are the target audience of the company?

 The communication/promotional objectives of the company?

 The communication channels and media used by the company?

 What technique the company uses to establish promotional budget?

  What promotional mix element that a company uses to promote its
products/services.

 How the company measures promotion result or effectiveness?

Part Three: Practical Activity -2-

1. Assume that your school planned to

introduce and promote its educational
services to the public using advertising.
Because you are a marketing and sales
management student, the school appointed
you to plan and execute advertising
program. So that you are required to design
advertisement for your school.

Your advertising plan must include the following requirements:

a) Determining the target audience

b) Determining the objectives of advertising

c) Designing the message

 It includes message content, message structure, message format, and message source.

 At this stage you are required to produce a sample of advertising copy for print ads,
illustration and graphics for outdoor ads, audio records for radio ads, and video pictures
for TV ads.

d) Selecting advertising media

 Choosing among major media types and then choose specific media vehicles. This part
also include deciding on the media timing/schedule.

e) Setting the advertising budget

 By using one of the methods for setting promotional budget

f) Setting standards for evaluating advertising effectiveness

 Decide on the criteria or benchmarks for measuring advertising effectiveness.

UNIT SIX

MARKETING MIX FOR SERVICES

Unit Coverage

This unit is designed to provide you with the necessary knowledge, skills and attitude
regarding the following content:

6.1. Meaning of Service

6.2. Characteristics of Services

6.3. The Marketing Mix for Services (7P’s)

Unit Learning Outcomes

This unit will assist you to attain the following learning outcomes. Specifically, upon the
completion of this unit, you will be able to:

 Understand the Meaning of Service

 Device Marketing Tasks to the Unique Characteristics of Services.

 Develop Marketing Mix Elements for Services (7P’s of Marketing)

Key Terms: Services, Intangibility, Heterogeneity, Inseparability, Perishability, Process,

Physical evidence, People

Introduction

The 4Ps of marketing have been the key to achieve the business objectives. Service marketing
mix consists of 4Ps and three additional elements then it is called 7Ps of marketing. Service are
organized activities designed to provide complete satisfaction for the target group of customers
for a consideration known as fee or charge. Services have unique characteristics: intangibility,
heterogeneity, inseparability and perishability. Because service is different from physical
products, the 4Ps framework should be extended to include three additional factors: People,
Physical evidence and Process as marketing mix variables for services marketing.

6.1. Meaning of Services

 Dear learners! Can you try to define what service is? Give some examples of service providers
in your community?

In most simple terms service is the action of doing something for someone or something. It is
largely intangible. A service tends to be an experience that is consumed at the point where it is
purchased, and cannot be owned since is quickly perishes.

Service can be defined as:

According to the American marketing association, Services refers to “Activates, benefits and
satisfactions which are offered for sale or are provided in connection with the sale of goods”.

“A service is any activity or benefit that one party can offer to another that is essentially
intangible and does not result in the ownership of anything.”

Examples of services:  Health care services, such as-hospital, medical, dentistry, nursing,
gymnasium, etc.  Professional services, such as-accounting, auditing, legal, architectural, etc. 
Financial services, such as-banking, insurance, investment, stock broking, merchant banking etc.
 Hospitality services, such as-hotel, lodging, restaurant, breakfast catering etc.  Travel services,
such as-airlines, travel agency, tour operating etc.  Others-barber, beauty salon, repair and
maintenance, etc.

6.2. Characteristics of Services

Dear learners! What are the unique characteristics of services? Can you try to distinguish
services from physical goods by using these characteristics?

There are different modes of services provided to the customers. Services have a number of
distinctive characteristics which differentiate them from goods and have a number of important
marketing implications which necessitate different marketing strategies. The four characteristics
of services are: intangibility, inseparability, heterogeneity, and perishability:

1. Intangibility

The most basic distinguishing characteristic of services is intangibility. Because services are
performances or actions rather than objects, they cannot be seen, felt, tasted, heard or touched in
the same manner that you can sense tangible goods. For instance, airline passengers have nothing
but a ticket and a promise that they will arrive at a certain time at a certain destination. But there
is nothing that can be touched.

2. Heterogeneity

Because services are performances, frequently produced, consumed, and often co-created by
humans, no two services will be precisely alike. The service quality varies greatly based on who
provide the service, when and where it is provided. The employees delivering the service
frequently are the service in the customer’s eyes, and people may differ in their performance
from day to day or even hour to hour. Because of the labor-intensive nature of services, there is a
great deal of difference in the quality of service provided by various providers, or even by the
same providers at different times.

