Lesson – 4

MANAGING PRODUCTS AND SERVICES

PRODUCT MANAGEMENT:

Product management is an organizational function within a company dealing with the product
planning or product marketing of a product or products at all stages of the product lifecycle.
Product Management is also a collective term used to describe the broad sum of diverse activities
performed in the interest of delivering a particular product to market.
From a practical perspective, product management is an occupational domain which hold two
professional disciplines: product planning and product marketing. This is because the product's
functionality is created for the user via product planning efforts, and product value is presented to
the buyer via product marketing activities.
Product planning and product marketing are very different but due to the collaborative nature of
these two disciplines, some companies erroneously perceive them as being one discipline, which
they call product management. Done carefully, it is very possible to functionally divide the
product management domain into product planning and product marketing, yet retain the required
synergy between the two disciplines.
Product planning typically deals with these activities:

• Defining new products and gathering market requirements

• Product Life Cycle considerations
• Product portfolio management
• Product differentiation

Product marketing typically deals with these activities:

• Product positioning and outbound messaging

• Promoting the product externally with press, customers, and partners
• Bringing new products to market

Product management typically deals with these closely-related functions:

• Product planning
• Product marketing
• Program management
• Project management
Product Life Cycle

The stages

A Typical Product Life Cycle

Products tend to go through five stages:

• New product development stage

• very expensive
• no sales revenue
• losses

• Market introduction stage

• cost high
• sales volume low
• no/little competition - competitive manufacturers watch for acceptance/segment
growth

• losses

• Growth stage

• costs reduced due to economies of scale

• sales volume increases significantly
• profitability
• public awareness
• competition begins to increase with a few new players in establishing market
• prices to maximize market share
 • Mature stage

• costs are very low as you are well established in market & no need for publicity.
• sales volume peaks
• increase in competitive offerings
• prices tend to drop due to the proliferation of competing products
• brand differentiation, feature diversification, as each player seeks to differentiate from
competition with "how much product" is offered
• very profitable

• Decline or Stability stage

• costs become counter-optimal

• sales volume decline or stabilize
• prices, profitability diminish
• profit becomes more a challenge of production/distribution efficiency than increased
sales

Product lining is the marketing strategy of offering for sale several related products. Unlike
product bundling, where several products are combined into one, lining involves offering several
related products individually. A line can comprise related products of various sizes, types,
colours, qualities, or prices. Line depth refers to the number of product variants in a line. Line
consistency refers to how closely related the products that make up the line are. Line
vulnerability refers to the percentage of sales or profits that are derived from only a few products
in the line.
The number of different product lines sold by a company is referred to as width of product mix.
The total number of products sold in all lines is referred to as length of product mix. If a line of
products is sold with the same brand name, this is referred to as family branding. When you add a
new product to a line, it is referred to as a line extension. When you add a line extension that is of
better quality than the other products in the line, this is referred to as trading up or brand
leveraging. When you add a line extension that is of lower quality than the other products of the
line, this is referred to as trading down. When you trade down, you will likely reduce your brand
equity. You are gaining short-term sales at the expense of long term sales.
Image anchors are highly promoted products within a line that define the image of the whole
line. Image anchors are usually from the higher end of the line's range. When you add a new
product within the current range of an incomplete line, this is referred to as line filling.
Price lining is the use of a limited number of prices for all your product offerings. This is a
tradition started in the old five and dime stores in which everything cost either 5 or 10 cents. Its
underlying rationale is that these amounts are seen as suitable price points for a whole range of
products by prospective customers. It has the advantage of ease of administering, but the
disadvantage of inflexibility, particularly in times of inflation or unstable prices.
There are many important decisions about product and service development and marketing. In the
process of product development and marketing we should focus on strategic decisions about
product attributes product branding product packaging product labeling prodcut support services
But product strategy also calls for building a product line.

