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									Level

 3.0 PROFESSIONAL DIPLOMA IN SALES
     AND MARKETING
     MANAGEMENT




Module
 12 PROMOTIONAL PRACTICE MANAGEMENT
Professional Diploma in Sales and Marketing Management
   Professional Diploma in Sales and Marketing Management   1
                                     Content
1 IMPLEMENTATION OF THE PROMOTIONAL MIX                     3
   Promotion                                                3
   The Promotional tools                                   10

2 PUBLIC RELATIONS TECHNIQUES                              20
   Public Relation                                         20
   The Scope of Public Relations                           26

3 THE NATURE OF PRODUCTS COMPONENTS AND LIFE CYCLES        33
   Direct Marketing                                        42

4 PLACE OPERATIONS                                         60
   How to Design a Distribution                            60

5 INTERGRATION, IMPLEMENTATION AND EVALUATION              75
   Budgeting and Evaluation                                75

6 CURRENT AND FUTURE ISUES                                 82
   Law and Ethical issues                                  82




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Module 12 Promotional Practice Management                   1 Implementing of the Promotional
Mix


 1 Implementing of the Promotional Mix

Promotion
Marketing Communications
In marketing we need to communicate with our customers. We also need to tell and show them
our products, the prices and the channels of distribution. This means that modern marketing calls
for more than just developing a product or service.
In communicating with the customer, the company needs to establish what to say, to whom and
how often, with what effect and what media. The marketing communications mix (also called the
promotion mix) consists of five major models of communication. These are:

1. Advertising
   This is defined as any paid form of non-personal presentation and promotion of ideas, goods
   and services by an identified sponsor.

2. Sales Promotion
   A variety of short-term incentives to encourage trial or purchase or a product or service are
   known as sales promotion. They also cost money as advertising.

3. Public Relations and Publicity
   A variety of programs designed to promote and/or protect a company‟s image or its individual
   product are known as public or publicity.

4. Personal Selling
   Fact to face interaction with one or more prospective purchasers for the purpose of making
   presentations, answering questions, and procuring orders is known as personal selling.

5. Direct Marketing
   Use a mail, telephone, fax, e-mail, Internet and other non-personal contacts tools to
   communicate directly with or solicit a direct responses form specific customers or prospects.
Due to current technological breakthrough people can now communicate through very many
tools. For example, people can mow communicate through media (newspaper, radios, television,
telephone) as well as through other media forms (computers, fax machine, mobile cellular phones
and pagers). By decreasing communications costs, the new technologies have encouraged more
companies to move form mass communication to more targeted communication and one to one
dialogue.
Also note that a product/service style, price, package, shape and colour, the sales representatives
manner and dressing, the place of business, etc, all communicates something to the buyer or
customer. In promotion/communication, the whole marketing mix and marketing strategy must be
orchestrated to deliver and establish the company‟s intended strategic positioning.

Examples of Communications Modes
1. Advertising
    this as defined above includes:
   Print and broadcast advertisements
   Motion pictures
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Module 12 Promotional Practice Management                 1 Implementing of the Promotional
Mix

  Brochures and booklets
  Posters and leaflets
  Billboards, neon signs
  Point of purchase display

2. Sales Promotion
   Games, contests, lotteries
   Fairs and exhibitions
   Trade in allowances
   Entrainment
   Sampling

3. Public Relations
   Press kit releases
   Speeches
   Seminar, annual shareholders meetings
   Annual reports
   Charitable donations
   Publications, company magazines

4. Personal Selling
   Sales presentations
   Sales meetings
   Sales incentive programs
   Sales samples
   Fairs and trade shows
   Sales plans, routes, implementation and results

5. Direct Marketing
   Catalogs
   Mailing
   Telemarketing, electronic shopping
   Fax
   E-mail, internet
   Voice mail

Communication Process
In most cases the marketing communication focuses on:
a. Creating awareness
b. Creating an image
c. Persuading target customers to buy or respond as planned
Since consumers and target marketers differ, communication to be tailored for specific segments,
niches and even individuals. Given the new electronic technologies, companies must ask not only
“how can we reach our customers?” but also “how can we find ways to let our customers reach
us?”


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Starting point in the communications process is thus an audit of all the potential interactions target
customers may have with the product and company.
Module 12 Promotional Practice Management                   1 Implementing of the Promotional
Mix

For example, someone purchasing a new computer would talk to others, see television ads, read
articles in newspaper and magazines, and observe computers in the dealers or merchants shops.
The marketer needs to assess which stages of he buying process. This understanding will help
marketers allocate their communication money or shilling in the right communication tool.

General Factors that Influence Communication
1. The greater the monopoly of he communication source over the recipient, the greater the
   recipients change or effect in favour of the source.
2. Communication effects are greatest where the message is in line with the receivers existing
   opinions, beliefs and dispositions.
3. Communication can produce the most effective shifts on unfamiliar, lightly felt, peripheral
   issues, which do not lie at the centre of he recipients value system. In other words, it can
   change an individuals attitude and perception.
4. Communication is more likely to be effective where the source is believed to have expertise;
   high status, objectivity or likeability and particularly where the source has power it can be
   identified with.
5. The social context, group or reference group will mediate the communication and influence
   other whether or not the communications is accepted.

Developing Effective Communications
In order to develop effective communication and promotion programme, the marketer needs to:
1. Identify the target audience
2. Determine the communication objectives
3. Design the message
4. Select the communication channels
5. Establish the total promotion budget
6. Decide on the promotion mix
7. Measure the promotion result
8. Manage and co-ordinate the integrated marketing communications process.

1. Identifying the Target Audience
   A marketer must start communication with a clear target audience in mind. The audience
   could be potential buyers of the company‟s products, current users, deciders, or influencers.
   The audience could be individuals, groups, and particular groups among the public or the
   general public. The target audience will influence the communicator‟s decisions on what to
   say it, when to say it, where to say it, and to whom to say it to.
   In analyzing the target audience the marketer needs to establish the audience current image of
   the company, its products and its competitors.

   Note that image is the set of beliefs, ideas, and impressions that a person holds regarding an
   object. People‟s attitudes and auctions towards an object are highly conditioned by their
   image.
   A company could develop a simple questionnaire to test image or impressions a target market
   has about a product, or a company.


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2. Determining the Communications Objectives
   If the target market and its characteristics have been identified, the marketing communicator
   must decide on the desired audience response.
Module 12 Promotional Practice Management                   1 Implementing of the Promotional
Mix

   The desired ultimate responses are purchase, high satisfaction, and favourable word of mouth.
   But purchase behaviour is the end result of a long process of consumer decision-making. The
   marketing communicator needs to know how to influence the target audience to buy a
   product/service.
   Other communication objectives could be to put in consumer‟s mind, change the consumer‟s
   attitude or get the consumer to act favourably.
   In attempting to get consumer response, such response can be classified into the following
   response hierarchy models.
Communication creates:
a. Awareness
b. Knowledge
c. Liking
d. Preference
e. Convincing
f. Purchase in marketing, purchase of products/services is the main expected result of
   communication. The target audience is expected to purchase the products and/or services.
   Before purchasing, depending on circumstances, they may wait for more information, or plan
   to act later. The communicator must lead the consumer to take the final step (action). Action
   here means making a purchase.

3. Designing the Message
A marketer should design a good and effective, message. Ideally the message should conform to
the model of creating attention. Desire and action. In practice, few message go through this
process but this is the idea situation. Formulating the message would require solving the following
four problems:
   What to ay (message content)
   How to say it logically (message structure)
   How to say it symbolically (message format)
   Who should say it (message source)

Message Content
The marketer has to consider or figure our what to say to the target audience in order to get the
desired audience response. In the age of mass marketing, it was thought that one would work for
everyone. However, today different seek different benefits from the same product. People are
paying les attention to mass advertising. Even TV channels have different advertisements for
different to consumer segments.
The challenge therefore is to create message that will get the attention of specific targets groups.
For example, Cola-Cola‟s advertising agency, creative artists, ahs global Coca-Cola managers
decide which commercials would work best with each market segment.
In determining the best message content, management searches for an appeal, theme, idea and
unique selling proportion. The appeals can be rational or emotional. It could also be moral appeal.

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Companies that sell similar products their message contents to magnify differences.




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Module 12 Promotional Practice Management                    1 Implementing of the Promotional
Mix

Message Structure
A message‟s effectiveness depends on its structure as well as it‟s content. The structure could be
that of conclusion drawing, one versus two sided arguments and any other order of presentation.
Recent research however, indicates that eh best ads ask questions and allow the audience, readers
or viewers to form their own conclusions. Conclusion drawing might cause negative reactions in
the following situations:
   If the communicator is seen as untrustworthy, the audience members might resent the attempt
    to influence them.
   If the issue is simple or the audience is intelligent, the audience members might resent the
    attempt to influence them.
   If the issues is highly personal, the audience recent the communicator‟s attempt to draw a
    conclusion e.g. O.B tampons, always etc.
Drawing too explicit a conclusion can also limit a product‟s appeal or acceptance. Conclusion
drawing is better suited for complex and specialized products where single and clear use is
intended.
Over the years, findings on communications as far as message structure is concerned is that:
  One-sided messages work best with audiences that are initially predisposed to the
   communicator‟s position, and two-sided arguments work best with audiences who are
   opposed.
  Tow sided messages tend to be more effective with better-educated audiences.
  Two sided messages tend to be more effective with audience that are likely to be exposed to
   counter propaganda.
Finally, the order in which arguments are presented is important. In the case of one-sided
message, presenting the strongest argument first has the advantage of establishing attention and
interest.
Also, in the case of two sided messages, the issue is whether to present the positive argument first
or last. If the audience is initially posed, the communicator might start with the other side‟s
argument and conclude with his or her strongest argument.

Message Format
The marketing communicator must develop a strong format for the message. In print advert, the
communicator has to decide on the headline, copy, illustration and colour. If the message is to be
carried over radio, the communicator has to carefully choose words, voice qualities (speech rate,
rhythm, pitch, and articulation), and vocalization (pause, signs, and yawns. For example the sound
of an announcer for baby care products is different form that of vehicle spare parts salesman. If
the message is to be carried on television, the personalities must also be different. The television
presenters must pay attention to their facial expressions, gestures, dress, posture and attire.

Message Source
Experience has shown that messages delivered by attractive or popular sources achieve higher
attention and recall. Advertisers often use celebrities as spokes people. Examples are many in
Kenya and aboard, e.g. Michael Jordan and Nike, Michael Jackson and Pepsi cola, mama kayai
and Raymond Blankets etc.


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Furthermore what is equally important is the spokesperson‟s credibility. Messages delivered by
highly credible sources are more persuasive.
Module 12 Promotional Practice Management                1 Implementing of the Promotional
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For example, pharmaceutical companies want doctors to testify on their product‟s benefits
because doctors have highly credibility as far as medicine is concerned.
Credibility comes about due to expertise, trustworthiness and likeability of the source.

4. Selecting the Communication Channels
The marketing communicator must select efficient channels of communication to carry the
message. In many cases, many different channels must be used. For example, a Unilever Kenya
salesperson when making a presentation to a wholesaler, the presentation must be crisp, quick and
convincing. These called by sales representatives are expensive and the company must support
them by adding other communication tools. The other communication tools include placing
advertisement of the products in journals, sending direct mail, passing out free samples, and even
telemarketing. Communication channels are of two broad types. These are:
a. Personal communication channel
b. Non-personal communication channel

Personal Communication Channels
Personal communication channels involve two or more persons communicating directly with each
other. They might communicate face-to-face, person to audience directly with each other. They
might communication channels derive over telephone, or through the mails. Personal
communication channels derive their effectiveness through the opportunities for individualizing
presentation and feedback.
Companies can take several steps personal communication channels to work on their behalf.
These include:
  Use influential or believable people in testimonial advertising
  Develop advertising that has high “conversation value”.
  Develop word of mouth referral channels to build business.
  Establish electronic forum, e.g. e-mail fax voices, on line discussions, etc for communicating
   with customers and prospects.

Non-Personal Communication Channels
Non-personal communication channels messages without personal contact or interaction. They
include media, atmosphere and events.
Media- consists of print media (newspapers, magazines, direct mail), broadcast media (radio,
television), electronic media (audio tape, video tape, video disc, CD-ROM (compact Disc Read
Only Memory) and display media (billboards, neon signs, posters). Most non-personal messages
came through paid media.
Atmosphere- are “packaged environments” that create or reinforce the buyer‟s learning toward
product purchase. Thus law firms and offices are usually decorated with oriental rugs and oak
furniture to communicate “stability” and “success”. The banks also do the same. A luxury hotel
will incorporate elegant chandeliers, marble columns and other tangible signs of luxury.
Events- are occurrences designed to communicate particular messages to target audiences. Public
relations departments arrange news conferences, grand openings and sports sponsoring to achieve
specific communication effects with a target audience.
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Professional Diploma in Sales and Marketing Management   10
Module 12 Promotional Practice Management                   1 Implementing of the Promotional
Mix

Establishing the Total Promotion Budget
One of the most difficult marketing decisions companies is how much to spend on promotion.
Some say that in promotion expenditure, over one half is wasted unless someone is careful. The
budget should reduce the half that is wasted.
Promotion expenditure might amount up to between 20% to 30% of he sales in a cosmetic
industry and only 5% - 10% in the industrial equipment industry.
In the cigarette brands industry, Philip Morris the owners of Marlboro are big advertisers. They
have also acquired certain brands and spend a lot in advertising their brands. Other firms like
Unilever Kenya, Kenya Breweries ltd, Proctor $ Gamble etc also allocate large percentage of their
earning in promotion.
How do companies decide on their promotion budget? Four common methods used to set up
promotion budget are affordable method, percentage of sales method, competitive parity method
and, objective and task method.

Affordable Method
Many companies set the promotion budget at what they think the company can afford. The
affordable method of setting budgets completely ignores the role of promotion as an investment
and the immediate impact of promotion slaw volume. It leads to an uncertain annual promotion
budget, which makes long range planning difficult. Most parastatals in Kenya practice this
method.

Percentage of Sales Method
A number of companies set their promotion expenditures at a specific percentage of sale (either
current or anticipated) of the sales price. A Kenya Railways business executive responsible for
promotion would set a percentage of each years revenue for promotion, say 2% or 3%. Vehicle
firms would also set a percentage of expected sales as promotional budget. The oil companies
equally set their promotion budget based on expected litres of fuel to be sold in a year. This
method is rational and result oriented.
The percentage of sales method seems to be a good method of promotional expenditure, which is
justifiable. It views sales as eh determinant of promotion. It leads to a budget set by the
availability of funds rather than by market opportunities. The promotional budget therefore
depends on year-to-year sale fluctuations.

Competitive Parity Method
Some companies set their promotion budget to achieve share of voice parity with their
competitors. They try to spend as much as competitor does. This is so because of he belief that
you might retain your market a share as the competitor if you industry advertises, you also do the
same. If they conduct some sales promotion, you equally do the same.
Two arguments are made in support of he competitive parity method. One is that the competitors‟
expenditures represent the collective wisdom of the industry. The other is that maintaining a
competitive parity helps prevent promotion wars.
Neither argument is valid. There are no grounds for believing what should be spent on promotion.
Company reputations, resources, opportunities, and objectives differ so much that their promotion
budgets are just a guide. Furthermore, there is no evidence that budgets based on competitive
parity discourage promotional wars from breaking out.
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Module 12 Promotional Practice Management                    1 Implementing of the Promotional
Mix

Objective and Task Method
This method calls upon marketers to develop their promotion budgeted by defining their specific
objectives, determining the tasks that must be performed to achieve these objectives, and
estimating the costs of performing these tasks. The sum or these costs is the proposed promotion
budget.
The objective and task method has the advantage of requiring management to spell out its
assumptions about relationship among future planned events and cumulative costs.