3. Inseparability

Whereas most goods are produced first, then sold and consumed, many services are sold first
and then produced and consumed simultaneously. In other words, services are produced and
consumed at the same time. This also entails that services cannot be separated from their
providers. Contrary to services, physical goods are produced, then stored, later sold, and even
later consumed. Services are first sold, then produced and consumed at exactly the same time. A
product can, after production, be taken away from the producer. However, a service is produced
at or near the point of purchase. For example, an automobile can be manufactured in Japan,
shipped to Ethiopia to sell two months later, and consumed over a period of years. But
restaurant services cannot be provided until they have been sold, and the dining experience is
essentially produced and consumed at the same time.

4. Perishability

Perishability refers to the fact that services cannot be saved, stored, resold, or returned. For
example: A seat on an airplane or in a restaurant, an hour of a lawyer’s time, or space in a
shipping container not used or purchased cannot be reclaimed and used or resold at a later time.
As services cannot be inventoried, service firms face difficult problems. For this reason, transport
companies own much more equipment than they would if demand were even throughout the day:
the demand during rush-hours needs to be served at that specific time, it cannot be served later or
earlier. Perishability is in contrast to goods that can be stored in inventory or resold another day,
or even returned if the consumer is unhappy.

6.2.1. Services Characteristics and Their Marketing Implications

The following table shows the marketing problems and possible solutions for minimizing the
challenges that occur because of services characteristics.

Table 6.1: Services Characteristics, Associated Marketing Problems and Possible Solutions

Characteristic Marketing problems Possible solutions

Intangibility 2. Lack of a. Use of tangible clues
service b. Use of personal sources of
invento information
ries
Heterogeneity 1. Difficul a. Customization
t to
Inseparability 1. Physica a. Selecting and
l training public contact personnel
connect
b. Consumer management
ion of
the
Perishability 1. Higher a. Demand strategy:
demand  Creative Pricing
than
 Reservation Systems
maximu
m  Development of
availabl Complementary services
e  Development of Non-Peak
supply Demand
2. Higher b. Supply strategy:
demand
Source: K. Douglas Hoffman, Jhon E. G. Bateson, Greg Elliott and Dawn Birch, 2010.

Dear learners! Now it is your turn to answer the following self-check question

Self-check 6-1:

1. Define the term

service?

2. Discuss the
characteristics of
services?

Dear learners! Have you answered the self-check questions? If yes, let us move on to the
discussion about the extended marketing mix elements

6.3. Service Marketing Mix – 7Ps of Marketing

Dear learners! Can you try to recall the extended marketing mix elements from the lesson
learned on unit one? Hoping that you have remembered them. The following discussion
emphasis on the extended mix elements for service.

The services marketing mix is an extension of product marketing mix

and also known as an extended marketing mix. The service marketing
mix consists of 7 P’s as compared to the 4 P’s of a product marketing
mix. Simply said, the service marketing mix assumes the service as a
product itself. However it adds 3 more P’s which are required for
optimum service delivery. The product marketing mix consists of the 4
P’s which are Product, Pricing, Promotions and Placement. These are
discussed on the previous units. The extended service marketing mix
places 3 further P’s which include People, Process and Physical
evidence. All of these factors are necessary for optimum service
delivery. Let us discuss the same in further detail.

Figure 6.1: the 7Ps of service Marketing Mix

1. Product

The product in service marketing mix is intangible in nature. Like physical products such as a
soap or a detergent, service products cannot be measured. Tourism industry or the education
industry can be an excellent example. At the same time service products are heterogeneous,
perishable and cannot be owned.

Major product decisions in service marketing include:

 Quality of the service

 Range of service
  Level of service

 Service branding

 Product description, etc.

2. Pricing

Pricing in case of services is rather more difficult than in case of products. If you were a
restaurant owner, you can price people only for the food you are serving. But then who will pay
for the nice ambiance you have built up for your customers? Who will pay for the band you have
for music? Thus these elements have to be taken into consideration while costing. Generally
service pricing involves taking into consideration labor, material cost and overhead costs. By
adding a profit mark-up you get your final service pricing.

Major Service pricing decisions may include:

 Pricing Levels

 Discount Allowed

 Terms and Conditions

 Credit

 New Product Pricing

3. Place

Place in case of services determine where is the service product going to be located. The best
place to open up a petrol station is on the highway or in the city. A place where there is
minimum traffic is a wrong location to start a petrol station. Similarly a software company will
be better placed in a business hub with a lot of companies nearby rather than being placed in a
town or rural area.