Product line Extensions and Patient safety

In a world of product line extensions, there are many different products with similar names.
Examples of these include oxycodone versus oxycontin (oycodone CR), buproprion vs buprion
SR vs bruproprion XL, codeine versus codeine contin and so many more examples. This may be
further complicated by the fact that there is a brand and generic name for each medication. It is
policy that medications are entered in generic format, and thus the only distinguishing feature
between short and long acting product may be an SR or CD or CR or XL designation after the
drug name. Also, although an individual may be requested to purchase "Tylenol", keep in mind
that there are many other Tylenol based products. Some of these agents have products which may
cause a problem with your other medications or disease states. basically there are the "Rights" of a
patients which are to get the right drug to the right person at the right time for the right condition
with a minimum of side effects. For long acting products, this is of paramount importance as the
short acting narcotics for example are realeased into the system over 3-4 hours, with a peak onset
of around an hour. The long acting format is designed to be released over 8-12hours usually (or
more), with peaks much later on. Inadvertantly administering the total dose in short acting when a
long acting agent should be administered may result in "dose dumping" where the patient gets the
full dose in a very short time interval, often with potentially marked adverse effects.

SERVICES
Service is any act or performance that one party can offer to another that is essentially intangible
and does not result in the ownership of anything. Its production may or may not be tied to a
physical product.

Categories of service mix

• Pure tangible goods. The offering consists primarily of a tangible good such as soap,
toothpaste, or salt. No services accompany the product.

• Tangible good with accompanying services. The offering consists of a tangible good
accompanied by one or more services. Levitt observes that “the more technologically
sophisticated the generic product (e.g., cars and computers), the more dependent are its sales
on the quality and availability of its accompanying customer services (display rooms,
delivery, repairs)
• Hybrid. The offering consists of equal parts of goods and services. For example, people
patronize restaurants for both food and service.

• Major Service with accompanying minor goods and services. The offering consists of a major
service along with additional services or supporting goods. For example, airline passengers
buy transportation. The trip includes some tangibles such as food and drinks, a ticket stub, and
an airline magazine.
• Pure services. The offering consists primarily of services. Example includes baby sitting,
psychotherapy, and massage.

Three more Ps apply:

a. People. The right employees, if well trained and motivated, enhance customer
satisfaction because many services require substantial customer-employee
interaction.

b. Physical evidence and presentation are what the customer perceives, such as the
decorative features of a restaurant.

c. Process. A process is how the service is performed., for example, delivery of health
care in a doctor’s office, outpatient clinic, or hospital.

Service firms may improve productivity by

• Hiring and training better employees.

• Changing the quantity-quality tradeoff ratio.
• Treating the performance of the service as a manufacturing process.
• Creating a product that reduces the need for a service.
• Performing more substitute services (e.g., allowing a nurse practitioner to do some
work).
• Giving customers reasons to provide labour(e.g., ATMs)
• Using technology effectively and efficiently.

Characteristics of services

• Intangibility. Unlike physical products, services cannot be seen, tasted, felt, heard, or
smelled before they are bought. The person getting a face lift cannot see the results before
the purchase, and the patient in the psychiatrist’s office cannot know the exact outcome.
Service companies can try to demonstrate their service quality through physical evidence
and presentation. It could make the positioning strategy tangible through a number of
marketing tools.
• Place
• People
• Equipment
• Communication material
• Symbols
• Price

• Inseparability. Services are typically produced and consumed simultaneously. This is not true
of physical goods, which are manufactured, put into inventory, distributed through multiple
 resellers, and consumed later. If a person renders the service, then the provider is part of the
service.
• Variability. Because services depend on who provides them and when and where they are
provided, they are highly variable. Some doctors have an excellent bedside manner; others are
less patient with their patients. Service buyers are aware of this variability and often talk to
others before selecting a service provider. Here three steps service firms can take to increase
quality control.
• Invest in good hiring and training procedures
• Standardize the service performance process throughout the organization
• Monitor customer satisfaction
• Perishability. Services cannot be stored. Perishability is not a problem when demand is
steady. When demand fluctuates, service firms have problems. For example, public
transportation companies have to own much more equipment because of rush hour of demand
than if demand were even throughout the day. Several strategies can produce a better match
between demand and supply in a service business.
On the demand side
• Differential pricing
• Nonpeak demand
• Complementary
• Reservation systems
On the supply side
• Part time employees
• Peak time efficiency
• Increased consumer participation
• Shared
• Facilities for the future expansion