Deciding on the Promotion Mix
Promotion mix or tools are advertising sales promotion, public relations and publicity, sales force,
and direct marketing.
In deciding on the promotion mix, a company has to decide how much of the total promotion
budget will be spent on each of the above five promotion mixes. Such a decision can be a big
problem.

Companies always substitute one promotion tool for the other. This depends largely on the type of
product being promoted and also the level of operating efficiency on the type of product being
promoted and also the level of operating efficiency expected. In some cases, some companies
have replaced salesmen with advertisements, dire4ct mail and telemarketing. Other companies
have increased have increased their promotion expenditures on sales promotion in relation too
advertising.

The Promotional Tools
a. Advertising
Advertising is a highly public mode of communication. It a pervasive medium that permits the
seller to repeat a message many times. Advertising provides opportunities for dramatizing the
company and its products through artful use of print, sound and colour. Advertising, unlike
personal selling is impersonal. It carries a monologue message to the audience fkorm the
identified source.
Companies like Coca-Cola, Unilever (K) Ltd, etc. in Kenya have used advertising a lot.
Advertising so far is an efficient way to reach numerous geographically dispersed buyers at low
cost per exposure. In the advertising sector, this advantage is calculated in terms of cost per
thousand.

b. Sales Promotion
Although sales promotion tools like coupons, contests, premiums, raffles, charities, etc are highly
diverse they offer all three distinct benefits. These are:
   Communication- they gain attention and usually provide information that may lead the
    consumer to buy the product.
   Incentive- they incorporate some concession, inducement, or contribution that gives value to
    the consumer.
   Invitation- they include a distant to engage in the transaction now.

Companies use sales promotion to induce instant purchase or response. Sales promotion effects
are usually short run and are not effective in building long run benefits.

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c. Public Relations and Publicity
Module 12 Promotional Practice Management                   1 Implementing of the Promotional
Mix

The appeal of public relations and publicity is based on their three distinctive qualities:
  High credibility- news stories and features are more authentic and credible to readers than
   advertisements.
  Ability to catch buyers off guard- public relations can reach many prospects who prefer to
   avoid sales people and advertisements: the message gets to the buyers as news rather than as
   sales directed communication.
  Dramatization- like advertising, public relations has the potential for dramatizing a company
   or product.

d. Personal Selling
This is the most cost effective tool in the promotion mix. It encourages personal presentation by
getting attention, benefit and closing a sale. When compared to advertising, personal selling has
the following advantages:
   It involves a live, immediate and interactive relationship between two or more persons.
   Personal selling permits all kinds of relationship to springs up ranging from a selling
    relationship to personal relationship. Effective sales representative will normally keep their
    customer‟s best interests at heart if they want to maintain a along run relationship.
   Personal selling creates response form receiver (destination) of message. The benefit of
    response is that appropriate corrective action can be taken instantly.

e. Direct Marketing
There are many forms of direct marketing. These include direct mail, telemarketing, etc. they all
share the following four distinct characteristics. That is, direct marketing is:
   Non-public – the message is normally addressed to a specific person.
   Customized – the message can be customized to appeal to the addressed individual.
   Up to date – a message can be prepared very quickly fir delivery to an individual.
   Interactive- the message can be altered depending on the persons response.
Decision on the promotion mix depends on the nature of the product and the industry. For
example in the consumer goods industry the percentage of expenditure in sales promotion and
advertising is higher compared to that of industrial goods sector.
In the industrial goods sector, like sales of tractors, loaders, Cameco, combined harvesters, etc,
much of the promotional mix expenditure is on personal selling rather than sales promotion and
advertising. Technical sales representatives are hired and trained to sell the technical equipment.

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 felt about the message,
and their previous and current attitudes towards the products and company after promotion.
Usually most companies rely one or two promotional tools to achieve their communication
objectives. However, it pays for a firm to integrate the centre communication system.
Today a number of companies are adopting the concept of integrated marketing communication
(I.M.C) that is a concept of marketing communications planning that recognizes the added value

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of a comprehensive plan that evaluates the strategic roles of a variety of communications
disciplines for examples, general advertising, direct response, sales promotion and publics

Module 12 Promotional Practice Management                   1 Implementing of the Promotional
Mix

relations and combines these disciplines to provide clarity, consistency, and maximum
communications impact through the seamless integration of discrete messages.
Integrated marketing communications (IMC) will generally produce more message consistency
and greater sales impact. It gives some responsibility where none existed before to unify the
company‟s brand images and messages as they come through thousands of company activities.
IMC will improve the company‟s ability to reach the right customers with the right message at the
right time and in the right place.

Manage and Co-ordinate the Integrated Marketing Communications Process
Advertising is one of the most common tools companies use to direct persuasive communications
to target buyers and members of the public.
Advertisers are not necessarily business organizations. Other advertisers include the government,
churches, charitable organizations and other members of the public at large. Advertisements are
cost effective ways of disseminating information messages and brand building. We advertise at
one time or the other through newspaper, radios, and television and now by Internet etc.
Smaller organizations advertise directly while larger firms use advertising agencies or set up,
advertising departments would develop total advertising budget, help in developing advertisng
strategy, approve advertisements and campaigns, and handle direct mail advertising and dealer
displays. Most companies use outside advertising agencies to help them create advertisements
campaigns, select and purchase media.
In developing and advertising program, marketing managers must always start by identifying
target market and buyer motives. They can proceed to make the five major decisions in
developing an advertising program. These could be:
   Mission – what are the advertising objectives?
   Money – how message should be sent?
   Media – what media should be used?
   Measurement – how should the result be evaluated?

Setting the Advertising Objectives
This is the first stage in developing an advertising program. The objectives must flow form prior
decisions on the target market, market positioning, and marketing mix. The market positioning
and marketing mix strategies define the job that advertising must do in the total marketing
program. Advertising objective should be defined in measurable goals. An advertising goal (or
objective) is a specific communication task and achievement level to be accomplished with a
specific audience in a specific period of time.
Advertising objective can further be classified according to whether the aim is to inform, persuade
or remind. It is important to consider several factors and conditions as the analysis where the aim
is to build primary demand.




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Deciding on the Advertising Budget
Once the company has determined the advertising objectives, it can now proceed to establish its
advertising budget for each product. The role of advertising is to increase demand for the product.
The company wants to spend the amount of required to achieve the sales and stimulated demand.
Also note the although advertising is classified as an expense in the income statement, it is
actually an investment that build up an intangible value called good will (or brand equity).
Module 12 Promotional Practice Management                   1 Implementing of the Promotional
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Generally, there are about five specific factors to consider when setting up an advertising budget.
These are:
  Stage in the product life cycle. New products typically receive large advertising budget to
   build awareness and to gain consumer trail.
  Market share and consumer base. High market share brands usually require less advertising
   expenditure as a percentage of sales to maintain their shares.
  Competition in market. Large number of competitors and high advertising expenditure
   brands get advertised more heavily in the market in order to be heard and outplay the others.
  Advertising frequency. This refers to the number of message repetitions needed to put across
   the brand‟s message to consumers.
  Product alternatives. Brands in a commodity class (e.g. cigarettes, beer, soft drinks) require
   heavy advertising so as to establish a differential image. Advertising is also important when a
   band can offer unique physical benefits or features.

Choosing the Advertising Messages
Advertising campaigns differ in their creativity. Facts are not enough. It is better to get the
message across as the English writer William Shakespeare did in his use or language.
Truly, the efforts of creativity in advertising message could be more worthwhile than the message
sent. Only after gaining attention can a commercial help to increase the brand‟s sales.

Advertisers go through four steps to create message. These are: message generation, message
evaluation and selection, message execution, and message as social responsibility review.

Message Generation
In principle, the product‟s message- the major benefit that the brand offers- should be decided as
part of developing the product concept. Yet even within this concept, there may be latitude for a
number of possible messages. And overtime, the marketer might to change the message without
changing the product, especially if consumers are seeking new or different benefits form the
product. Creative people use several methods to generate possible advertising appeals. Many
creative people proceed inductively by talking to consumers, dealers, experts and competitors.
Consumers are the major source of good ideas.
Some creative people use a deductive framework for generating advertising messages.

Message Evaluation and Selection
Advertisers need to evaluate alternative messages. A good advertisement normally focuses on one
core selling proposition. The message ideally should be desirable, exclusive and believable. The
message must say something desirable or interesting about the product. The message should also
say something excusive or distinctive that does not apply to every brand in the product category.
Finally the message must be believable and probable. It is this unique feature, which will make
the message acceptable.
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Message Execution
The message‟s impact depends not only upon what is said but also on how it is said. Some
messages call for rational appeal and others emotional appeal. In message execution, the creative
people must also find a style, tone, words and format for executing the message.



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Social Responsibility Review
Advertisers and their agencies must make sure that their “creative” advertising does not overstep
social and legal norms. Most marketers try to communicate honestly and openly with customers.
Advertisers must avoid false or deceptive advertising. Advertising should be realistic and
acceptable.

Deciding the Media
Once the advertising message has been chosen, the advertisers next task is to select advertising
media to carry it. The steps here are deciding on desired reach, frequency and impact; choosing
major media types; selecting specific media vehicles; deciding on media timing; and deciding on
geographical media allocation.

Deciding on Reach, Frequency and Impact
Media selection finding the cost effective media to deliver the desired number of exposures to the
audience.
In other words, the advertisers must pre-determine the number of exposure needed to reach the
target audience. The task here is to find out how many exposures will produce a level of audience
awareness.

Choosing among the major media types
The media planner has to keno the capacity of the major media types to deliver reach, frequency,
and impact noted above. The major advertising types include the following:
   Newspaper
   Television
   Direct mail
   Radio
   Magazines
   Outdoor

Selecting Specific Media Vehicles
The media planner must next search for the most cost effective media vehicles within each chosen
media type. For example, i9t might be cheaper to sponsors a popular TV programme instead of
paying for TV advertisement.
The media planner relies on media measurement services that provide estimates of audience size,
composition, and media cost. Audience size has several possible measures.

Deciding on Media Timing
The decision in this case is two fold. One is on macro scheduling and the other is micro
scheduling.
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Sales Promotion
Sales promotion consists of a diverse collection of incentive tools, mostly short term. They are
designed to stimulate quicker purchase of particular products/services by consumers.
As advertising offers a reason to buy, sales promotion offers an incentive to buy. Sales promotion
includes tools for consumer promotion; trade promotions; and business and sales force
promotions, etc.




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Module 12 Promotional Practice Management                    1 Implementing of the Promotional
Mix

Sales promotions are short-term incentives and are always used by most organizations, including
manufacturers, distributors, retailers, trade associations and non-profit organization. Churches
also conduct sales promotion when they sponsor raffles, testimonial dinners, etc.

Purposes of Sales Promotion
1. Sales promotion is conducted in order to yield faster and measurable response. In Kenya, the
   oil companies have been offering raffles for the motorists who purchase fuel. The raffles give
   the purchasers a chance of wining. Supermarkets also conduct sales promoting does target the
   consumers who do not have brand loyalty.
2. Sales promotion results must be evaluated. This will establish if the set objective was
   achieved. The objective could be to achieve increased sales, or other pre-determined
   objectives.

Public Relations
This is a very important marketing too like advertising and sales promotion. It helps the company
to relate constructively to its customers, suppliers, dealers and members of the public.
A public is any group of persons that has an actual or potential interest in a company‟s ability to
achieve its objectives. Public relations involve a variety of programs designed to promote and/or
protect a company‟s image or its individual products.
A public can facilitate or impede a company‟s ability to achieve its communication objectives.
Public relations have often been treated as marketing stepchild, and afterthought to more serious
promotion planning. But wise companies take concrete steps to manage successful relations with
their key publics and customers.
Public relations department usually performs a number of activities including:
  Press relations – presenting news and information about organization in the most positive
   manner.
  Product publicity – sponsoring various efforts including sports to publicize specific products
  Corporate communication – promoting understanding of the organization with internal and
   external customers.
  Lobbying – dealing with legislators and government officials to promote or defeat legislation.
  Counseling – advising management about public issues and company positions and image.
   This includes directing in the event of a product mishap when the public confidence in a
   product is shaken. This is reminiscent to what occurred to Coca Cola in Belgium in late
   1990‟s.

Sales Management
The Selling Concept
The selling concept or the sales concept assumes that consumers, if left alone, will ordinarily not
buy enough of the organizations products. The organization must therefore undertake an
aggressive selling and promotional effort.
This means that consumers show buying inertia and must therefore be coaxed into buying. The
sales representative should sell benefit to the prospects and customers.
Selling concept is also practiced in non-business situations like fundraising and political rallies.
Most firms practice selling concept when they have over production capacity. The aim is to sell
what the company produces rather than what the market wants.
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Module 12 Promotional Practice Management                    1 Implementing of the Promotional
Mix

This hard selling is a small portion of marketing. It falls under personal selling, a sub-section of
promotion.

Marketing Mix
There is always selling as from the time man started trading. The aim of marketing is to make
selling superfluous. The aim of marketing is to know and understand the customer so well than
the product or service fits him/her and sells itself. Ideally marketing should result in a customer
who is ready to buy.
Therefore when SONY designed its Walkman, NINTENDO designed a superior video game, and
Toyota introduced its Lexus car model, these manufacturers were flooded with a lot of orders
because they had designed the right product based on good marketing and research. The research
identified customer needs and offered solutions.

Sales Representatives
Everyone lives by selling or buying something. Different companies have different objectives for
their sales representatives. A sales representative would be hired and trained to sell various goods
and services of a firm. They could sell consumer products, medicines, agricultural products,
engineering items, etc.
In other words a sales representative can be seen to perform any or all of the following functions:
1. Delivery of goods and services to the ultimate customer
2. Order taking
3. Missionary. i.e., sent to create goodwill and educate prospective customer
4. Technician – e.g. sales engineer
5. Demand creating e.g., making prospects demand insurance cover or other services
6. Solution vendor, e.g., selling photocopiers and computers


Cost of a Salesman
In sales management, the biggest cost is usually the sales representatives turnover. Most of them
hardly stay in one job for long, particularly the capable ones. The cost of the turnover to a
company, if they quit is a big loss. These losses include:
1. The salary, commission and other commissions paid to the salesmen
2. The staggering company costs, in time, money and energy of recruiting, selecting, training and
    supervising recruited sales representatives.
3. Reduced company reputation when they quit and join competitors.

Qualities of a Good Salesman
A capable sales representative should have the following qualities
1. Empathy, the ability to feel and be with customers
2. He/she should have the internal need to conquer. This gives the ego drive which makes him
   want and need to make the sale not merely for the money but to be a winner. He needs to have
   a positive attitude.
3. He must be trainable. Willing to embrace and use best selling skills, achieved from training.

Designing the Sales Force
Sales personnel serve as the company‟s personal link to the customers. It is the sales
representatives who bring back to the company much needed information about the trade.
    Professional Diploma in Sales and Marketing Management                             19
Module 12 Promotional Practice Management                    1 Implementing of the Promotional
Mix

Therefore, the company needs to give its deepest thought to issues in sales force design – namely,
the development of sales force objectives, strategy, structure, size and compensation plan. All
these designs need to be done by the sales manager.

Sales Force Objectives
The sales representatives sell goods and services. They sell solutions, commitments and
partnership between the companies and the customers. They satisfy customer needs through
company goods and services. Their objective is to be profitable to the company. However,
regardless of the selling contact, sales people will have one or more of the following specific tasks
to perform:
a. Prospecting – sales representatives search for prospects or leads
b. Targeting – sales representatives decide how to allocate their time among prospects and
    customers.
c. Communicating – sales representatives skillfully communicate information about the
    company‟s products and services to the prospects and customers
d. Selling – sales representatives know the art of sales approach, presentation, handling
    objections and closing sales. A sale should be closed by an order or agreement to act.
e. Servicing – sales representatives provide various services to the customers, consulting on their
    problems, rendering technical assistance, arranging financing and expediting delivery also
    solving problems of returns and damaged stocks
f. Information gathering – sales representatives gather information for market intelligence and
    marketing information system
g. Allocating – sales representatives decide which customers will get scarce products during
    shortages.