Major place decisions in service marketing may include:

 Location of the service

 Distribution channel of the service

 Service accessibility
  Service provider

4. Promotion

Promotions have become a critical factor in the service marketing mix. Services are easy to be
duplicated and hence it is generally the brand which sets a service apart from its counterpart.
You will find a lot of banks and telecom companies promoting themselves rigorously. Why is
that? It is because competition in this service sector is generally high and promotions is
necessary to survive.

While designing a promotional campaign for services, one must focus on the following
components:

 Direct Selling

 Advertising

 Sales promotion

 Word of mouth

 Publicity

 Understandable and tangible clues about the service

5. People

All human actors who play a part in service delivery and thus influence the buyer’s perceptions:
namely, the firm’s personnel, the customer, and other customers in the service environment. All
of the human actors participating in the delivery of a service provide cues to the customer
regarding the nature of the service itself. How these people are dressed, their personal
appearance their attitudes and behaviors all influence the costumers perceptions of the service.

People are a very important factor in the 7P’s because services tend to be produced and
consumed at the same time. Because of this, the behavior of these people is very important in
determining the experience of the customer using your service.

Hence, in service marketing, people can make or break an organization. Furthermore, customers
also represent the company through word of mouth by talking to their friends on their colleagues.
Therefore, all services business should ensure that the staff is well trained and motivated.
Specifically, many companies train their staff in interpersonal skills and customer service with a
focus towards customer satisfaction.

6. Process

The element ‘Process’ of the service marketing mix represents the flow of activities, procedures,
mechanism, protocols and more by which the service in question is eventually delivered to the
customer. As services are results of actions for or with customers, a process involves a sequence
of steps and activities to get there.

The actual delivery steps the customer experiences, or the operational flow of the service, will
provide customers with evidence on which to judge the service.

The notable characteristics in the process are flow of activities, number of steps and the customer
involvement. The flow of activities includes standardization and customization whereas the
number of steps decides whether the process is simple or complex. For example, a customer
books a hotel room, a process is triggered when the customer then checks into the hotel. Another
process is triggered on, obviously, then, when they check out, yet another process is triggered.

All of these processes need to be tightly controlled to ensure a consistent customer experience.
They’re usually defined in written standard operating procedure documents. It is also a critical
component in the service blueprint, wherein before establishing the service, the company defines
exactly what should be the process of the service product reaching the end customer.

Service Delivery Blueprint

Creating a service blueprint can be a great way to not only maintain consistency but also
discover potential opportunities to improve your processes and therefore the experience that you
offer. A service blueprint draws out each step in your processes, including actions that are visible
to the customers, and ones that happen behind the scenes. Being able to view the big picture can
make it easier to spot opportunities that would have otherwise gone unnoticed

Figure 6.2 shows a flowchart for delivery of a service-stay at a motel. It involves several steps
such as parking a car, checking-in, spending night in a room, having breakfast, and checking-out.
Flowcharting helps to distinguish service elements like the core product and supplementary
services and enables to assess the level of customer involvement in the service delivery process.
Figure 6.2: A flowchart for delivery of a service-stay at a motel

7. Physical Evidence

The physical evidence within the service marketing mix refers to an environment in which a
service comes about from an interaction between an employee and a customer which is
combined with a tangible commodity.

The physical evidence includes a representation of a service for instance brochures, company
stationery, business cards, reports, company website, etc. A good example is a hotel. The design,
furnishing, lighting and decoration of a hotel as well as the appearance and the attitudes of the
employees have a certain influence on the quality of the service and customer experience.

The physical environment affects customers’ experience during the service encounter enhancing
or undermining customer satisfaction. In some services such as theme parks, restaurants, cafes,
and hotels service environment might even be a key to customer satisfaction, making great
impression and leaving long-lasting memories. Thus, physical evidence is an important
component of a service company marketing-mix strategy and overall value proposition. Due to
the intangibility of services, customers rely on physical evidence when assessing the expected
quality level, so careful design of all tangible elements can increase perceived value of the
market offering.
Physical evidence can fall into three main categories: facility exterior, facility interior and
other tangibles.

 The facility exterior: it includes the surrounding environment, parking facilities, the
firm’s entrance, and signage. When deciding about a location of the service company,
especially with regard to high-contact services, it is important to consider the
accessibility, safety, visibility and compatibility of the service site and market offering
with the surrounding environment.

 The facility interior: is composed of such elements as interior design, signage,

equipment and other devices necessary for service performance which are complemented
by ambient conditions like music, scents, temperature, and colors. Some of these
elements are visible to customers and play an important role in the service delivery
process, but other ones are much more subtle and they are essential in creating certain
mood and atmosphere of the service outlet.