Service quality
Service quality should be managed so that perceived service is better than expected service.
Consequently, a firm must accurately determine customer expectations and service standards,
communicate the nature and quality of the service to avoid distortion of expectations, and ensure
that employees perform at least at the level of a consistent set of standards.

a. Service quality is a function of

i) Reliability of the service

ii) Responsiveness (motivation of providers to give good service)
iii) Assurance (capability of providers to inspire confidence)
iv) Empathy ( a caring attitude exhibited by providers)
v) Tangibly factors (appearance of facilities, communications, employees, etc.)
b. Profitable service firms tend to be customer driven and therefore have a strategy for
satisfying customer needs. They also set high standards. Moreover, senior
management is committed to service quality. Still other characteristics of these firms
are use of self-service technologies (e.g., ATMS), monitoring their own and
 competitor’s performance, encouraging customers to register their complaints,
effectively resolving those complaints, and attending to employee satisfaction.

Pricing

Pricing is one of the four p's of the marketing mix. The other three aspects are product
management, promotion, and place. It is also a key variable in microeconomic price allocation
theory.
Pricing is the manual or automatic process of applying prices to purchase and sales orders, based
on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor
quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines,
and many others. Automated systems require more setup and maintenance but may prevent
pricing errors.

Price lining is the use of a limited number of prices for all your product offerings. This is a
tradition started in the old five and dime stores in which everything cost either 5 or 10 cents. Its
underlying rationale is that these amounts are seen as suitable price points for a whole range of
products by prospective customers. It has the advantage of ease of administering, but the
disadvantage of inflexibility, particularly in times of inflation or unstable prices.
A loss leader is a product that has a price set below the operating margin. This results in a loss to
the enterprise on that particular item, but this is done in the hope that it will draw customers into
the store and that some of those customers will buy other, higher margin items.
Promotional pricing refers to an instance where pricing is the key element of the marketing mix.
The price/quality relationship refers to the perception by most consumers that a relatively high
price is a sign of good quality. The belief in this relationship is most important with complex
products that are hard to test, and experiential products that cannot be tested until used (such as
most services). The greater the uncertainty surrounding a product, the more consumers depend on
the price/quality hypothesis and the more of a premium they are prepared to pay. The classic
example of this is the pricing of the snack cake Twinkies, which were perceived as low quality
when the price was lowered. Note, however, that excessive reliance on the price/quantity
relationship by consumers may lead to the raising of prices on all products and services, even
those of low quality, which in turn causes the price/quality relationship to no longer apply.
Premium pricing (also called prestige pricing) is the strategy of pricing at, or near, the high end
of the possible price range. People will buy a premium priced product because:

• They believe the high price is an indication of good quality;

• they believe it to be a sign of self worth - "They are worth it" - It authenticates their
success and status - It is a signal to others that they are a member of an exclusive group;
and
• They require flawless performance in this application - The cost of product malfunction is
too high to buy anything but the best - example : heart pacemaker

The term Goldilocks pricing is commonly used to describe the practice of providing a "gold-
plated" version of a product at a premium price in order to make the next-lower priced option look
more reasonably priced; for example, encouraging customers to see business-class airline seats as
good value for money by offering an even higher priced first-class option. Similarly, third-class
railway carriages in Victorian England are said to have been built without windows, not so much
to punish third-class customers (for which there was no economic incentive), as to motivate those
who could afford second-class seats to pay for them instead of taking the cheaper option.
The name derives from the Goldilocks story, in which Goldilocks chose neither the hottest nor the
coldest porridge, but instead the one that was "just right". More technically, this form of pricing
exploits the general cognitive bias of aversion to extremes.
Demand-based pricing is any pricing method that uses consumer demand - based on perceived
value - as the central element. These include : price skimming, price discrimination and yield
management, price points, psychological pricing, bundle pricing, penetration pricing, price lining,
value-based pricing, geo and premium pricing.