Sales Force Strategy
Companies compete with each other. They therefore station their sales representatives in strategic
geographical positions to serve the customers well and in time.

Sales Force Structure
This depends on the type of products or services being sold. The sales force strategy has
implications for the sales force structure. If the company sells one product line to one end using
industry with customers in many locations, the company would use a territorial sales force
structure. If the company sells many products to many types of customers, it might need a product
or market sales force structure.

Sales Force Size
Once the company defines its sales strategy and structure, it is then ready to consider sales force
size. Not those sales representatives are one of the company‟s most productive and expensive
assets. Increasing their number will increase both sales and costs. But the sales must increase
faster than the costs.

Sales Force Compensation
To attract top-quality sales representatives, the company has to develop an attractive
compensation package. Sales representatives would like income regularity, extra reward for
above-average performance and fair compensation for experience, longevity and education.



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Module 12 Promotional Practice Management                      1 Implementing of the Promotional
Mix

Managing the Sales Force
Once the company has established sales force‟s objectives, strategy, structure, size and
compensation, it has to move to recruiting, selecting, training, supervising, motivating, and
evaluating sales representatives. Various policies and procedures guide these decisions.

Recruiting and Selecting Sales Representatives
At he hear of a successful sales force is the selection of capable sales representatives. The
performance between an average and top sales representative can be considerable.

Factors to Look for in a Good Sales Representative
First of all establish what your customers want. Most customers say they want sales
representatives to be honest, knowledgeable and helpful. A company should look for these traits
when selecting candidates. Customers want to depend on a good sales representative who
becomes their linkman with the company. He should represent he customer just as he/she
represents the company.

Training Sales Representatives
Some companies send their new sales representatives almost immediately in the field after hiring
them. They are supplied with samples, order books, and description of their territories or customer
list. An ill trained salesman is a big cost to a firm. He makes the customer hat the company and its
products.

Supervising Sales Representatives
It is said that in life, all of us are at least answerable to somebody. In other words, supervising is
the fate of everyone who works for someone else. The representatives must be supervised. This
supervision shows that the employer is interested in the results of the investment, i.e., the
employees activities.

Time Management
Observation and studies have shown that the best sales representatives are those who manage their
time effectively. They should have an annual call schedule broken down into daily call plan of
sales calls and prospecting calls. Call objectives need to be stated clearly and expected returns
noted.

Motivating Sales Representatives
Most sales representatives require encouragement and special incentives to work at their best
level.

Principles of Personal Selling
Personal selling is ancient art. It has a lot of literature and many principles. Effective sales persons
have more than one instinct. They are trained on methods of identifying buying signals and
customer management. Three major aspects of personal selling include:
a. Sales professionalism
b. Negotiation
c. Relationship marketing



   Professional Diploma in Sales and Marketing Management                                            21
Relationships Selling of Banking and Insurance Services
Traditional banking has been seen as that business establishment which receives deposits from the
investors/depositors and offers loans to investors.

Module 12 Promotional Practice Management                  1 Implementing of the Promotional
Mix

It is a business that safeguards people‟s money and uses it to advance loans. People keep their
money in the banks for safety reasons, savings, investments, etc.




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Module 12 Promotional Practice Management                                        2 Pubic Relations
Techniques

 2 Public Relations Techniques

Public Relations
Another important mass-promotion technique is public relations. This concerns building good
relations with the company‟s various publics by obtaining favourable publicity, building up a
good „corporate image‟ and handling or heading off unfavourable rumours, stories and events.
Public relations departments perform any or all of the following functions:
   Press relations or press agency. Creating and placing newsworthy in the news media to attract
    attention to a person, product or service.
   Product publicity. Publicising specific products.
   Public affairs. Building and maintaining local, national and international relations.
   Lobbying. Building and maintaining relations with legislators and government officials to
    influence legislation and regulation.
   Investor relations. Maintaining relationships with shareholders with shareholders and others in
    the financial or volunteer support.
Public relations are used to promote products, people, places, activities, organizations and even
nations. Trade associations have used public relations to rebuild interest in declining commodities
such as eggs, apples, milk and potatoes. Even nations have used public relations to attract more
tourists, foreign investment and international support. Companies can use PR to manage their way
out of crisis, as in the case of Johnson & Johnson‟s masterly use of public relations to save
Tylenol from extinction after its product-tampering scare.

The Role and Impact of Public Relations
Public relations can have a strong impact on public awareness at a much lower cost than
advertising can. The company does not pay for the space or time in the media. Rather, it pays for
staff to develop and circulate information and to manage events. If the company develops an
interesting story, several different media could pick it up, having the same effect as advertising
that would cost millions of euros. It would have more credibility than advertising.
Despite its potential strengths, public relations is often described as a marketing stepchild because
of its limited and scattered use. The public relations department is usually located at corporate
headquarters. Its staff is so busy dealing with various publics – stockholders, employees,
legislators, and city officials – that public relations programmes to support product-marketing
objectives may be ignored. Moreover, marketing managers and public relations practioners do not
always talk the same language. Many public relations practioners see their job as simply
communicating. In contrast, marketing managers tend to be much more interested in how
advertising and public relations affect sales and profits.
This situation is changing, however. Although public relations still captures only a small portion
of the overall marketing budgets of most firms, PR is playing an increasingly important brand-
building role as more and more businesses view good public relations as a powerful brand-
building tool. In fact, two well-known marketing consultants have concluded that advertising
doesn‟t build brands, PR does. They provide the following advice, which points to the potential
power of public relations as a first step in brand building:
In their book The Fall of Advertising and the Rise of PR, the consultants Al and Laura Ries assert
that the era of advertising is over, and those public relations are quietly becoming the most
powerful marketing communications tools.
    Professional Diploma in Sales and Marketing Management                                     23
Module 12 Promotional Practice Management                                        2 Pubic Relations
Techniques

Although most marketers don‟t go this far, the point is a good one. Advertising and public
relations should work hand in hand to build and maintain brands.

Public Relations
Another important mass-promotion technique is public relations. This concerns building good
relations with the company‟s various publics by obtaining favourable publicity, building up a
good „corporate image‟ and handling or heading off unfavourable rumours, stories and events.
Public relations departments perform any or all of the following functions:
   Press relations or press agency. Creating and placing newsworthy in the news media to attract
    attention to a person, product or service.
   Product publicity. Publicising specific products.
   Public affairs. Building and maintaining local, national and international relations.
   Lobbying. Building and maintaining relations with legislators and government officials to
    influence legislation and regulation.
   Investor relations. Maintaining relationships with shareholders with shareholders and others in
    the financial or volunteer support.
Public relations are used to promote products, people, places, activities, organizations and even
nations. Trade associations have used public relations to rebuild interest in declining commodities
such as eggs, apples, milk and potatoes. Even nations have used public relations to attract more
tourists, foreign investment and international support. Companies can use PR to manage their way
out of crisis, as in the case of Johnson & Johnson‟s masterly use of public relations to save
Tylenol from extinction after its product-tampering scare.

The Role and Impact of Public Relations
Public relations can have a strong impact on public awareness at a much lower cost than
advertising can. The company does not pay for the space or time in the media. Rather, it pays for
staff to develop and circulate information and to manage events. If the company develops an
interesting story, several different media could pick it up, having the same effect as advertising
that would cost millions of euros. It would have more credibility than advertising.
Despite its potential strengths, public relations is often described as a marketing stepchild because
of its limited and scattered use. The public relations department is usually located at corporate
headquarters. Its staff is so busy dealing with various publics – stockholders, employees,
legislators, and city officials – that public relations programmes to support product-marketing
objectives may be ignored. Moreover, marketing managers and public relations practioners do not
always talk the same language. Many public relations practioners see their job as simply
communicating. In contrast, marketing managers tend to be much more interested in how
advertising and public relations affect sales and profits.
This situation is changing, however. Although public relations still captures only a small portion
of the overall marketing budgets of most firms, PR is playing an increasingly important brand-
building role as more and more businesses view good public relations as a powerful brand-
building tool. In fact, two well-known marketing consultants have concluded that advertising
doesn‟t build brands, PR does. They provide the following advice, which points to the potential
power of public relations as a first step in brand building:
In their book The Fall of Advertising and the Rise of PR, the consultants Al and Laura Ries assert
that the era of advertising is over, and that public relations is quietly becoming the most powerful
    Professional Diploma in Sales and Marketing Management                                       24
marketing communications tools. Although most marketers don‟t go this far, the point is a good
one. Advertising and public relations should work hand in hand to build and maintain brands.
Module 12 Promotional Practice Management                                     2 Pubic Relations
Techniques

Public Relations
Public relations or PR offer several unique qualities. It is all those activities that the organization
does to communicate with target audience, which are not directly paid for.
   PR is very believable: news stories, features, sponsorships and events seems more real and
    believable to readers than ads do.
   Public relations can reach many prospects who avoid salespeople and advertisements, since
    the message gets to the buyers as „news‟ rather than as a sales-directed communication.
   Like advertising, PR can dramatise a company or product. The body shop is one of the few
    international companies that have used public relations as amore effective alternative to mass
    TV advertising.
Marketers tend to under use public relations or to use it as an afterthought. Yet, a well thought out
public reactions campaign used with other promotion-mix element can be very effective and
economical.

Direct Marketing
Although there are many forms of direct marketing – direct mail, telemarketing, electronic –
direct mail, telemarketing, electronic marketing, online marketing and others – they all share four
distinctive characteristics.
   Direct marketing is non-public as the message is normally addressed to a specific person.
   Direct marketing is immediate as messages can be prepared very quickly.
   Direct marketing can be customized, so messages can be tailored to appeal to specific
    customers.
   Direct marketing is interactive: it allows a dialogue between the communicator and the
    consumer, and message can be altered depending on the consumer‟s response.
Thus, direct marketing is well suited to highly targeted marketing efforts and building one-to-one
customer relationships.

Promotion Mix Strategies
Marketers can choose from two basic promotion mix strategies – push promotion or pull
promotion. The relative emphasis on the specific promotion tools differs for push and pull
strategies. A push strategies involves „pushing‟ the product through distribution channels to final
consumers. The firm directs its marketing activities towards channel members to induce them to
carry the product and to promote it to final consumers. Using a pull strategy, the producer directs
its marketing activities toward final consumers will then demand the product from channel
members, who will in turn demand it from producers. Thus under a pull strategy, consumer
demand „pulls‟ the product through the channels.
Some small industrial-goods companies‟ use only push strategies; some direct-marketing
companies use only pull. However, most large companies use some combination of both. For
example, Lever Brothers uses mass-media advertising to pull consumers to its products and a
large sales force and trade promotion to push its products through the channels.
In recent years, consumer-goods companies have been decreasing the pull portions of their
promotion mixes in favor of more push. There are a number of reasons behind t-shirt in promotion
strategy. One is the rising cost of mass-media campaigns. Many firms have also found advertising
less effective in recent years. Companies are increasing their segmentation efforts and tailoring
   Professional Diploma in Sales and Marketing Management                                           25
their marketing programmes more narrowly, making national advertising less suitable than
localized retailer promotions. In these days of heavy brand extensions and me-too products, many
companies are finding it difficult to feature meaningful product differentiations in advertising.
Module 12 Promotional Practice Management                                         2 Pubic Relations
Techniques

Instead, they differentiate their brands through price reductions, premium offers, coupons and
other promotions aimed at the trade.
     Figure 1: Push strategy

                 Producer marketing activities                                 Reseller marketing
                 {Personal selling, trade                                       (personal selling,
                 Promotion, other}                                             advertising, sales
                                                                                Promotion, other)
        Producer                             Retailers and
                                                                                            Consumers
                                             wholesalers



Pull strategy
                                     RetailersDemand
                                              and                              Consumers
           Producer                  wholesalers


                                             Producer marketing activities
                                             (Consumer advertising, sales
                                             Promotion, other)

The growing strength of retailers is also a key factor influencing the shift from pull and push. Big
retail chains in Europe have greater access now than ever before to product sales and profit
information. They have the power to demand and get what they want from suppliers. And what
they want is margin improvements – that is, more push. Mass advertising bypasses them on its
way to the consumers, but push promotion give retailer an immediate sales boost and cash from
trade allowances pads retailer profits. So, manufacturers are compelled to use push promotions
just to obtain good shelf space and advertising support form their retailers.
However, reckless use of push promotion leads to fierce competition and a continual spiral of
price slashing and margin erosion, leaving less money to invest in the product R&D, packaging
and advertising that is required to improve and maintain long-run consumer could mortgage a
brand‟s long-term future for short-term gains. While push strategies will remain important,
particularly in packaged-goods marketing, companies that find the best mix between the two –
consistent advertising to build long-run brand value and consumer preference and sales promotion
to create short-run trade support and consumer excitement are most likely to win the battle for
loyal and satisfied customers.

Factors in Designing Promotion Mix Strategies
Companies consider many factors when designing their promotion mix strategies, including the
type of product/market, buyer-readiness stage and the product life-cycle stage.

Type of Product Market
The importance of different promotional tool varies between consumer and business markets.
Consumers-goods companies usually put more of their funds into advertising, followed by sales
   Professional Diploma in Sales and Marketing Management                                        26
promotion, personal selling and then public relations. Advertising is relatively more important in
consumer markets because there are a larger number of buyers, purchase tend to be routine, and
emotions play a more important role in the purchase-decision process.

Module 12 Promotional Practice Management                                       2 Pubic Relations
Techniques

In contrast, industrial-goods companies put most of their funds into personal selling, followed by
sales promotion, advertising and public relations. In general, personal selling is used more heavily
with expensive and risky purchases, and in markets with fewer and larger sellers.
Although advertising is less important than sales calls in business markets, it still plays and
important role. Advertising can build product awareness and knowledge, develop sales leads and
reassure buyers. Similarly, personal selling can add a lot to consumer goods marketing efforts. It
is simply not the case that „salespeople put products on shelves and advertising takes them off.
Well-trained consumer salespeople can sign up more dealers to carry a particular brand, convince
them to give more shelf space and urge them to use special displays and promotions.

Buyer-Readiness Stage
The effects of the promotional tools vary for the different buyer-readiness stages. Advertising,
along with public relations, plays the leading role in the awareness and knowledge stages, more
important than that played by „cold calls‟ from salespeople. Customer liking, preference and
conviction are more affected by personal selling, which is closely followed by advertising.
Finally, closing the sale is mostly done with sales calls and sales promotion. Clearly, advertising
and public relations are the most cost-effective at the early stages of the buyer decision process,
while personal selling, given its high costs, should focus on the later stages of the customer
buying process.

Product Life-Cycle Stage
The effects of different promotion tools also vary with stages of the product life-cycle. In the
introduction stage, advertising and public relations are good for producing high awareness, and
sales promotion is useful in getting early trial. Personal selling efforts must be geared to
persuading the trade to carry the product. In the growth stage, advertising and public relation
continue to be powerful influences, whereas sales promotion can be reduced because fewer
incentives are needed. In the mature stage, sales promotion again becomes important relatives to
advertising. Buyers know the brands and advertising is needed only to remind them of the
product. In the decline stage, advertising is kept at a reminder level, public relations is dropped
and salespeople give the product only a little attention. Sales promotion however, might continue
strong in order to stimulate trade and prop up sales.

Integrated the Promotion Mix
Having set the promotion budget and mix, the company must now take steps to see that all of the
promotion mix elements are smoothly integrated. Here is a checklist for integrating the firm‟s
marketing communications.