 Other tangible elements: it include stationery, business cards, billing statements;

personnel uniforms and promotional material are a part of visual identity of a company.
Since customers perceive all service elements holistically, it is important to ensure that
they are carefully designed to create a consistent image and a unique brand experience.

The company’s physical evidence may serve different purposes. It differentiates the firm from its
competitors, communicates its image through tangible clues, facilitate the performance of the
service, and socialize customers and employees.

The three expanded marketing-mix elements (people, physical evidence, and process) are
included in the marketing mix as separate elements because they are within the control of the
firm and any or all of them may influence the customer’s initial decision to purchase a service, as
well as the customer’s level of satisfaction and repurchase decisions.

Example of Service Marketing Mix

Now, we will explain the service marketing mix by taking an example of a school. A school is an
institution that provides educational services.
Let us assume we are a marketer of a school. And see what all decisions are taken when
designing a marketing strategy. We have listed some relevant decisions under elements of the
service marketing mix.

1. Product Decisions

 Name of the school

 A brochure containing the USP of the school (Unique Selling Proposition)

 The language used at the time of teaching

2. Pricing Decisions

 Fees collected from the students

3. Place Decision

 Building of school where delivery of the service will take place.

4. Promotion Decisions

 Newspaper Advertisement

 Pamphlets distribution in the nearby areas

 Billboards

5. Physical Evidence

 Brochure of the school

 Fees receipts

 Class Schedules

 Computer lab facilities

 Regular updates to Parents

 Doubt clearing sessions

6. Process

 Interactive lectures by the teachers

 Fee payment on 30th of every month

  Monthly parents-teacher meets

7. People

 Subject Teachers

 School Principal

 Counsellors

Dear learners! Now it is your turn to answer the following self-check question

Self-check 6-2:

1. Discuss the extended marketing mix (3 Ps)? And their importance in service marketing?

2. Think of the service you have received recently and draw a service blueprint that shows
how the provider deliver the service.

Dear learners! So far, meaning and characteristics of service and service marketing mix
elements (7Ps) are discussed in this unit, now let us move on to reading the unit summary,
answer the unit review questions and perform practical activity.

Unit Summary

The Services Marketing Mix consists of a set of tactics that a company can use to promote and
encourage potential customers to buy their service. The Services Marketing Mix is also known
as the 7 P’s of Marketing.

The Services Marketing Mix is unique to services. The model is an extension of Product
Marketing Mix (also known as the 4 P’s of Marketing). All four tactics of the Product Marketing
Mix used to market products remain, but three new tactics are added. The additional 3 P’s (or
tactics) are needed to adequately capture the options available to market and promote services.

The key characteristics of services that underlie the need for distinct strategies and concepts for
managing service businesses. These basic characteristics are that services are intangible,
heterogeneous, produced and consumed simultaneously (inseparable), and perishable. Because
of these characteristics, service managers face a number of challenges in marketing, including
the complex problem of how to deliver quality services consistently.
Unit Review Questions

Part One: True/False

Instruction: Say True for correct statement or False for incorrect statement.

______ 1. The quality of service is greatly varied.

______ 2. A service is any act or performance that one party offer to another that is essentially
tangible.

______ 3. Physical evidence is one strategy that service renders use to depict their quality service

through presentation.

______ 4. It is possible for service providers to inventories/store services.

______ 5. The production and consumption of service is simultaneous.

Part Two: Multiple Choice Questions

Instruction: Choose the best answer from the given alternatives:

1. How does services differ from physical goods?

A. They are done by people.

B. They belong to operations of marketing.

C. They are more difficult than producing physical goods.

D. They are variable, intangible inseparable and perishable.

2. Service are characterized by all of the following characteristics except for ___________.

A. Intangibility C. Perishability

B. Homogeneity D. Inseparability

3. The tangible cues which helps consumers to evaluate the service before its purchase is:

A. Physical evidence C. Process

B. People D. Product

4. The key components of the service marketing mix are broadly:

 A. People, Product, Place C. Price Physical Evidence,
Promotion
B. Physical Evidence, Process,
People D. Product, Process, Physical
Environment

5. ___________ represents the activities, procedures and protocols by which the service is
eventually delivered to the customer.

A. Product C. Process

B. People D. Physical evidence

Part Three-Discussion Questions

Instruction: Give brief answer for the following review questions

1. Discuss the unique characteristics of service along with their marketing problems and
possible solutions?

2. What is physical evidence and what is its importance in service marketing?

3. Explain the term “Process” in service marketing mix?

4. Explain the role of people in service marketing?

Part Three: Practical Activity

1. Visit a service company located in your city or operate in your community such as an
airlines, banks, hotels, etc, then assess how a company implement the extended marketing
mix elements (3Ps) - People, Process and Physical evidence so as to achieving the
marketing objectives. You are required to reflect your visit.