Factors affecting pricing decisions

The economic factors are not the only factors that influence the price determination. There are
other factors also that play an equally important part in the price determination of a product. The
factors that can influence price decisions may be divided into two groups: internal factors and
external factors.
a. Internal factors. Internal factors are generally well within the control of the organization. They
are sometimes referred to as built in factors that affect the price.
• Costs. The most decisive factor is the cost of production. In the past , the price fixing was a
simple affair: just add up all the costs incurred and divide the final figure by the number of
units produced . Adding necessary profits with the cost of production would give the price at
which the products were to be sold. Finding the cost of production is not so simple today on
account of the various lines of production as well as distributing the overhead costs among
such qualities of products.
• Objectives. Many companies have established marketing goals or objectives and pricing
contributes its share in achieving such goals. This is particularly true of large manufacturing
concerns. These goals may together be termed as ‘pricing policies’. Such pricing policies
may be classified into
• Target rate of return,
• Stability in prices,
• Maintenance or increase of the share of the market,
• Meeting or preventing competition, and
• Maximizing profits.

b. External factors. External factors are generally beyond the perfect control of an organization,
but they have to be considered in deciding the price.
• Demand. In consumer –oriented marketing, the consumers influence the price. The value
of a given product to the consumer is the prime consideration. Every product has some
utility for the buyer. It gives the buyer service, satisfaction, pleasure, the total of which is
its value to a particular consumer.
• Competition. Another factor that influences pricing is competition. No manufacture is free
to fix his price without considering competition, unless he has a monopoly. Moreover, in
 today’s market it is difficult to determine how far competition ranges from that of direct
substitutes to that of other items which may compete.
• Distribution channels. It also sometimes affects the price. As a rule, the consumer knows
only the retail or ultimate price. But there is a middle men working in the channel of
distribution between manufacturer and the consumer. Each of them has it compensated
for the services rendered.

Modification of pricing strategy may be necessary

• Price reduction has certain risks. They may have a negative effect on perceived product
quality, cause retaliation by stronger competitors, and result in increased market share but
decreased customer loyalty. They may be indicated because of
• Overcapacity
• Loss of, or a desire to increase, market share
• A change to an overall cost leadership or a cost focus competitive strategy
• Macroeconomic factors.
• Prices may rise because of
• Stronger demand
• Inflation (anticipatory demand).
• A firm that raises prices must determine whether the increase should be gradual or sharp
and immediate. Furthermore, it must avoid the appearance of price gouging, e.g., by
making low visibility moves first(such as ending discounts), giving notice, explaining the
change, or including the escalator clauses in contracts. A firm may avoid higher prices
by, for example,
• Using less expensive product or packaging materials.
• Reengineering processes to reduce costs.
• Altering or eliminating services or features.
• Offering generic brands.
• Offering fewer sizes or models.

Pricing objectives
As in other areas on marketing planning, pricing strategy begins with the determination of
objectives.

Pricing objectives are overall goals that describe what the firm wants to achieve through its
pricing efforts. Because pricing objectives influence decisions in most functional areas including
financing and production.
1. Return on investment
From the point if view of investors, principal pricing goal is to achieve the expected profit. The
profit must compensate the investment made. This is a common pricing objective mostly found
with small firms.
2. Market share
Increase in market share is the best method of evaluation as far as efficiency of pricing is
concerned. This is because many companies believe that maintaining or increasing market share is
a key to the effectiveness of their marketing mix.
3. Meeting competition
This is also a most important objective of pricing especially when a product is introduced in a
competitive market. Price cutting may have to be adopted without incurring huge losses. The
pricing method adopted in this regard is referred to as ‘extinction pricing’. It is viewed as a long
run strategy and is used as a way of eliminating competition. It involves pricing the product below
variable cost. This will eliminate marginal competitors and then prices will be raised to normal
levels.

4.Profit
Although maximizing profits could be stated as an objective of pricing, it cannot be made
operational because its achievement is difficult to measure. Usually profit objectives are set in
terms of percentage change or in terms of actual rupees in relation to profits earns during the
previous period.