  Analyse trends – internal and external – that can affect your company’s ability to do
   businesses. Look for areas here communications can help the most. Determine the strengths
   and weaknesses of each communications functions. Develop a combination of promotional
   tactics based on these strengths and weaknesses.
  Audit the pockets of communications spending throughout the organization. Item the
   communications budgets and tasks and consolidate these into a single budgeting process.
   Professional Diploma in Sales and Marketing Management                                        27
   Reassess all communications expenditures by product, promotional tool, stage of the life
   cycle, and observed effect.
Identify all contact point for the company and its brands. Work to ensure that communications
at each point are consistent with your overall communications strategy and
Module 12 Promotional Practice Management                                   2 Pubic Relations
Techniques
  that your communications efforts are occurring when, where and how your customers want
   them.
  Team up in communications planning. Engage all communications functions in joint
   planning. Include customers, suppliers and other stakeholders at a every stage of
   communications planning.
  Create compatible themes, tones and quality across all communications media. Make sure
   each element carries your unique primary messages and selling point. This consistency
   achieves greater impact and prevents the unnecessary duplication of work across functions.
  Create performance measures that are shared by all communications elements. Develop
   systems o evaluate the combined impact of all communications activities.
  Appoint a director responsible of the company’s persuasive communications efforts. This
   move encourages efficiency by centralizing planning and creating shared performance
   measures.
Socially Responsible Marketing Communication
In shaping its promotion mix, a company must be aware of the large body of legal and ethical
issues surrounding marketing communications. Most marketers work hard to communicate
openly and honestly with consumers and resellers. Still, abuses may occur and public policy
makers have developed a substantial body of law and regulations to govern advertising, personal
selling sales promotion and direct marketing activities.

Advertising and Sales Promotion
By law, companies must avoid false or deceptive advertising. Advertisers must not make false
claims, such as suggesting that a product cures something when it des not. They must avoid ads
that have the capacity to deceive, even though no one may actually be deceived. A car cannot be
advertised as getting 45 km per gallon unless it does so under typical conditions, and a diet bread
cannot be advertised as having fewer calories simply because its slices are thinner.
Sellers must avoid bait-and-switch advertising or deceptive sales promotions that attract buyers
under false pretences. For example, a large retailer advertised a dishwashing machine at $250.
However, when consumers tried to buy the advertised machine, the seller downplayed its features,
placed faulty machines on showroom floors, understated the machine‟s performance and took
other actions in an attempt to switch buyers to a more expensive machine. Such actions are both
unethical and illegal.
International advertisers must also observe local rules. For example, in the United States, direct-
to-consumer advertising is allowed for prescriptions drugs. Pharmaceutical firm Eli Lilly uses
magazine advertisement to boost public awareness of its &2.4 billion per year anti-depressant,
Prozac. Heavy consumer promotion pushed up sales of cholesterol-lowering drugs, such as
Bristol-Myers Squibb‟s Pravachol, Warner-Lambert‟s Lipitor and Merck‟s Zocor. By contrast, in
Europe, such advertisements are illegal. Prescription drugs can be promoted only in the medical
journals and other publications where qualified physicians are presumed to browse.

   Professional Diploma in Sales and Marketing Management                                       28
A company‟s trade promotion activities are also closely regulated. For example, in some
countries, sellers cannot favor certain customers through their use of trade promotions. They must
make promotional allowances and services available to all resellers o proportionately equal terms.
Beyond simply avoiding legal pitfalls, such as deceptive or bait-and-switch advertising,
companies can invest in communications to encourage and promote socially responsible
 Module 12 Promotional Practice Management                                  2 Pubic Relations
Techniques

Programmer and actions. For example, earth-moving equipment manufacturer Caterpillar is
one of several companies and environmental groups forming the tropical forest foundation,
which is working to save the great Amazon rainforest. It uses advertisings to promote the
cause and its involvement. The Financial Times has run several FT Lunch/evening meal
promotions, in conjunction with participating restaurants in the UK, to raise money for the
charity save the children.

Personal Selling
A company‟s salespeople must follow the rules of „fair competition‟. Some countries have
extracted deceptive sales acts that spell out what is not allowed. For example, salespeople
may not lie to consumers or mislead them about the advantages of buying a product. To
avoid bait-and-switch practices, salespeople‟s statements must match advertising claims.
In business-to-business selling, salespeople may not offer bribes to purchasing agents or to
others who can influence a sale. They may not offer bribes t purchasing agents or to others
who can influence a sale. They may not obtain or use technical or trade secrets of
competitors through bribery or industrial espionage. And salespeople must not disparage
competitors or competing products by suggesting things that are not true.
No doubt, the laws governing sales and marketing practices differ across countries. Thus,
international marketers must be fully aware of the laws and regulations governing sales and
marketing communications practices, and how they differ across the countries in which they
operate, when designing cross-border communications programmer. Beyond understanding
and abiding by these laws and regulations, companies should ensure that they communicate
honestly and fairly with consumers and resellers.

Public Relations
Definitions
The Institute of Public relations has defined Public relations (PR) as the planned and sustained
effort to establish and maintain goodwill and mutual understanding between an organization and
its publics.
The public relations Consultants Association (PRCA) says that:
„Public relations is the name given to the managed process of communication between one group
and another. In its purest form it has nothing to do with marketing, advertising or
“commercialism”. It will, however, often promote one group‟s endeavors to persuade another
group to its point of view and it will use a number of different methods, other than (although often
alongside) advertising to achieve this aim.

The Scope of PR
The scope of public relations activity is very broad.
  Government – national, local, international
  Business and industry – small, medium, large
  Community and social affairs

   Professional Diploma in Sales and Marketing Management                                        29
 Educational institutions, universities, colleges
 Hospitals and health care
 Charities and good causes
 International affairs




 Professional Diploma in Sales and Marketing Management   30
Module 12 Promotional Practice Management                                          2 Pubic Relations
Techniques

Whilst the specific practice of the discipline of public relations will vary from sphere to sphere
(and indeed, from organization to organization) there are numerous separate types of activities
that the PR practitioner may carry out some time.
   Counseling based on an understanding of human behaviours
   Analyzing future trends and predicting their consequences
   Research into public opinion, attitudes and expectations and advising on action
   Establishing and maintaining two-way communication
   Preventing conflict and misunderstandings
   Promotion mutual respect and social responsibility
   Harmonizing the private and public interest
   Promoting goodwill with staff, suppliers and customers
   Improving industrial relations
   Attracting good personnel and reducing labour turnover
   Promoting products and services
   Projecting a corporate identity
From this list of activities it can be seen that the scope of public relations activity, if implemented
effectively, should embrace the whole organization. A number of criteria have been put forward
in an attempt to define what constitutes „excellent‟ public relations within an organization.
   Programmes should be managed strategically
   There should be a single integrated public relations department
   Public relations managers should report directly to senior management
   Public relations should be a separate function from marketing
   The senior public relations person should be at board level
   Communication should adhere to the „two-way symmetrical model‟

Four Models of PR
This last factor relates to the way in which public relations is practiced. Given the diversity of the
role of PR as emphasized above, it is logical to consider different ways in which PR could be
practiced. A framework for considering this has been propounded by Grunig and Hunt (1983),
who suggest that there are four models of public relations practice. Each model will be
considered in turn.

Press Agency/Publicity
The role of PR is primarily one of propaganda, spreading the faith of the organizations, often
through incomplete, half-true or distorted information. Communication is one-way, form the
organization to its publics: essentially telling the publics the information the organization wants
them to hear.

Public Information
In this model the role of PR is the dissemination of information not necessarily with a persuasive
intent. As Grunig and Hunt state,‟ the public relations person functions essentially as a journalist
in residence, whose job it is to report objectively information about his organization to the public‟.

Two-way Asymmetric
Gluing and Hunt describe the main function of the two-way asymmetric model as scientific
persuasion, using social science theory and research about attitudes and behaviour to persuade

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public to accept the organization‟s point of view and to behave in a way that support the
organisation. The aim is to achieve the maximum change in attitudes and behaviour.
Module 12 Promotional Practice Management                                    2 Pubic Relations
Techniques

Two-way Symmetric
In the two-way symmetric model the PR practitioner serves as a mediator between the
organisation and its publics with the aim of facilitating mutual understanding between the two. If
persuasion occurs it is likely to persuade the organization‟s management to change its attitudes, as
it is to persuade the publics to change theirs.
Public relations is, therefore, the management of an organization‟s reputation with its publics and
this management involves a close consideration of the relationships involved. The organisation
can be either reactive or proactive in its management of these relationships.
 1. Reactive PR is primarily concerned with the communication of what has happened and
    responding to factors affecting the organisation. It is primarily defensive, with little or not
    responsibility for influencing policies.
2. In contrast, proactive public relations practitioners have a much wider role and thus have a far
   greater influence on overall organizational strategy.
Inevitably some techniques will be more appropriate in certain circumstances with certain types of
publics than others. It is possible, therefore to classify the different types of techniques or media
according to the type of project areas in which they appear to be most effective. The most
frequently used techniques are as follows.

a. Consumer marketing support area techniques
   Consumer and trade press releases
   Product/service literature
   Promotional videos
   Special events (in-store competitions, celebrity store openings
   Consumer exhibitions
   In-house magazines for sales staff, customers and/or trade
   Sales force/distributor incentive schemes
   Sport, and to a lesser extent, arts sponsorships

b. Business-to-business communication area techniques
   Corporate identity design
   Corporate advertising
   Trade and general press relations, possibly on a national or international basis
   Corporate and product videos
   Direct mailings
   Sports and arts sponsorships
   Trade exhibitions
 c . Internal/employee communications area techniques
  In-house magazines and employee newsletters
  Employee relations videos
  Formal employee communication networks and channels for feedback
  Recruitment exhibitions/conferences
  Speech writing for executives
  Company notice boards
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  Briefing meetings


Module 12 Promotional Practice Management                                      2 Pubic Relations
Techniques

d. Corporate, External and Public Affairs Area Techniques
  Corporate literature
  Corporate social responsibility programmes, community involvement
  Trade, local, national and possibly international media relations
  Issues tracking
  Management counseling
  Local or central government lobbying
  Industrial lobbying
  Facility/visits
  Local/national sponsorships

 e. Financial Public Relations area Techniques
   Financial media relations on both a national and international basis
   Design of annul and interim reports
   Facility visits for analysts, brokers, fund managers, etc
   Organizing shareholder meetings
   Shareholder tracking research
While this is not a comprehensive list it does give an indication of the many types of PR
techniques that can be used in various circumstances and how certain techniques will re-occur in
various settings. A Media relation, for example, is used in virtually all areas of activity.

Direct Marketing
The aims of direct marketing are to acquire and retain customers. Here are two further
definitions. The Institute of direct Marketing in the UK defines direct marketing as „the planned
recording, analysis and tracking of customer behaviour to develop relational marketing strategies.
The Direct Marketing Association in the US defines direct marketing as „An interactive system f
marketing which uses one or more advertising media to effect a measurable response and/or
transaction at any location‟. It is worth studying these definitions and noting some key words and
phrases.




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Module 12 Promotional Practice Management                                      2 Pubic Relations
Techniques

Table 1. Key word and Phrases
                                               Comment
  Response                                     Direct marketing is about getting people to
                                               send in coupons, or make telephone calls in
                                               response to invitations ands offers.
  Interactive                                  It is a two-way process, involving the
                                               supplier and the customer.

  Relationship                                 It is in many instances an on-going process
                                               of selling again and again to the same
                                               customer.
  Recording and analysis                       Response data are collected and analyzed
                                               so that the most cost-effective procedures
                                               may be arrived at. Direct marketing has
                                               been called „marketing with numbers‟. It
                                               aims to take the waste out of marketing.
  Strategy                                     Direct marketing should not seen merely as
                                               a „quick fix; a „one-off mailing‟, a
                                               promotional device. It should be seen as a
                                               part of a comprehensive plan stemming
                                               form clearly formulated objectives.

Direct marketing helps create and develop direct relationships between you and each or your
prospects, between the consumer and the company on an individual basis. It is a form of direct
supply, embracing both a variety of alternative media channels (like direct mail), and a choice of
distribution channels (like mail order). Because direct marketing removes all channels
intermediaries apart from the advertising medium and the delivery medium, there are no resellers,
therefore avoiding loss of control an loss or revenue.

Components of Direct Marketing
Direct marketing encompasses a wide range of media and distribution opportunities.
  Television
  Radio
  Direct mail
  Direct response advertising
  Telemarketing
  Statement stuffers
  Inserts
  Take-ones
  Electronic media
  Door to door
  Mail order
  Computerized home shopping
  Home shopping networks




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In developing a comprehensive direct marketing strategy, organizations will often utilize a range
of different yet complementary techniques. Direct mail tends to be the main medium of direct
response advertising. It has become the synonym for it.
Module 12 Promotional Practice Management                                     2 Pubic Relations
Techniques

The reason for this is that other major media, newspapers and magazines, are familiar to people in
advertising in other contexts. Newspapers ads can include coupons to fill out and return, and
radio and TV can give a phone number to ring (DRTV is now very common). However, direct
mail has a number of strengths as a direct response medium.
a. The advertiser can target down to individual level.
b. The communication can be personalized. Known data about the individual can be used, while
   modern printing techniques mean that parts of a letter can be altered to accommodate this.
c. The medium is good for reinforcing interest stimulated by other media such as TV. It can
   supply the response mechanism (a coupon), which is not yet available in that medium.
d. The opportunity to use different creative formats is almost unlimited.
e. Testing potential is sophisticated: a limited number of items can be sent out to a „test‟ cell and
    the results can be evaluated. As success is achieved, soothe mailing campaign can be rolled
    out.
The cornerstone upon which the direct mailing is based, however, is the mailing list. It is far and
away the most important element in the list of variables, which also include the offer, timing and
creative content. A database is a collection of available information on past an current customer
together with future prospects, structured to allow for the implementation of effective marketing
strategies. Database marketing is a customer-oriented approach to marketing, and its special
power lies in the techniques its uses to harshness the capabilities of computer and
telecommunications technology. Building accurate and up-to-date profiles of existing customers
enables the company to:
   Extend help to a company‟s target audience
   Stimulate further demand
   Stay close to them. Recording and keeping an electronic database memory of customers and
    prospects and of all communications and commercial contacts helps to improve all future
    contacts.
Telemarketing is the planned and controlled use of the telephone for sales and marketing
opportunities. Unlike all other forms of direct marketing it allows for immediate two-way
communication.

Telemarketing as an co-ordinated marketing activity
Role of telemarketing
a. Building, maintaining, cleaning and updating database. The telephone allows for accurate
    data gathering by compiling relevant information on customers and prospects, and selecting
    appropriate target groups for specific product offerings.
b. Market evaluation and test marketing. Almost any feature of a market can be measured and
    tested by telephone. Feedback is immediate so response can be targeted quickly to exploit
    market knowledge.
c. Dealer support. Leads can be passed on to the nearest dealer who is provided with full
    details.
d. Traffic generation. The telephone, combined with postal invitations, is the most cost effective
    way of screening leads and encouraging attendance at promotional events.

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e. Direct sales and account servicing.         The telephone can be used at all stages of the
    relationship with the prospects and customers. This includes lead generation, establishing
    buying potential for appropriate follow-up and defining the decision-making process.
f. Customer care and loyalty building. Every telephone contact opportunity can demonstrate to
    customer that they are valued.
Module 12 Promotional Practice Management                                      2 Pubic Relations
Techniques

g. Crisis management. If, for example, there is a consumer scare, immediate action is essential
    to minimize commercial damage. A dedicated hotline number can be advertised to provide
    information and advice.