2. Taking the barber shop as the example, the following statements outline the activities and
steps that a typical customer passes through from arrival at the barber’s shop to his
departure.

 When the customer arrives, he is greeted by the barber, who directs him to a seated
waiting area unless there are no other customers. In such a case the customer will be
directed to the barber’s chair.

 Once in the barber’s chair, the customer is asked his requirements.

  The customer’s hair is then cut in a way which (hopefully) meets his requirements.

 The barber, on finishing, will ask if the customer requires anything else (e.g. hair-care
products).

 The customer will then pay and depart.

 The barber thanks the customer for payment (and possibly a tip), and in his goodbye
statement infers a repeat visit.

Based on the above sequence of basic steps, you are required to draw a service blueprint that it is
possible to represent the process visually.
 Project Work

Dear learners! CONGRATULATION! You have successfully completed the lessons of this
competency, Now you are required to demonstrate the knowledge, skills and attitudes that you
are acquired by performing the following project work.

Project Title: Developing marketing mix elements for product or service

Project Description: The aim of this project work is for students to demonstrate both their
understanding of and ability to design own marketing mix. Thus it gives the opportunity for
students to convert theories learned in this competency in to practical application.

Objectives of the Project Work: In the completion of this project work, students will be able to

 Design and develop marketing mix elements

 Demonstrate basic marketing knowledge to practical situations in assessing marketing

opportunities, select target market and develop marketing mix elements.

 Besides, this project work help students to demonstrate sound analytical, problem-
solving, team work and communication skills.

General Instructions:

You are required to develop marketing plan (marketing mix elements) by using the following
procedures:

1. Understand your market

Before you can design your marketing mix, you need to understand your market. This involves
researching your target customers, competitors, and industry trends. You want to find out what
are the needs, preferences, and behaviors of your potential buyers, how do they perceive your
product and brand, and what are the gaps and opportunities in the market. You can use various
methods to gather market insights, such as surveys, interviews, focus groups, online analytics,
and secondary sources.

2. Define your product

Your product is the core of your marketing mix. It is what you offer to your customers to solve
their problems or satisfy their desires. You need to define your product in terms of its features,
benefits, quality, design, packaging, branding, and positioning. You want to create a product that
meets the expectations and needs of your target market, differentiates you from your
competitors, and communicates your value proposition.

3. Set your price

Your price is the amount of money that you charge for your product. It affects your revenue,
profit, and market share. You need to set your price based on your product value, costs, demand,
competition, and pricing objectives. You want to choose a price that reflects the value of your
product to your customers, covers your costs and expenses, matches the market conditions and
customer willingness to pay, and supports your marketing and business goals.

4. Choose your place

Your place is the distribution channel that you use to deliver your product to your customers. It
includes the physical locations, online platforms, intermediaries, and logistics involved in
making your product available and accessible. You need to choose your place based on your
product characteristics, customer preferences, distribution costs, and channel partners. You want
to select a place that reaches your target market effectively, efficiently, and conveniently, and
enhances your customer experience and satisfaction.

5. Plan your promotion

Your promotion is the communication strategy that you use to inform, persuade, and remind your
customers about your product. It includes the tools, channels, messages, and activities that you
employ to create awareness, interest, desire, and action. You need to plan your promotion based
on your product value, target market, marketing objectives, and budget. You want to design a
promotion that attracts attention, builds trust, conveys benefits, and motivates action.

Note that: if your business idea is a service providing business, add the extended marketing mix

6. People

7. Process

8. Physical evidences
References:

Philip Kotler and Garry Armstrong. 10th edition. Principles of Marketing. New Delhi, Prentice-
Hall of India.

Philip Kotler. 11th edition. Marketing Management. New Delhi, Prentice-Hall of India Pvt. Ltd.

Philip Kotler and Garry Armstrong. 11th edition. Principles of Marketing. New Delhi, Prentice-
Hall of India Pvt. Ltd.

Philip Kotler. 10th edition. Marketing Management: The Millennium Edition. New Delhi,
Prentice-Hall of India Pvt. Ltd.

Armstrong, Gary. Marketing: An introduction 11th, Global ed. Harlow, England: Pearson, 2013.

Chhabra, T.N., and S. K. Grover. Marketing Management. Fourth Edition. DhanpatRai&

Company.

Glencoe Marketing Essentials, McGraw-Hill- 2012-