THE HIERARCHY OF PRICING OBJECTIVES

Pricing Strategies.
There are many ways to price a product. Let's have a look at some of them and try to
understand the best policy/strategy in various situations.
Premium Pricing.
Use a high price where there is a uniqueness about the product or service. This
approach is used where a a substantial competitive advantage exists. Such high prices
are charge for luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde
flights.
Penetration Pricing.
The price charged for products and services is set artificially low in order to gain
market share. Once this is achieved, the price is increased. This approach was used by
France Telecom in order to
Economy Pricing.
This is a no frills low price. The cost of marketing and manufacture are kept at a
minimum. Supermarkets often have economy brands for soups, spaghetti, etc.
Price Skimming.
Charge a high price because you have a substantial competitive advantage. However,
the advantage is not sustainable. The high price tends to attract new competitors into
the market, and the price inevitably falls due to increased supply. Manufacturers of
digital watches used a skimming approach in the 1970s. Once other manufacturers
were tempted into the market and the watches were produced at a lower unit cost,
other marketing strategies and pricing approaches are implemented.
Premium pricing, penetration pricing, economy pricing, and price skimming are the
four main pricing policies/strategies. They form the bases for the exercise.
However there are other important approaches to pricing.
Psychological Pricing.
This approach is used when the marketer wants the consumer to respond on an
emotional, rather than rational basis. For example 'price point perspective' 99 cents
not one dollar.
Product Line Pricing.
 Where there is a range of product or services the pricing reflect the benefits of parts
of the range. For example car washes. Basic wash could be $2, wash and wax $4, and
the whole package $6.
Optional Product Pricing.
Companies will attempt to increase the amount customer spend once they start to
buy. Optional 'extras' increase the overall price of the product or service. For example
airlines will charge for optional extras such as guaranteeing a window seat or
reserving a row of seats next to each other.
Captive Product Pricing
Where products have complements, companies will charge a premium price where
the consumer is captured. For example a razor manufacturer will charge a low price
and recoup its margin (and more) from the sale of the only design of blades which fit
the razor.
Product Bundle Pricing.
Here sellers combine several products in the same package. This also serves to move
old stock. Videos and CDs are often sold using the bundle approach.
Promotional Pricing.
Pricing to promote a product is a very common application. There are many examples
of promotional pricing including approaches such as BOGOF (Buy One Get One
Free).
Geographical Pricing.
Geographical pricing is evident where there are variations in price in different parts
of the world. For example rarity value, or where shipping costs increase price.
Value Pricing.
This approach is used where external factors such as recession or increased
competition force companies to provide 'value' products and services to retain sales
e.g. value meals at McDonalds.

Customer relationship management

Philip Kotler defines customer relationship management as “the process of managing detailed
information about individual customers and carefully managing all the customer “touch points”
with the aim of maximizing customer loyalty”. Its purpose is to create optimal customer equity.
Thus, the process involves more than merely attracting customers (through media advertising,
direct mail etc) and satisfying them (something competitors also may do).

• IDENTIFY YOUR PROSPECTS AND CUSTOMERS. Do not go after everyone. Build,

maintain, and mine a rich customer database with information derived from all the
channels and customer touch points.
• DIFFERENTIATE CUSTOMER IN TERMS OF THEIR NEEDS AND THEIR
VALUE TO OUR COMPANY. Spend proportionately more effort on the most valuable
customers ( MVCs). Apply ABC analysis, and calculate customer life time value.
Estimate NPV of all future profits coming from purchases , marginal levels and referrals,
less customer – specific servicing cost.
• INTERACT WITH INDIVIDUAL CUSTOMERS TO IMPROVE YOUR
KNOWLEDGE ABOUT THEIR INDIVIDUAL NEEDS AND TO BUILD
 STRONGER RELATIONSHIPS. Formulate customized offerings that are
communicated in a personalized way.
• CUSTOMIZE PRODUCTS, SERVICES, AND MESSAGES TO EACH CUSTOMER.
Facilitate customer / company interaction through the company contact center and
website.
• REDUCING THE RATE OF CUSTOMER DEFECTION: Whole foods, the world’s
largest retailer of natural and organic foods, woos customers with a commitment to
marketing the best foods and a team concept for employees. Selecting and training
employees to be knowledgeable and friendly increases the likelihood that the inevitable
shopping questions from customers will be answered satisfactorily.
• INCREASING THE LONGEVITY OF THE CUSTOMER RELATIONSHIP: The more
involved a customer is with the company, the more likely he or she is to stick around.
Some companies treat their customers as partners – especially in business – to business
markets – soliciting their help in the design of new products or improving their customer
service.
• ENHANCING THE GROWTH POTENTIAL OF EACH CUSTOMER THROUGH
“SHARE OF WALLET”, CROSS SELLING, AND UP – SELLING. Harley – Davidson
sells more than motorcycles and riding supplements (such as gloves, leather jackets,
helmets, and sunglasses). Harley dealerships sell more than 3,000 items of clothing –
some even have their own fitting rooms, licensed goodssold by other range from the
predictable ( shot glasses, cue balls, and zippo cigarette lighters) to the more surprising
items ( cologne, dolls and cell phones). Harley branded merchandise amounted to more
than #211 million in company sales in 2003.
• MAKING LOW PROFIT CUSTOMERS MORE PROFITABLE OR TERMINATING
THEM. To avoid the direct need for termination, unprofitable customers can be made to
buy more or in larger quantities, forgo certain features or services, or pay higher
amounts or fees. Banks, phone companies, and travel agencies are all now charging for
once- free services to ensure minimum customer revenue levels.
• FOCUSING DISPROPORTIONATE EFFORT ON HIGH VALUE CUSTOMERS. The
most valuable customers can be treated in a special way. Thoughtful gestures such as
birthday greetings, small gifts or invitations to special sports or arts events can send a
strong signal to the customer.