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Module 12 Promotional practice Management               3 The Nature of Products components &
Life

 3 The Nature of Products Components and Life Cycles
Product Line and Product Mix
Since product policy decisions have to be taken by a seller at three different levels of product
combinations, we have distinguish between a product item, the product line and the product mix
Product Item. A specific item given a separate name in the company‟s list of product; e.g. ceiling
fan.
Product Line. A group of products that are closely related either because they satisfy a class of
need, are used together, are sold to the same consumer groups, are marketed through the same
types of outlets or fall within given price ranges e.g. ceiling fans of different shapes and sizes.
Product Mix. The composite of products offered for sale by a firm or business unit e.g. all the
products sold by that company ceiling fans, electric heaters, cookers, table lamps, etc.
A Indian example may be given here an Usha fan is a product item; different shapes and sizes of
Usha fans are a product line; fans, sewing machines and other items are the product mix of the
company.
Product mix can be explained in another way also. The width of the product mix refers to the
number of product lines of a firm.
The depth of the product mix refers to the number of items in each product line. The consistency
of the product mix means how closely related the various product lines are in end use, production
requirements, and distribution channels or in some other way. In the product mix electric goods
manufacturing companies like Philips, Bajaj, etc, we find some consistency as most of their
product involve the use of electricity in one way or the other. On the hand, Hindustan Lever
produce, Dalda, soap, dehydrated peas, gulab jamum mix, hair shampoo, tooth paste, etc.
Every company has to decide about the width, depth, and consistency of its product mix and there
can be many options before the management. But the decision about the company‟s product
strategy is influenced by the long-term objective of the company, particularly in regard to:
1. Profits
2. Sales stability, and
3. Sales growth
Profits. Not all the products of a company account for a high proportion of its profits. Even the
profit contributions of individual products are not reflected by their sales. High volume products,
which have a higher replacement rate give a low gross margin, return. Generally, only a few
products out of the total product mix company give a high proportion to its profits. Thus, the
profits of a company also depend to a certain extent upon its product mix.
Sales Stability. Sales stability of a product is also an important factor in deciding, whether a
product should or should not be a part of the product mix of a company. If the sales of a product
are variable and not steady or stable throughout the year, then the company has to block
investment in facilities and inventories. It means higher costs, while there are products whose
sales are stable throughout the year and no investment is blocked in facilities and inventories.
Therefore changes in product mix are likely to affect the stability of sales revenue.
Example Manchor Trading Company‟s product mix consists of six items in two product lines. For
the last five years, the sales of all the products have been highly been highly variable. The

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management is reviewing the product mix and is interested in adding new items to the product
mix to achieve stable sales in the future.
Module 12 Promotional practice Management           3 The Nature of Products components &
Life

Table 2: Product mix of Manohar Trading Company
Product items                              Sales stability estimates
Product A                                  Expected to show highly stable sales
Product B                                  Expected to show the same amount of
                                           variability of sales as shown by the existing
                                           products of the company
Product C                                  Expected to show a high positive correlation
                                           with present sales
Product D                                  Expected to show a negative correlation with
                                           present total sales.

In the problem referred above, the product D showing a negative correlation with the present sales
trend, if included in the product mix of the company, would produce a new pattern of total sales
that would be perfectly stable. Therefore, the objective of sale stability is an important factor
which helps in decision regarding additions or deletions to the product mix of company.
Sales Growth. An important objective of many companies is to achieve higher sales targets. The
growth of sales, in turn, depends on the types of products and the stages of their life cycle in the
product mix of the company. According to peter Drucker, the product mix of a company may
reveal the potentialities of its sales growth through the proportions of its products in each of the
following six categories:
1. Tomorrow’s breadwinners. New products of today‟s breadwinners modified and improved.
2. Today’s breadwinners. The innovations of yesterday.
3. Product capable of becoming net contributions if something drastic is done. Products not
    giving profit today but drastic change would give profit.
4. Yesterday’s breadwinners. Typically products with high volume, but badly fragmented into
   special „small orders‟ and the like.
5. The ‘also rans’. Typically, the high hopes of yesterday that, while they did not work out well,
   nevertheless, did not become outright failures.
6. The failures. Future prospects of sales growth are not bright for companies whose product mix
   consists largely of „yesterday‟s breadwinners‟ and „also rans‟, even through its current sales
   level may be high. For the company that is committed to a high rate of growth, four basic
   product market strategies are available.
Thus, a sale growth objective can be implemented through a variety of product-market strategies.
The optimal product mix is described generally in relation to the company‟s objectives. A product
mix is optimal if no change in it would enhance the company‟s chances of achieving its
objectives. It can be more clearly explained by giving certain examples of company objectives.

Product Portfolio
A companies product may be classified according to their profit market share and expected
market growth. When market shares and market growth rates of each of the products of a
company are jointly considered, it becomes a basis of evaluation of product strategies or product
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portfolio analysis of a company many possible combinations can be examined. To illustrate the
strategy implications of product portfolio analysis an arbitrary classification of products into four
market share and market growth strategies is given in figure.
Module 12 Promotional practice Management                3 The Nature of Products components &
Life

Stars
Products that posses the characteristics of dominate market share and high growth rate. They learn
good profits but need substantial cash to increase the rate of growth. Strategies should be designed
to promote the existing market share of the company. Such strategies may be price reductions,
product improvement, new uses and applications of product etc.

Cash Cows
Under „cash cows‟ category are included those profit earning products which possess the
characteristics of low market growth high market share and they generate more cash than required
to maintain their market share. Strategies should be designed to maintain market dominance,
technological leadership and price leadership. Surplus cash generated may be utilised on research
and development.

Problem Childs
The „Problem childs‟ category products have the characteristics of fast market growth, low market
share. Low margin of profit, which creates heavy demand for cash. Strategies may be designed to
invest more to increase market share, acquire competitors and efforts should be made to move
such products towards „star‟ category. If it is not possible than money invested in product may be
divested to some other product.

Dogs
Products belonging to „Dog‟s category possess the characteristics of low market share and low
growth rate. They are generally in the maturity stage of product life cycle and therefore, they face
keen competition and less opportunity to grow. The strategies may be designed to concentrate on
specific market segments and minimize investments in such products.

Diversification and Simplification (or Elimination) of Product Line
The product mix can be said to be best for companies in generally or for companies in a particular
industry. There is certainly a reasonable or rational or optimal product mix for a company for
some time and certain considerations common to all the companies constitute the proper basis for
product decisions. In product line decisions, two processes are always evolving and they are
known as diversification and simplification of the line.

Product Diversification
When a new product is added to the product line of a company, it is called product diversification.
There can be many reasons for product diversification, such as:
a. To utilize more effectively the resources and facilities of the company.
b. To reduce vulnerability in cases where a company is faced with the danger of changes in the
   liking or living habits of customers or better competitive products or a slowly dying industry
   e.g. leather industry due to more plastic substituting leather products.
c. New opportunity, because of research and innovations or marketing opportunities, and
d. In the case of marketing of industrial products to meet the request to meet the request of
   customers.



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The sellers can avail of many advantages byproduct diversification e.g. better utilization of capital
and facilities better utilisation of channels of distribution, sales force and sales promotional
means. Thus, there are many advantages of product diversification.
According to Phelps and Westings, „diversification‟ has been one of the most pronounced
tendencies in American industry during the past decade.
Module 12 Promotional practice Management               3 The Nature of Products components &
Life

There is enormous scope for product diversification by big public and private sector industrial
units in India. Most of the big industrial units in the country are not utilizing their full production
capacity due to lack of demand or non-availability of raw materials or certain other reasons. This
idle production capacity can be fruitfully utilised in producing new products in these plants.
Diversification of product line can be done through offering a variety of the same products to suit
the needs and purchasing power of different types of customers.
Trading up A company ads a higher a higher priced, better quality of the product to suit the needs
of rich customers.
In India many companies producing hair oil, talcum power, toothpaste, vegetable Ghee, polish,
etc offer trading up and trading down varieties in the market.

Branding
One of the concepts, which lift products from the core and expected levels to the augmented and
potentials levels, is branding. Branding is nothing new and we are all familiar with brands.

What is Brand?
Brands are nothing new. Centuries ago, men would mark their possessions to prevent them from
being stolen and to help them to identify which was theirs. An obvious example is the branding of
cows and sheep and other livestock. Later, branding came to be associated with companies, which
wanted to reassure customers that they were buying, was the genuine article. (See the table below)
Table 3: The world’s biggest brands, 2002
Brand                          Sector                                 Approximate value (£bn)
Coca-Cola                      Soft drinks                            42
Microsoft                      Computers                              39
IBM                            Computers                              31
General Electric               Electrical appliances                  25
Intel                          Telecoms                               18
Nokia                          Entertainments                         18
Disney                         Fast food                              17
McDonald‟s                     Tobacco                                16
Marlboro                       Automotive                             14
Mercedes Benz                  Automotive                             13
Ford                           Automotive                             12
Toyota                         Banking                                12
Citibank                       Computers                              11
Hewlett Packard                Computers                              10
American Express               Finance                                10




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The world‟s very first commercial brand was the red triangle used by Bass to identify their beer.
Inn the days before consumer protection laws, customers had no way of knowing what they were
buying. Beer was often watered down or produced in unsafe conditions.


Module 12 Promotional practice Management                3 The Nature of Products components &
Life

Bass introduced the red triangle on to their bottles to tell customers that this was a beer of
consistent and genuine good quality. After a while, publicans started to display the red triangle on
their pub signs to show customers that they could rely on genuine good Bass being served on
those premises.

Why is Branding Important Today?
Nowadays, most products are produced under a brand name for the same reasons so that
customers can distinguish one product form another and can form expectations around a particular
brand.

Low Involvement Products
Some products will be of relatively low importance to customers in terms of risk or personal
involvement with the product. Typically this would include things like the groceries we buy in a
supermarket each week (these types of goods are known as FMCG Fast-Moving Consumers
Goods.) often the customer is faced with a bewildering choice and, as there is little risk associated
with the purchase, may be tempted to try out different products each week.
Under these circumstances manufacturers do their best to make their product stand out from the
others and often use the attraction of special offers, free gifts and so on entice the customer. The
overall goal of an organisation developing a product in this area is to win customers and then
them. Customer loyalty is therefore an important objective for the producers o f low involvement
products.

High Involvement Products
Other products will mean more to the customer because their purchase entails an element of risk
(e.g. buying a car). In these situations the customer can feel vulnerable and therefore needs to be


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able to trust the product. The challenge for an organisation here is how to build in an element of
trust.
Another reason why a product might be classed as „high involvement‟ is when customers adopt
them as part of their lifestyle. In this case they shift from a purely functional level to an emotional
level. Products which fall into this which it can include things like cigarettes, clothes, drinks and
cars in fact anything which it can be said says something about its user or owner. The organisation
developing a product in this area therefore has to do more than just make sure that the product
fulfills its core function it has to imbue some sort of personality into the product, to which the
customer can relate.
Branding is a tool which can be used in all of these situations, as it helps create loyalty and trust
and provides the product or service with a „personality‟.

Differentiating Products Through Branding
We have already seen that in customers‟ eyes, many products are very similar and will fulfill the
same basic functions. This does not apply to fast moving consumer goods. Even products like cars
can be indistinguishable from each other. Branding is a way for manufacturers to separate their
products from those of competitors. This is called differentiation. Imagine things like colas or
chocolate bars. Take way their packaging and how many of us would honestly be able to tell the
difference between them? When cars have been presented to members of the public without their
badges, many have been mistaken for much more prestigious marques. Skoda makes a big play on
this in their advertising „honestly, it‟s a Skoda‟. In Skoda‟s case they are trying to play down what
has traditionally been a very poor brand image in the UK.

Module 12 Promotional practice Management                 3 The Nature of Products components &
Life

How Does a Brand Add Value?
At one time, two shops, Gulliver and Next, both sourced women‟s handbags from the same
factory in the Fat East. The bags were identical except that one had a lining and a clasp which
bore the name Gulliver and the other had a lining and a clasp which bore the name Next. The
Gulliver bag was priced at £11.99, whereas the Next bag sold for £22.99. Why the difference?
The simple fact was that most young women thought the at Next was amore attractive and
fashionable name. They were happy to carry a Next bag on a night out, where fashion mattered,
and they were thus willing to pay a higher price for the bag. Taken to its extreme, we can see that
top-branded handbags like Gucci or Hermes can sell for thousands of pounds. This is far above
their intrinsic value no matter how good the quality of the leather or the fittings on the handbag
are. What people are paying for is the name or brand. When this happens, a product is said to have
brand equity.
Brand equity is a very valuable thing for an organisation to posses. Not only does it mean that it
can charge more for its products, but it can often be transferred to new or different products t give
them instant appeal. Thus, when Mercedes Benz launch a new car, customers automatically know
what to expect (because they value the brand) and will often be willing to place orders for the car
even before the first one has rolled off the production line.
Sometimes companies can use a strong existing brand name to move into a different market. For
instance, Marlboro has launched a successful range of fashion clothing and accessories. This is
known as brand stretching. It is particularly common among famous fashion name like Pierre
Cardin or Ralph Lauren, whose move into new areas has given rise to the term „designer labels‟.



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In many case brands have become more valuable than the products they adorn. When BWM
bought the Rover group in 1995 for £80 million they were more interested in the famous brands
like Mini and Land Rover than the factories and the models that were in production at the time.
When BMW sold Rover in 2000, they kept the „Mini‟ brand and have since turned it into a hugely
successful product. A strong brand, which customers know, respect and even love, is often
therefore an integral part of a good product.

Developing Strong Brands
There is no slick formula developing a strong brand. Most good brands have developed over time.
Much of their success lies in how customers perceive them and the „personality‟, which customers
attach to them. When BMC launched the Mini in 1959, they had no idea that it would turn into the
phenomenon it did. It was the customers who took the little car to their hearts that made the
legend.
In order to develop an maintain strong brands an organisation must understand what the values of
the brand are and continue to communicate these as much as possible. This can entail advertising,
sponsorship, good public relations, associations with celebrities, etc. organisation can work hard
to position a brand where they want to see it (a bit like spin doctors who try to package and
present politicians in a certain way), but customers are canny, and it is they who will ultimately
decide the fate of a brand.
The owners of many successful brands go to great lengths to protect them. One of the biggest
threats is a counterfeit, which illegally trade on the success of a brand with a usually cheap and
inferior product (e.g. fake Rolex watches). Owners of expensive brands will also try to maintain
their exclusivity and cachet by controlling the way in which they are sold. Perfume brand Channel
wants its products to be sold in the correct surroundings and with dedicated sales staff.

Module 12 Promotional practice Management                  3 The Nature of Products components &
Life

It argues that selling at cut prices in a discount retail environment, such as Super drug, devalues
the brand in the eyes of the customer.

Own brands and Manufacturers’ Brands
This brings us neatly to another hotly contested issue surrounding products and branding. Many
shops have introduced their own brands. These can go under the shop‟s own name (e.g. Gap or
Next) or a different name (e.g. Matsui at Dixon, or Jonelle at John Lewis).
Controversy has arisen over manufacturers‟ brands, when manufacturers like similar packaging or
brand names. There have been many court cases (e.g. Coca-Cola versus Simsbury‟s Classic Cola
and McVities Penguin bars versus Asda‟s Puffin bars.
However shops, own brands have been very successful in the UK they account for over 40% of
grocery purchases. One of the reasons for this is that groceries fall different things. This has led to
something of a crisis for many manufacturers.

Brand Decisions
In the matter of branding, a manufacturer has a number of options. he may opt for any of the of
the following:
   To adopt a family brand name for all his products
   To adopt individual brand names for each individual product
   To adopt multiple brand names for the same product with a view to catering to varying
    segments of the markets
   Professional Diploma in Sales and Marketing Management                                           43
  To offer his product for branding by a middleman or a distribution house

The decision is not easy, because all the alternatives have merits and demerits.

Family Brand
In this case, different products of the company are marketed under one brand name. Amul is an
example of family brand. Amul is the common brand name for the company‟s milk powder, butter
and milk chocolates. Similarly, Maharaja is the family brand name for a host of products like
mixer-grinder, electronic irons, juicers, toasters and washing machines of the company.
It is convenient to adopt a family brand, for related products. Promotion of such products becomes
easier and less expensive under a family brand. But the marketer in such cases, has to ensure that
all the products offered under the family brand maintain the same standards of quality. If one
product in the group becomes a low quality product, it will affect the entire range of products
covered under the family brand. I other words, in family branding there is a composite
responsibility among the various products coming under the brand.
A major benefit in giving family brand name is that advertising and promotion effort can be
combined for all the products falling under the family brand; the advertising budget can be
stretched over several products. For examples, Johnson and Johnson, with a side product range in
the baby care segment, advertises the different products under the Johnson family brand for a few
months at a time, thus ensuring high recall value for all products. Another advantage is that under
family branding, the new product launching job becomes easier and cheaper. New products would
enjoy a ready recognition and a market set up. Retailer too would find it easier to push new
products under an existing brand.



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Corporate Brand
In certain cases the company name itself is used as a family brand name under which varied
products of the company are marketed. Companies like Godrej, Philips and Cadbury‟s have sued
the sheer brand power of their company name in branding their products. A variety of products
like office equipments, refrigerators and cupboards manufactured by Godrej go under the Godrej
brand name. Godrej, at a point of time, even examined the possibility of changing the brand name
for a few of their products, but later decided against it; the company found that over the years, the
name has come to act as a quality assurance for the consumers. Similarly, Johnson & Johnson‟s
Bay Powder, Johnson‟s Baby Shampoo, etc.
Corporate branding is resorted to only when the company is confident that lending the company
name to its products gives a better identity for the products. And once the corporate brand name
established, it facilities easier establishment of new products.

Individual Brands
Here, each product of the company is given an independent brand name. Hindustan Lever for
example, uses different names for its various products. When an individual brand gets promoted
separately and moves by itself. The marketer‟s promotional expenditure tends to be high when
individual brand promotion has to be done. Still, many companies follow individual branding, as
they want the benefits associated with having a variety of brands.


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Multiple Brand
Under multiple branding, the same product is offered under different brand names. For example,
the same refrigerator is sold under three brand names Kelvinator, Gem and Leonard. This is
intended to achieve a greater degree of market penetration. Though the product is the same,
different sales appeals are built around the different brands thus brands, thus maximizing the total
sale of the product.

Middleman’s Brand
Sometimes certain manufacturers give away their products for middleman‟s branding. Normally,
this happens only in the case of small sized manufactures who do not possess the financial and
management resources to do marketing and promotional work on their own. There are many small
scale producers of products like bulbs, fans, soaps, detergent, etc. who leave their production for
branding and marketing by bigger companies/distribution houses. Spencer‟s Soda is a
middleman‟s brand. Big business houses capable of undertaking all marketing functions do not
normally allow middleman‟s branding for their products. They are prepared to bear the
responsibility of owning and promoting the brand; naturally, they earn the business reward that
are inherent in them.

Brand Extension
Companies resort to brand extension for greater coverage. Brand extension is the practice of
extending an existing brand name across a range of products. It helps lever up the existing brand
names to new heights in the product line. For example, when Tru Tone was launched by J K
Helene Curtis, it quickly emerged as a successful hair dye. The USP of Tru Tone was its
availability in gel form, which enabled easy application. Later, the sales plateaued. The company
decided to introduce brand extension to maintain its market share. To the existing Tru Tone in gel
form the company added Tru Tone cream for travel time convenience, Tru Tone stick for quick
touch ups, Tru Tone liquid and Tru Tone powder. Similarly, Helene Curtis‟ Suave brand, initially
used only on hair care products, was subsequently extended to cover a new line of facial care
products.
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Brand Rejuvenation
Brand rejuvenation is an integral part of product management. It involves adding value to an
existing brand through improving the product, and its overall appeal. It is intended to refocus the
attention of consumers on the ongoing brand. Brand rejuvenation helps overcome the consumer‟s
boredom in seeing the same product the shelves year after year. The consumer‟s psychological
desire for change is a key factor that prompts companies to resort to brand rejuvenation. But for
brand rejuvenation to succeed one ought to infuse some strong points in the relaunched product;
merely calling a product „new‟ may not yield much benefit.
Cadbury‟s. Procter & Gamble (P & G) and Hindustan Lever are examples of companies who
believe in giving their products the occasional face-lift through brand rejuvenation. They have a
strong R & D base and are constantly striving to improve their existing brands. For instance, to
give a new push to Bournivita, Cadbury‟s came with New Bournvita, with extra Glucose, in new
packing. The Cadbury‟s 5-Star bar received a fillip through the new creamier and smoother
version.
Horlicks was relaunched as the New Horlicks in an attractive new jar. The New Horlicks claimed
more nourishment through additional protein and calcium, eight essential vitamins and iron
nutrients. The relaunch, an attempt to further reinforce the Horlicks positioning AS THE „best
family nourisher‟ was supported with an extensive ad campaign.

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Corn products re-introduced Rex jam with pieces of fruit it and packed them in new bottles.
Nestle gave rejuvenation to Nescafe; the New Nescafe was made using the new agglomeration
coffee process. A hundred year old Lifebuoy came as „new Lifebuoy‟ in a new 75 gm „rural
pack‟.
Close-up provides another instance of successful brand rejuvenation. Though it was launched in
the mid-seventies in the red gel form, it was the relaunch in 1989 in the green and blue variants
along with the extensive product sampling conducted by HLL that catapulted Close-up to the No.
2 position in the toothpaste market.

Brand Building the Example of Lifebuoy, the 100 Year Old Brand
Nurturing a brand into a strong, profitable brand I a challenging task. it is worth examining the
case of Lifebuoy which provides an instance of success brand building. Lifebuoy is probably the
oldest toilet soap available today. Form its small beginnings in England in 1894, lifebuoy has
come a long way to become one of the most poplar and largest selling soaps in the world. In the
Indian market, lifebuoy has been enjoying a place of prominence ever since it was introduced in
its red tablet form in 1895. From a sale of 200 tones, Hindustan Lever now sells 1.25 lakh tones of
lifebuoy, which accounts for 39 per cent of the total 3.20 lakh tones toilet soap market of India.
When lifebuoy was introduced in the Indian market 100 years ago, its positioning was clear.
Lifebuoy was the soap that would destroy germs and keep the body healthy. To quote Hindustan
Lever “it was he clean, honest hardworking brand with no frills”. Though the properties were
clear, the brand found the going tough especially in rural markets where the concept of using
toilet soap was alien. Most rural people were accustomed to bathing with plain water. Therefore,
HLL decided to launch lifebuoy as soap for hand wash. After initial resistance, the brand began to
look up. By 1900, it had established itself as a good medium for hand wash. At this stage the
brand‟s inherent properties were expanded and lifebuoy was repositioned as bath soap. “Where
there is lifebuoy, there is health, become a very popular jingle. In 1964, the brand was relunched
with a slight change in its shape and wrapper design. The relaunch was also backed by advertising
the health aspect.
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Rural promotions were intensified with mobile display cum sales vans. And during this period
lifebuoy started associating itself with sports events. This kind of sales promotion helped lifebuoy
to gain a more „macho image‟ and it was getting accepted as champion‟s soap.
By the seventies, competitors also entered the market; lifebuoy‟s supremacy was being
challenged, especially in the rural markets. Those were anxious years for HLL as the rural
markets were the brand‟s mainstay. The USPs in the soap market were also fast changing from
health care to deodorant based products. HLL defended lifebuoy from the challengers by
reinforcing the brand. KLL now launched lifebuoy personal a perfumed, pink coloured, 75 gm
soap. But the brand suffered because it did not carry the USPs of health and value for money.
HLL subsequently mended these drawbacks. In the eighties HLL made special attempts to make
lifebuoy more acceptable to urban consumers. To quote HLL, “lifebuoy was considered down
market especially in the urban areas. So, we had to instill a sense of pride in the user and not be
ashamed of using lifebuoy”. This thinking resulted in the lunch of lifebuoy plus which basically
was the old lifebuoy with a new perfume. Backed by high-powered advertising, HLL managed to
popularize lifebuoy plus. “With lifebuoy plus, we could widen the appeal to new urban
consumers.” By this time liquid lifebuoy also staged its entry to strengthen the brand‟s presence in
the urban market. In the rural markets lifebuoy continued its dominance; there was the old,
stubborn user in the rural areas who continued to patronize lifebuoy. Even today 60 per cent of

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lifebuoy sales are from rural areas. The brand remains the largest selling brand and a cash cow for
HLL.

Direct Marketing
Many of the marketing and promotion tools that we have examined in previous chapters were
developed in the next context of mass marketing: targeting broad markets with standardised
messages and offers distributed through intermediaries. Today, however, with the trend towards
more narrowly targeted or one to one marketing, many companies are adopting direct marketing,
either as a primary marketing approach or as a supplement to other approaches. Increasingly,
companies are using direct marketing to reach carefully targeted customers more efficient and to
build stronger, more personal, one to one relationships with them. In this section, we explore the
exploding world direct marketing.
Direct marketing consists of direct communications with carefully targeted individual customers
to obtain an immediate response and cultivate lasting customer relationships. Direct marketers
communicate directly with customers, often on a one to one, interactive basis. Using detailed
databases, they tailor their marketing offers and communications to the needs of narrowly defined
segments or even individual buyers. Beyond brand and image building, they usually seek direct,
immediate and measurable consumer responses. For example, Dell Computer interacts directly
with customers, by telephone or through its website, to design built to order systems that meet
customers‟ individual needs. Buyers order directly from Dell, who quickly and efficiently delivers
the new computers to their homes of offices.

The new Direct-Marketing Model
Early direct marketers catalogue companies, direct mailers and telemarketers gathered customer
names and sold their goods mainly through the post and by telephone. Today, fired by rapid
advances in database technologies and new marketing media especially the internet and other
electronic channels direct marketing has undergone a dramatic transformation. Direct marketing
can take the form of direct distribution as marketing channels that contain no intermediaries. We
have also included direct marketing as one element of the marketing communications mix as an
approach for communication use direct marketing as s supplementary channel or medium for
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marketing their goods. Thus, companies such as Nokia and Lexus market mostly through mass
media advertising and their dealer networks but also supplement these channels with direct
marketing. Their direct marketing includes promotional materials mailed directly to prospective
buyers and their web pages, which provide customers with information about various models,
financing (in the case of Lexus) and dealer locations. Similarly, many department stores and
banks sell the majority of their merchandise services off their „bricks and mortar‟ outlets s well as
directly through telemarketing and their websites.
However, for many companies today, direct marketing is more than just a supplementary channel
or medium. For these companies, direct marketing especially Internet marketing and e-commerce
constitutes a new and complete model for doing business. More than just another marketing
channel or advertising medium, this new direct model is rapidly changing the way companies
think about building relationships with customers.
Whereas most companies use direct marketing and the Internet as supplemental approaches, firms
employing the direct model use it as the only approach. Examples include Dell, online bookseller
Amazon.com, Coshopper.com, a Norwegian Internet shopping a company, Framfab, the Swedish
Internet consultancy, and Direct Line, the UK-based insurance company. Their direct model has
proved highly successful, not just for these companies, but for the fast-growing number of other
    Professional Diploma in Sales and Marketing Management                                    47
companies that employ it. Many strategists have dialed direct marketing as the new marketing
model of the next millennium. Whether used as a complete business model as a supplement to a
broader integrated marketing mix, direct marketing brings many benefits to both buyers and
sellers. As a result, direct marketing has grown very rapidly.

The Benefits of Direct Marketing
Direct marketing benefits buyers in many ways. First, it is convenient. Form the comfort of their
homes or offices, customers can browse mail catalogues or sellers‟ websites at any time of the day
or night. Buying is easy and private. Customers confront fewer buying hassles and do not have to
face salespeople or open themselves up to persuasion and emotional pitches. Business customers
can learn about available products and services without and services without waiting for and tying
up time with salespeople.
Direct marketing often gives shoppers greater product access and selection. For example, the
world‟s the limit for the web. Cyberstores such as Amazon, CNDNow and others can offer an
almost unlimited selection compared to the more meagre assortments of counterparts in the bricks
and mortar world. Beyond a broader selection of sellers and products, online and Internet
channels also give buyers access to a wealth of comparative information, information about
companies, products and competitors, at home and around the globe. Good websites often provide
more information in more useful forms than even the most solicitous salesclerk can. Amazon.com
and CDNow, for example offer best sellers lists and reviews.
Finally, direct marketing especially online buying is interactive and immediate. Customers can
often interact with the sellers by phone or on seller‟s website to create exactly the configuration of
information, products or services they desire, and then order them on the spot. Furthermore, the
Internet and other forms of direct marketing give customers a greater measure and sense of
control. For example, a rising proportion of car buyers „shop online‟, arming themselves with
information about car models and dealer cost before showing up at a dealership. Direct marketing
also yields many benefits to sellers. First, direct marketing is a powerful tool for customer
relationship building. Using database marketing, today‟s marketers can target small groups or
individual consumers, tailor offers to individual needs and promote these offer5s through
personalized communications.
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Direct marketing can also be teamed to reach prospects at just the right moment. For example,
Nestlé‟s baby food division maintains a database of new parents and mails them six personalized
packages of gifts and advice at key stages in the baby‟s life. And, because they reach more
interested consumers at the best times, direct marketing materials receive higher readership and
response. Direct marketing also permits easy testing of alternative media and messages.
Because of its one to one, interactive nature, the Internet is an especially potent direct marketing
tool. Direct marketing also gives sellers access to buyers that they could not reach though other
channels. For examples, the Internet provides access to global markets that might otherwise be out
of reach.
Finally, direct marketing can offer sellers a low cost, fast and efficient alternative for reaching
their markers. For example, direct marketing has grown rapidly in B2B marketing, partly in
responses to the ever-increasing costs of marketing through the sales force. When personal sales
calls cost several hundred euros per contact, they should be made only when necessary and to
high potential customers and prospects. Lower cost per contact media such as telemarketing,
direct mail and company websites often prove more cost effective in reaching and selling to more
prospects and customers.
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The Growth of Direct Marketing
As a result of these advantages to both buyers and sellers, direct marketing has become the fastest
growing form of marketing. Sales through traditional direct marketing channels (telephone
marketing, direct mail, catalogues, direct responses television, and others) have been growing
rapidly. During 1997-2002, the annual rate of growth in spending on conventional direct
marketing channels (e.g. direct mail) outstripped that for mass marketing channels such as
advertising. Total direct marketing expenditure in Europe as a whole grew form £31, 725 million
(at current prices) in 1997 to £46,330 million by 2002.