MARKETING COMMUNICATION
Marketing communication are the means by which firms attempt to inform, persuade, and
remind consumers_ directly or indirectly_ about the products and brands that they sell. In a sense,
marketing communications represents the voice of the brand and are a means by which it can
establish a dialogue and build relationships with consumers.
1. Marketing Communication Mix
It consists of six modes of communication
• Advertising: It is any paid form of non personal presentation and promotion of ideas,
goods or services by an identified sponsor. Ads can be a cost effective way to
disseminate messages, whether to build a brand preference or to educate people.
• Sales promotion: a variety of short term incentives to encourage trial or purchase of a
product or service.
 • Events and Experiences: Company sponsored activities and programs designed to
create daily or special brand related interactions.
• Public relations and publicity: a variety of programs designed to promote or protect a
company’s image or its individual products.
• Direct Marketing: use of mail, telephone, fax, e-mail, or internet to communicate
directly with or solicit response or dialogue from specific customers and prospects.
• Personal selling: Face-to-face interaction with one or more prospective purchasers for
the purpose of making presentations, answering questions, and procuring orders.
2. Characteristics of Marketing Communication Mix
Each communication tool has its own unique characteristics and costs.
• ADVERTISING: Advertising can be used to build up a long term image for a product
(coca-cola ads) or trigger quick sales (a big bazaar ad for a weekend sales).
• Pervasiveness: advertising permits the seller to repeat a message many times. It also
allows the buyer to receive and compare the messages of various competitors. Large
scale advertising says something positive about the seller’s size, power, and success.

• Amplified expressiveness: advertising provides opportunities for dramatizing the

company and its products through the artful use of print, sound, and colour.

•Impersonality: the audience does not feel obligated to pay attention or respond to
advertising. Advertising is a monologue in front of, not a dialogue with, the audience
• SALES PROMOTION: companies use sales promotion tools_ coupons, contests,
premiums, and the like_ to draw a stronger and quicker buyer response. Sales promotion
can be used for short run effects such as to highlight product offers and boost sagging
sales.
• Communication: They gain attention and may lead the consumer to the product.
• Incentive: They incorporate some concession, inducement, or contribution that gives
value to the consumer.
• Invitation: They include a distinct invitation to engage in the transaction now.
• PUBLIC RELATIONS AND PUBLICITY: marketers tend to underuse public relations,
yet a well thought out program coordinated with the other communications mix elements
can be extremely effective.
• High credibility: New stories and features are more authentic and credible to readers
than ads.
• Ability to catch buyers off guard: Public relations can reach prospects who prefer to
avoid salespeople and advertisements.
• Dramatization: A public relations has the potential for dramatizing a company or
product.
• EVENTS AND EXPERIENCES: there are many advantages to events and experiences
• Relevant: a well chosen event or experience can be seen as highly relevant as the
consumer gets personally involved.
• Involving: given their live, real time quality, consumers can find events and
experiences more actively engaging.
• Implicit: events are more of an indirect” soft sell”.
• DIRECT MARKETING: the many forms of direct marketing _ direct mail, telemarketing,
and internet marketing_ share three distinctive characteristics. Direct marketing is
 • Customized: the message can be prepared to appeal to the addressed individual.
• Up to date: a message can be prepared very quickly.
• Interactive: the message can be changed depending, on the person’s response.
• PERSONAL SELLING: Personal selling is the most effective tool at later stages of the
buying process, particularly in building up buyer preference, conviction, and action.
• Personal interaction: personal selling involves an immediate and interactive
relationship between two or more persons. Each party is able to observe the others
reactions.
• Cultivation: personal selling permits all kinds of relationships to spring up , ranging
from a matter of fact selling relationship to a deep personal friendship.
• Response: personal selling makes the buyer feel under some obligation for having
listened to the sales talk.