Customer Databases and Direct Marketing
Effective direct marketing begins with a good customer database. A customer database is an
organised collection of comprehensive data about individual customers or prospects, including
geographic, demographic psychographics and buying behaviour data. The database can be used to
locate good potential customers, tailor products and services to the special needs of targeted
consumers, and maintain long term customer relationships. Database marketing is the process of
building, maintaining and using databases and other databases (products, suppliers, resellers) of
the purpose of contacting and transacting with customers.
Although many companies are now building and using customer databases of targeting marketing
communications and selling efforts at the individual customer, data protection regulations in some
countries may slow down growth in database marketing practices. For example, usage in the
United States and United Kingdom is far more widespread, with data law being much more open
compared to the rest of Europe. But the international races is on to exploit database marketing and
few businesses can afford to ignore this important vehicle for competitive success. As Tom peters
comments in Thriving on Chaos. „a market has never bought things. Customers buy things. That‟s
why database marketing‟s ability to target the individual customer in the crowded marketplace is
so valuable.
Many companies confuse a customer mailing with a customer database. The former is simply a
set of names, addresses and telephone numbers. A customer database contains much more
information. Un business to business marketing, the salesperson‟s customer profile might contain
information such as the products and services that he customer has bought, past volumes and

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prices, key contacts (and their ages, birthdays, hobbies and favourite foods), competitive
suppliers, status of current contracts, estimated customer expenditures for the next few years, and
assessments of competitive strengths and weaknesses in selling and servicing the account. In
consumer marketing, the customer database might contain a customer‟s demographics (e.g.,
income, family members, birthdays), psychographics (activities, interest and opinions), buying
behaviour (past purchases, buying preference ) and other relevant information.
Companies must distinguish between transaction based and custom built marketing databases. An
accounts department for the purpose of sending invoices/bills out and getting money back puts in
transactional databases. By contrast, customer profitably and better than the competition can for
example, the most cost-effective way to reach target customers, the net worth of a transaction,
customer‟s requirements and lifetime values, lapsed customers and why they departed, why
competitors are making inroads and where. Armed with the information in their databases, these
companies can identify small groups of customers to receive fine-tuned marketing offers and
communications.

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Companies use their databases in many ways. They can use a database to identify prospects and
generate sales leads by advertising products or offers. Or they can the database to profile
customers based on previous purchasing and to decide which customers should receive particular
offers. Databases can help the company to deepen customer loyalty companies can build
customer‟s interest and enthusiasm by remembering buyer preferences and by sending appropriate
information, gifts, or other materials. The database can help a company make attractive offers of
product replacements, upgrades, or complementary products, just when customers might be ready
to act. Hence, a rich customer database allows the company to build profitable new business by
locating good prospects, anticipating customers needs, cross selling products and services and
rewarding loyal customers. But many companies are skeptical about the returns on investment in
databases. The recent growth in companies‟ customer databases has led to nothing more than
information overload, making it increasingly difficult to grab customers‟ attention.
Like many other marketing tools, database marketing requires a special investment. Companies
must invest in computer hardware, database software, analytical programme, communication links
and skilled personnel. The database system must be user friendly, fit for its intended purpose and
available to various marketing groups, including those in product and brand management, new
product development, advertising and promotion, direct mail, telemarketing, field sales, order
fulfillment and customer service. A well-managed database should lead to sales gains that will
more than cover its costs.

Forms of Direct Marketing
The major forms of direct marketing include personal selling, telephone marketing, direct mail
marketing, catalogue marketing, direct responses television (DRTV) marketing and online
shopping. Many of these techniques were first developed in the United States, but have become
increasingly popular in Europe. In the EU, some forms of direct marketing notably direct mail and
telemarketing are forecast to grow. In practice, however, the impact of a unified Europe has been
limited by the labybirth of legislation across the union which means that certain direct marketing
techniques are feasible in some countries but not others.

Telephone Marketing
Telephone marketing or telemarketing uses the telephone to sell directly to consumers. It has
become a major direct marketing tool. Marketers use outbound telephone marketing to generate
and qualify sales leads, and sell directly to consumers and businesses.
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Calls may also be for research, testing, database building or appointment making, as a follow up
to a previous contact, or as part of a motivation or customer care programme. Marketers used
inbound freephone numbers to receive orders from television and print ads, direct mail or
catalogues. Marketers also use inbound telephone calls to receive customer enquiries and
complaints.
In Europe, telemarketing is more established in the UK and Netherlands than in Germany, which
has the toughest telemarketing laws. For example, in Germany the consent of the prospects or
consumers is required before they can be contacted. If someone buys a shovel form a garden
centre in winter, even if they gave their name and telephone number, the centre cannot telephone
them in the spring with a special offer on bulbs because that would be illegal. Contrast the
situation in Holland, where for example, before and election, political parties are permitted to ring
voters to gain their support.
When properly designed and targeted, telemarketing provides many benefits, including
purchasing convenience and increased product and service product and service information.
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However, the recent explosion in unsolicited telephone marketing has annoyed many consumers
who object to „junk phone calls‟ that pull them away from the dinner table or clog up their
answering machines. Laws or self-regulatory measures have been introduced in different
countries in response to complaints from customers. At eh same time, some consumers may
appreciate the genuine and well presented offers they receive by telephone.

Direct Mail Marketing
Direct mail marketing involves sending an offer, announcement, reminder or other item to a
person at a particular address. Using highly selected mailings lists, direct marketers send out
millions of mail pieces each year letters, ads, brochure simples, video and audiotapes, CDs and
other „salesperson with wings‟. Direct mail expenditure per capita varies across the major EU
countries, but in general, direct mail spend per head is disproportionately higher than that spent on
telemarketing and, in a majority of cases, represents well over half of the total direct marketing
expenditure per capita (£79.9) exceeded that for direct mail (£61.0) in 2001.
Direct mail is well suited to direct, one on one communication. It permits target market
selectivity, can be personalized, is flexible and allows easy measurement of result. Whereas the
cost per 1,000 people reached is higher than with mass media such as television or magazines, the
people who are reached are much better prospects direct mail marketers target individuals
according to their personal suitability to receive particular offerings and promotions. Direct mail
has proved very successful in promotion all kinds of products, form books, magazines
subscriptions and insurance to gift items, clothing, gourmet foods, consumer packaged goods and
industrial products. Direct mail also used heavily by charities, such as Oxfam and Action Aid,
which rely on correspondence selling to persuade individual to donate tot heir charity.
The direct mail industry constantly seeks new methods and approaches. For examples, videotapes
and DCs, are now among the fastest growing direct mail media. Used in conjunction with the
Internet, CDs offer an affordable way to drive traffic to web pages personalised for a specific
market segment or a specific promotion. They can also be used to demonstrate computer related
products. For example, Sony sent out a CD that allowed PC users to demo its VAIO portable
notebook on their own computers.
Until recently, all direct mail was paper based and handled by postal and telegraphic services and
other mail carriers. Recently, however, fax mail, email and voice have become popular. These
new forms deliver direct mail at incredible speeds, compared to the may be resented as „junk
office‟s as „junk mail‟ if sent to people who have no interest in them. For this reason, direct
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marketers must carefully identify their targets to avoid wasting huge sums of money or the
recipient‟s time.
Catalogue Marketing
Catalogue shopping once started almost as explo9sively as the Internet, though few of us might
remember this. Cataloguers‟, sales pitch was remarkably similar too no need to struggle to the
store, vast choice, lower prices. Today, the growth in catalogue shopping has slowed but store
retailers, which see them as an additional medium for cultivating sales, increasingly use
catalogues. Most consumers enjoy receiving catalogues and will sometimes even pay to get them.
Many catalogue marketers are now even selling their catalogues at bookstores and magazines
stands. Many business-to-business marketers also relay heavily on catalogue.

Catalogue Marketing
Catalogue shopping once started almost as explosively as the internet, though few of us might
remember this. Cataloguers‟ sales pitch was remarkably similar too no need to struggle to the
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store, vast choice, lower prices. Today, the growth in catalogue shopping has slowed but store
retailers, which see them as an additional medium for cultivating sales, increasingly use
catalogues. Most consumers enjoy receiving catalogues and will sometimes even pay to get them.
Many catalogue marketers are now even selling their catalogues at bookstores and magazines
stands. Many business-to-business marketers also rely heavily on catalogues.
Rapid advances in technology, however, along with the move to personalized one to one
marketing, have resulted in dramatic changes in catalogue marketing. With the stampede. To the
Internet, more and more catalogues are going electronic. Many traditional print or mail order
catalogue firms have added web based catalogues to their marketing mixes and a variety of new,
web only cataloguers have emerged. For example, web based ales account for 10 per cent of the
turnover at Quelle, the German mail order company. Quelle expects half of the group‟s sales to
come via the net within the next five years. Other mail order companies such as 3 Suisses and La
Redoute in France, and Land‟s End anticipate at least 15 per cent of sales to be generated online
by 2005.
However, the Internet has not yet killed off printed catalogues far from it. Web catalogues
currently generate only about 13 per cent of all catalogues sales. Printed catalogues remain the
primary medium and many former web only companies have created printed catalogues to expand
their business.
Along with the benefits, however, web based catalogues also present challenges. Whereas print
catalogue is intrusive and creates its own attention, web catalogues are passive and must be
marketed. It is much more difficult to attract new customers with a web catalogue. And the online
cataloguers have to use advertising, linkage and other means to drive traffic to their sites. Thus,
even cataloguers who are sold on the web are not likely to abandon their print catalogues
completely.
Direct Response Television Marketing
Direct response television marketing (DRTV) takes one of two main forms. The first is direct
response advertising. Direct marketers air television spots, 60 or 120 seconds long that
persuasively describe a product or service and give customers a freephone number for ordering.
Direct response television advertising can also be used to build brand awareness, convey
brand/product information, generate sales leads and build a customer database.


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Television viewers may encounter longer, 30-minute advertising programmes, or „infomercials‟,
for a single product, during which the features or virtues of product are discussed by „experts‟
before an audience. These are selling programmes, which are presented in an entertaining manner
to attract the target audience. Direct response TV commercials are usually cheaper to make the
media purchase is less costly. Moreover, results are easily measured as, unlike branding
campaigns, direct responses ads always include a toll free number or a web address, making it
easier for marketers to gauge whether consumers are paying attention to their messages.
For years, infomercials have been associated with somewhat questionable pitches for juicers and
other kitchen gadgets, get rich quick schemes, and nifty ways in shape without working very hard
at it. In recent years, however, a number of large companies have begun using infomercials to sell
their wares over the phone, refer customers to retailers, send out coupons and product
information, or attract buyers to their websites. Organisations ranging from mail order (e.g.
sounds direct), leisure (e.g. Scandinavian Seaways) and financial services (e.g. sounds Lines, AA

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Insurance Services) to cars (e.g. Daewoo, Fiat), fast moving consumer goods (e.g. Britvic, Matini,
McVitie‟s) and government departments (e.g. the British army, US navy) have been using DRTV
marketing. DRTV marketing has also been used by charities and fund raising campaigners to
persuade viewers to offer donations or volunteer services. Examples include the „live aid‟
campaign that captured the imagination of millions of people across the globe, „children in need‟
and many other international fund raising events.
In recent years, direct response TV advertising is giving way to interactive TV (iTV). Advertisers,
from a range of sectors, including cars, travels, telecommunications financial services, are
actively using iTV to deliver more complex messages and information to target viewers.
Audiences are encouraged to interact with the company‟s ads through an impulse response
format, which invites them to press the „red button‟ on the remote control device for more
information.
Home shopping channels, another form of direct response television marketing, are TV
programmes or entire channels dedicated to selling goods and services. The programmes offer
bargain prices on products ranging from jewellery, lamps, collectible dolls and clothing, to power
tools and consumer electronics usually obtained by the home shopping channel at close out prices.
The presentation of products is upbeat and a theatrical atmosphere is created, often with the help
of celebrity guests, and up to date information can be given on product availability, creating
further buying excitement. QVC and other TV shopping channels are now operating in Europe.
These compete with large European electronic home shopping businesses such as TV shop. TV
shop operates across Europe, of which Germany is the biggest market. While infomercials
account for some 60 per cent of the firm‟s turnover, its activities are wide ranging. It produces
commercial; videos and TV programmes, operates a Swedish shopping channel, and runs
electronic shopping as well as other internet based sales operations in Europe. Access to TV
shopping channels has been restricted to homes with satellite or cable TV. In Europe, the
Netherlands, Belgium, Luxembourg and Germany lead in terms of household penetration of cable
systems. However, over the next few years, the reach of TV shopping channels will increase as
the cable and satellite market grows. TV shopping channel operators believe that countries such as
the United Kingdom, France, Spain and Italy, with a lower level of satellite and cable penetration,
offer great potential of growth.
Integrated Direct Marketing
Too often, a company‟s individual direct marketing efforts are not well integrated with one
another or with other elements of its marketing and promotion mixes. For example, the
advertising department working with a traditional advertising agency may handle a firm‟s media
advertising.
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Meanwhile, its direct mail and catalogue business activities may be handled by direct marketing
specialists while its website is developed and operated by an outside Internet firm. Even within a
given direct marketing campaign, too many companies use a „one shot‟ approach to reach and sell
a prospect or a single vehicle in multiple stages to trigger purchases. A more powerful approach is
integrated direct marketing, which involves using multiple vehicle, multiple stage campaigns to
improve response. Whereas a direct market mail piece alone might generate a 2 per cent response,
adding a website and freephone number can raise thee response rate by 50 per cent to a 3 per cent
response. A well-designed outbound telemarketing effort might multiply the response rate by 500
per cent. Suddenly a 2 per cent response has grown to 15 per cent or more by adding interactive
marketing channels to a regular mailing.
More elaborate integrated direct marketing campaigns can be used.

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Here, the paid to target customers creates product awareness and stimulates enquiries. The
company immediately sends direct mail to those who enquires. Within a few days, the company
follows up with a phone call seeking an order. Some prospects will order by phone or via the
firm‟s website; others might request a face-to-face sales call. In such a campaign, the marketer
seeks to improve response rates and profit by adding media and stages that contribute more to
additional sales than to additional costs.

Public Policy and Ethical Issues in Direct Marketing
Direct marketers and their customers usually enjoy mutually rewarding relationships.
Occasionally, however, a darker side emerges. The aggressive an sometimes shady tactics of a
few direct marketers can bother or harm consumers, giving the entire industry a black eye. Abuses
range form simple excesses that irritate consumers to instances of unfair practices or even outright
deception and fraud. The direct marketing industry has also faced growing concerns about
invasion of privacy issues.

Irritation, Unfairness, Deception and Fraud
Direct marketing excesses sometimes annoy or offend consumers. Most of us dislike direct
response TV commercials that are too loud, too long insistent. Especially bothersome are dinner
time or late night phone calls. Beyond irritating consumers, some direct marketers have been
accused of taking unfair advantage of impulsive or less sophisticated buyers. TV shopping shows
and programme long „infomercials‟ seem to be worst culprit. They feature smooth talking hosts,
elaborately staged demonstrations, claims of drastic price reductions, shows „while they last‟ time
limitations, and unequalled ease of purchase to inflame buyers who have low sales resistance.
Worse yet, so called „heat merchants‟ design mailings and write copy intended to mislead buyers.
Other direct marketers pretend to be conducting research surveys when they are actually asking
leading questions to screen or persuade consumers. Fraudulent schemes, such as investment
scams or phone collections for charity, have also multiple in recent years. Crooked direct
marketers can be hard to catch; direct marketing customers often respond quickly, do not interact
personally with the seller, and usually except to wait for delivery. By the time buyers realise that
they have been duped, the thieves are usually somewhere else, plotting new schemes.