3. Establish the Total Marketing Communications Budget

One of the most difficult marketing decisions is determining how much to spend on
promotion. How do companies decide on the promotion budget? We will describe four common
methods.
• Affordable method: many companies set the promotion budget at what they think the
company can afford. The affordable method completely ignores the role of promotion as
an investment and the immediate impact of promotion on sales volume. It leads to an
uncertain annual budget, which makes long range planning difficult.
• Percentage of sales method: many companies set the promotion expenditure at a specified
percentage of sales (either current or anticipated) or of the sales price. Automobile
companies typically budget a fixed percentage for promotion based on the planned car
price. Oil companies set the appropriation at a fraction of a cent for each gallon of gasoline
sold under their own label.
• Competitive parity method: some companies set their promotion budget to achieve share of
voice parity with competitors. Two arguments are made in support of the competitive
parity method. One competitor’s expenditures represent the collective wisdom of the
industry; second, maintaining competitive parity prevents promotion wars. However
neither argument is valid.
• Objective and task method. The objective and task method calls upon marketers to develop
promotion budgets by defining specific objectives, determining the tasks that must be
performed to achieve these objectives, and estimating the costs of performing these tasks.
The sum of these costs is the proposed promotion budget.

4. The Communication Process Models

Marketers should understand the fundamental elements of effective communications. Two
models are useful: a macro model and a micro model.
Macro model of the communications process: Figure shows a communications macro model
with nine elements. Two elements represent the major parties in a communication _ sender and
receiver while the other two represents the major communication tools _ message and media. Four
elements represent major communication functions _ encoding, decoding, response, and feedback.
The last element in the system is noise.
The model emphasizes the key factors in effective communication. Senders must know what
audience they want to reach and what responses they want to get. They must encode their
messages so that the target audience can decode them. They must transmit the message through
media that reach the target audience and develop feedback channels to monitor the responses.
Micro Model of Consumer Responses: micro models of marketing communications concentrate
on consumers specific responses to communications.
All these models assume that the buyer passes through a cognitive, affective, and behavioural
stage, in that order. This “learn –feel-do” sequence is appropriate when the audience has high
involvement with a product category perceived to have high differentiation, for example,
purchasing an automobile or house. An alternative sequence,” do-feel-learn,” is relevant when the
audience has high involvement but perceives little or no differentiation within the product
category, as in purchasing salt or batteries. By choosing the right sequence, the marketer can do a
better job of planning communications.
Here we will assume that the buyer has high involvement with the product category and
perceives high differentiation within the category. We will illustrate the hierarchy – of – effects
model in the context of a marketing communications campaign for a small Iowa college named
Pottsville:
 • Awareness. If most of the target audience is unaware of the object, the
communicator’s task is to build awareness. For example, consider the situation when
a company is launching a new ointment that helps women address the common
problem of cracked heels. The company, at the time of the launch of the product,
might set the objective of making 70 percent of the defined target audience aware
about the product and the brand name. This objective would be particularly relevant
if there were no specific brands that were positioned as a specialist for solving the
problem of cracked heels.

• Knowledge. The target audience might have brand awareness but not know much
more. The company may want its target audience to know that the new brand offers
the benefits of soothing cracked heels and preventing the recurrence of problem. The
company may want to learn how many people in the target audience have little, some
or enough knowledge about the benefits offered by the brand. If the knowledge is
insufficient, then the company may decide to select developing brand knowledge as
the communication objective.

• Liking. If target members know the brand, how do they feel about it? If the audience
does not view the value proposition of the brand favorably, then the same needs to
find out the reasons. If the unfavorable view is based on real problems, then the same
needs to be fixed and its renewed quality communicated. On the other hand, if the
unfavorable view is based on the perception created due to the problems with the
message execution, then it needs to be addressed through a revamped
communication strategy.

• Preference. The target audience might like the product but not prefer it to others. In
this case, the communicator must try to build consumer preference by comparing
quality, value, performance, and other features with likely competitors.

• Conviction. A target audience might prefer a particular product but not develop a
conviction about buying it. The communicator’s job is to build conviction among
interested women that the new brand is the best solution for the problems of cracked
heels.

• Purchase. Finally, some members of the target audience might have conviction but
may not quite get around to making the purchase. the communicator must lead these
consumers to take the final step, perhaps by offering the product at a low price,
offering a premium, or letting consumers try it out. The company may carry out an
exercise of free sampling among target audience or may undertake interesting sales-
promotion schemes to induce purchase of the product.

10.7 DISTRIBUTION CHANNELS

A Marketing channel system (distribution channel or trade channel) is the particular set of
marketing channels employed by a firm. Decisions about the marketing channel system are
among the most critical facing management.
Channel levels

• The producer and the final customer are part of every channel. We will use the number of
intermediary levels to designate the length of channel.
• A zero level channel consists of a manufacturer selling directly to the final customer. The
major examples are door to door sales, home parties, mail order .
• A one level channel contains one selling intermediary. A two level contains two selling
intermediaries. These intermediaries could be retailers, distributors and dealers or
distributor agents.

CONSUMER MARKETING CHANNELS

0-LEVEL 1-LEVEL 2-LEVEL 3-LEVEL

 INDUSTRIAL MARKETING CONSUMER

0-LEVEL 1-LEVEL 2-LEVEL 3-LEVEL

Channel design may involve the degree of emphasis on a push strategy ( inducing intermediaries
to promote and sell the firm’s products) versus a pull strategy (motivating customers to pressure
intermediaries to sell the firm’s products).

• Analysis of customer service needs is the first step in channel design. More service outputs
mean greater cost. Service outputs include

a) Lot size (units per typical purchase).

b) Waiting time for delivery.
c) Spatial convenience (e.g., more retailers, more consumer convenience).
d) Product variety(assortment available).
e) Service backup(e.g., financing, delivery, or repair).

• Channel objectives and constraints should be defined.

• Objectives are targeted service outputs and vary among products(e.g., perishable, bulky,
or nonstandard ). The firm minimize channel costs for a given level of service outputs.
• Constraints include strengths and weakness of intermediaries, the channels available to
competitors, economic conditions, and regulation.
• Channel alternatives should be accessed.

• Channels are very diversitied, and each has specific strengths and weaknesses that must
be evaluated in deciding on the channel mix. Preferably, each channel in the mix should
reach different segments with appropriate products at minimum cost. An objective is to
avoid channel conflict, loss of control, and excess cost.
• Thus, the firm must choose the types of intermediaries. Innovatice or unconventional
channels may be selected when the dominant channels are not appropriate.
• Choice of the number of intermediaries is among

i) Exclusive distribution
ii) Selective distribution (more than a few but not all of the willing intermediaries)
iii) Intensive distribution (as many outlets as possible)

• Choice of the terms and responsibilities of channel participants. The trade-relations mix
consists of
i) Pricing policies
ii) Conditions of sale
iii) Territorial rights

• Evaluation of channels

i) A channel advantage results when a firm can move customers to low-cost

(often low-touch) channels without loss of revenues or service quality.
ii) Control by the firm may be weaker when, for example, sales agents are used.
iii) Adaptability of the firm to market changes may be reduced when it makes
commitments to channel members. Hence, adaptability of channels and policies is a
virtue.