Invasion of Privacy
Invasion of privacy is perhaps the toughest public policy issue now confronting the direct
marketing industry. These days, it seems that almost every time consumers order products by
major telephone enter a sweepstake, apply for a credit card or take out a magazine subscription, or
order products by mail, telephone or the internet, their names are entered into some company‟s
already bulging database. Suing sophisticated computer technologies, direct marketers can use

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these database s to „micro target‟ the selling efforts. Consumers benefit form such database
marketing if they receive more offers that are names of customers who frequently call the
freephone numbers of, say, catalogue companies? Should a credit card company such as
MasterCard, Visa or American express be allowed to make data on its millions of cardholders
available to merchants who accept its card? Is it right for credit bureau to compile and sell lists of
people who have recently applied for credit cards people who are considered prime direct
marketing targets because of their spending behaviour?
In their drives to build databases, companies sometimes get carried away. For example, Microsoft
caused substantial privacy concerns when it introduced its window 95 software. It used a
Registration Wizard‟ which allowed users to register their new software online. However, when
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users went online to register, without their knowledge Microsoft „read‟ the configurations of their
PCs to learn about the major software products running on each customer‟s system. When users
learned of this invasion, they protested loudly and Microsoft abandoned the practice. Such access
to and use of information has caused much concern and debate among companies, consumers and
public makers.
The direct marketing industry in a number of countries is addressing issues of ethics and public
policy. For example, in Untied Kingdom., faced with the threat of legislation, including wider EU
directives, the industry has adopted tougher self regulation measures to restrain unsavoury
practices and to bring the „cowboys‟ into line. In many countries, consumer privacy has become a
major regulatory issue. To build consumer confidence in shopping direct, associations for
businesses practicing interactive and database marketing have launched consumer privacy rules.
These rules generally require that their members adhere to a carefully developed set of consumer
privacy rules: members must notify customers when any personal information is rented, sold or
exchanged with other they also honour consumer requests to „opt out‟ of information exchanges
with other marketers or not to remove their names from company‟s database, when they do not
wish to receive mail, telephone offers at home. Similarly, new regulations based on the new
European union directive on privacy and electronic communications, which came into force in
October 2003, seek to outlaw Spam. Companies will be required to ask customers to „opt-in‟ to
receiving emails ailing which they can be penalised for breaking the rules.
Direct marketers know that, left untended, unthectical conduct will lead to increasingly negative
consumer attitudes, lower response rates, and calls for more restrictive legislation. More
importantly, most direct marketers want the same things that consumers want: honest and well
designed marketing offers targeted only towards consumers who will appreciate and respond to
them. Direct marketing is just too expensive to waste on consumers who don‟t want it. Mass
marketers have typically tried to reach millions of buyers with as single product mad a standard
message communicated via the mass media. Consequently, most mass marketing communications
with consumers. Today, amny6 companies are turning to direct marketing in an effort reach
carefully targeted customers more efficiently and to build stronger, more personal, one to one
relationships with them.

Stages in New Product Development
Let us now consider the various stages a firm has to pass through for launching a new product in
the market.
New product development in respect of intrinsically new products goes through several important
stages as show below:
   Generating new product ideas
   Idea screening
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  Concept testing
  Business analysis and market analysis
  Actual development of the new product
  Test marketing
  Commercialization
Each of these stages involves considerable study and analysis and at each stage, a management
decision is called for before proceeding to the next stage.


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Generating New Product Ideas
The new product ideas may come from customers, dealers, in-company source or from research
organizations. Consumer‟s problems are the most fertile ground for the generation of new product
ideas. This is equally true of both industrial products and consumer products. In a variety of
products ranging from shampoo to computer, customers are generating products ideas. And
innovation-bound companies are cashing in on them. Several companies follow user-stimulus
strategies by announcing attractive rewards for good new product ideas. Company workforce,
research staff and salesmen are also sources of product ideas. There are companies who silently
encourage „skunk works‟ where small „unauthorized‟ teams of executives/workers spend
company‟s time and money to work on crazy products ideas of their own. New product ideas can
also come from market research studies. Research studies on the consumers, products,
competition, etc, will reveal market gaps by comparing the existing supply of products with the
ideal product conceptions of consumers. But all market gaps cannot lead to commercially viable
products. The promising ideas will have to be chosen for framing new product concepts.
Creativity techniques like brainstorming and synectics are also used for product idea generation.
In brainstorming, a small group of people is encouraged to come up with their ideas on a specified
problem. In synectics, the real problem is kept away initially from the group and only a broader
framework of the problem is given to them. The group is encouraged to think in all possible
dimensions, and slowly the problem would be made clearer to them, and their ideas would get
refined.

Idea Screening
Normally, a new product oriented organization will have at any time several new product ideas
with them. The problem lies in identifying which ones are promising ideas. In the idea screening
stage, expert product evaluation committees put the various product ideas to rigorous screening.
They seek answers to basic questions, like:
   Is there a felt need for the new product?
   Is it an improvement over an existing product?
   Is it close to our current line of business?
   Or does it take us to a totally new line of business?
   Can the existing marketing organization handle the product?
   Or does it need extra expertise on the production and marketing front?
The more attractive looking ideas pass on to the concept testing stage.

Concept Testing
When a new product ideas passes the initial screening, it is subjected to „concept testing‟.
„Concept testing‟ is different from test marketing, which takes place at a later stage. What is
tested at this stage is the „product concept‟ itself – whether the prospective consumers understand
the product idea, whether the yare receptive towards the idea, whether they actually need such a
product and whether they would try out such a product if it is made available to them. In fact, in
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addition to the specific advantage of getting the market response to the product concept into
clearer focus. Because, in the absence of any real product to be shown to the respondents at this
stage, the company has to make very elaborate and definite statements about the product, its
attributes and benefits. Much concept testing stage. Quantitative techniques like conjoint
measurement and trade-off analysis are used for testing alternative product concepts. These
techniques help ascertain the consumer perception of the product along certain important attribute
dimensions. Concept testing is of crucial importance when a totally new product – not a „me-too‟
product – is being planned for introduction.
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Business Analysis and Market Share Analysis
This stage is crucial in the total process of new product development because several vital
decisions regarding the project are taken based on the analysis done at this stage. This stage will
decide whether from the financial and marketing point of view, the project is worth proceeding
with. Investment and profitability analyses of the project under different assumptions are made at
this stage. The project‟s overall impacts on the corporation‟s financial estimates would be reliable
only if they are based on a fairly accurate demand forecast and related market factor. The
marketing experts by now should have undertaken detailed exercises on the marketability of the
product. They have to come up with information on the following aspects, in particular:

Estimate of Demand for the Proposed Product
A fairly reliable demand estimate is essential for evaluating the viability of the proposed project.
Demand estimation for intrinsically new products is being discussed in a separate section. If the
proposed product is only a „me-too‟ product, the demand for the product category has to be
estimated and the likely share the proposed product can take, has to be evaluated
Seasonal patterns n consumption, if any
Competition
Major competitors, their market share, the dominant market segments held by them
Special market features affecting demand
Price elasticity of demand
Volume-cost-profit analysis at different feasible levels. The nature of channel required, the nature
of channels available, comparative costs/advantages of alternative channel types
The marketing organization required for marketing the product – whether the existing marketing
organization can take care of the product or whether a new organization set-up is required. If so,
what would it cost. Only when information on the above aspects in complete, meaningful
estimates of overall profitability of the project can be made. And its is based on the overall
profitability picture that the corporation decides to proceed further.

Actual Development of the New Product
At this stage the firm develops the product as such. By this time the firm is committed to a large
extent to the new product. In the actual development of the product, besides R&D, production and
marketing departments are actively involved. The actual development of the new product is
certainly a very crucial stage in the whole process.

Test Marketing
During this stage, the product is actually tried out in selected market segments. Only based on the
results of test marketing will a marketer and manufacturer usually launch large-scale manufacture
of the new product. Test marketing is a form of risk control and ensures avoidance of costly
business errors. It is a controllable marketing experiment whit a minimum possible cost and risk,
to decide on the soundness and feasibility of full-fledged marketing of the product.

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 If totally new products are introduced into the market on a commercial scale without resorting to
test marketing, it may so come to light that the product was not the right one for the chosen
market. This may be too costly a mistake for the firm. Test marketing in such a case may opt to
drop the new product idea and save the investment. On the contrary if the results received from
the test marketing are positive of the new product.


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Test marketing is an experiment that has to be carefully conducted. Care is required in selecting
the „test markets‟ and „control markets‟, in monitoring the test and in analyzing and interpreting
the test results. In many cases, test marketing is also a time consuming process; it has to be carried
out for long duration in order to obtain reliable and meaningful indications. And if competitors get
information regarding the test, it is possible for them to manipulate the test process and thereby
make the test results unreliable.

Test Marketing Technique Takes Root in India
In India, test marketing as a marketing technique is becoming popular in recent times. In the past,
only big corporations like Hindustan Lever and Tatas used to go in for test marketing. Now, more
and more firms with the help of advertising and marketing research agencies are going in for test
marketing before a new product is commercially launched. For instance, TTK group test marked
Yummies, a snack food and Vazir sultan test marketed Charms cigarettes before launching full
scale marketing. McDowells test marketed sprint in Bombay before going national. Metropolitan
test marketed their brand of shirts for a period of six months in Banglore, before going in for full-
scale production and marketing.

Commercialism
At this stage the company takes the decision to go in for large scale manufacturing and marketing
of the product. It passes on to this stage on to this stage only when the results of all the previous
steps are found favourable. It is at this stage that the company commits itself to fully
commercialize the new product idea through investment in manufacturing and marketing. The
various marketing strategies.
Today, quite a few progressive firms operate separate new product departments and new product
committees to take care of new product development.

Estimating the Demand for New Products
Estimating the demand for new products is one of the most difficult exercises in new product
development. While explaining the various stages involved in new product development it was
mentioned that to attempt a business analysis of the proposed development it was mentioned that
to attempt a business analysis of the new proposed product, reliable demand estimates are
essential. The traditional sales forecasting methods cannot be applied to new product situations,
because these methods depend in one way or the other, on past sales data and sales trends. In the
case of totally new products, there is no past data to rely on. This situation makes demand
estimates of new products rather difficult. And in practice, many new product decisions have gone
wrong due to defective demand projections.
The main methods that could be tried in estimating the demand of new products are:
  Substitution/replacement method
  End use method
  Market tests




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Substitution/Replacement Method
A new product generally replaces some old products or old use patterns. When nylon came to
India, it was a totally new product. Those who entered the nylon business knew that it would in
some way replace cotton, rayon, coir and jute. But they did not know by what precise quantity it
would replace the existing products. The product category was new and it substituted a variety of
materials in a variety of ways. For example, it replaced rayon in two ways – in the textile or
filament yarn segment and the tyre cord segment. Obviously, the extent of prevailing demand for
rayon and the rate at which it was supposed to be replaced by nylon in the textile segment and tyre
cord segment would have provided the clues to the new nylon makers in India in their attempt at
forecasting the demand for the new product – nylon.
As per the substitution/replacement method of demand forecasting, the demand for the existing
product is forecasted at first, using standard forecasting methods. Based on that, and idea of the
potential demand for the new product is gained. But, in many cases, the new product may not
replace the existing products totally and in all categories of uses. The potential demand worked
out for the new product may serve only as an upper limit for working out the actual sales
possibilities for the new product. Research findings would tell the marketing man which products
and markets are amenable for substitution by the new product. Certain product-market segments
may not be approachable for him for certain reasons. For example, the existing products may be
cheaper for the relevant uses. So he has to work out the possibilities separately for each market
segment. From the market potential and the desired market share, he can develop his sales
forecast.

End use Method
In the substitution method, it is assumed that the new product in question may have some
comparable products already existing in the market. In situations where no comparison is possible
at all with existing products, the substitution method cannot work. Products that are absolutely
new and products have totally new end use do come to the market off and on. Many products that
are introduced today in the beauty business, holidaying and medicines belong to the non-
comparable category. The only way to assess the demand for such products is to define the end
use or need for the product and to locate which are the categories of people who can be potential
customers for that end use. Under each use category, the aggregate of potential customers is taken
as the potential demand. The total of the various use-categories gives an indication of the total
potential for the product. This again is just the upper limit of potential; after all, all the users are
not equally attractive to the firm, nor are they equally attainable. The forecaster refines his
decisions on the end uses/market segments he has to concentrate and the marketing mix he can
employ, and on that basis he scales down the potential originally worked out to an attainable sales
forecast.
In this method of demand forecasting, the forecaster has to be cautious, in defining and locating
the end-uses/needs for the product. If the use identification is over ambitious and too broad, the
estimate of the potential may be misleading. On the other hand, if the need identification is too
narrow and shortsighted, it may not reveal the true potential for the product. Only a careful and
realistic pinpointing of all the possible uses can create a reliable framework for estimating the
demand by this method.




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Market Tests
For certain new products, the end use method mentioned above does not assist in estimating the
demand. In such cases, market tests are resorted to. Market test is not to be construed as
synonymous what test marketing.
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The latter is actually one kind of market test. Different techniques like sales wave research, test
marketing and simulated test marketing are available to carry out market test. Of all these, test
marketing can yield the maximum reliable forecasts. The process of test marketing has already
been explained in the section on „stages in new product development‟. For test marketing to
generate a reliable base for forecasting the demand for the new product, it has to be carried out for
sufficiently long periods. Small market segments and too few segments, which are normally taken
for test marketing may not prove to be representative of the larger markets which the firm, may
decide to tap. In such cases, the sales forecast developed from the test market results may be
faulty. Only a carefully monitored test market programme can yield reliable and representative
data for purposes of demand estimation.

Pricing Strategy for New Products
Earlier, we had classified new products into: (i) new products arising out of technological
innovations, and (ii) new products arising out of marketing oriented modifications. It is the first
category of intrinsically new products that demands a special approach in pricing. Because, there
are no antecedents or precedents for such products. There are no trends to indicate how the market
will react to different levels of pricing.

Traditional Pricing Methods may not Suit New Products
Normally, in the case of new products, only some sketchy information regarding the demand
potential is available. So, demand-based pricing is out of question for such products. Competition
based pricing is also out of question, because the product is a pioneer and competition will only
be a future phenomenon, when „me-too‟ products enter the scene later. Since there are no market
leaders, follow-the-leader pricing is also out of question. The next alternative to be considered is
cost plus pricing. In several cases, the actual costs of new products are difficult t measure.
Overheads allocation to the new product, for example, is done usually on the basis of untested
assumptions. Similarly, R&D expenses would have been shared by several new product ideas and
apportioning it to a particular product may become difficult. Even if the costs of the new product
can be accurately measured, cost plus pricing or breakeven pricing cannot be straightaway
adopted because no information is available regarding the marketability of the product. In fact,
such imponderables have prompted marketing experts to comment that new product pricing has to
be done in a vacuum.

The Pricing Method Should Evolve Out of The Requirements of the Firm and the Extent of
Newness of the Product
New product pricing obviously cannot be a formula based decision. The subject has to be
approached from a different angel. The basic pricing strategy for new products should evolve out
of:
   The firm‟s compulsions to go in for the particular new product
   The extent of newness of the product/the nature of the product
Compulsions behind the pursuit of new products may vary from firm to firm
The firm‟s compulsion to go in for new products could be one of the following:
  To be a real innovator and to earn the rewards associated with innovation
  To exploit an obvious market need that is coming to the fore
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  To expand the product line/product mix to ensure steady growth
Though these factors are interconnected, they are subtly different too. There are several big
companies who have a thirst for innovation. They are prepared to shoulder the heavy risks
associated with product innovations, because they know that without underwriting such risks big
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rewards will not come to them. New product development is second nature to them. Some other
companies go n for new product development when they have spotted a felt need for the product
in the market. When washing machines were first introduced in India, the pioneers were
capitalizing on a felt need and a latent demand existing for such a product; they were not
compelled by the need to be innovators and leaders. In the third category, the compulsions to go
in for the new products/product lines. The company will nurture a new product idea that fits n
with these basic requirements. But this group is relatively more conservative in their approach to
new product development than the other two categories mentioned earlier, as the former votes for
the policy of „limited risk‟. They will take up only those product ideas, which in their estimate can
fetch an assured commercial success.

The Products too may vary Widely in Nature and Extent of Newness
The extent of newness or the nature of the product is the second major feature that will influence
the pricing strategy. The new product may:
   A totally new item
   A new item to a particular society
   A new item for the particular firm
   A new item for the particular firm in the particular market segment
   A low value item for the consumer
   A high value item for the consumer
   A low priority item for the consumer
   A luxury product
   A convenience product
   A product serving a felt need
   A product serving a created desire
These dimensions associated with the nature of the proposed product combined with nature of the
compulsion that drive the firm to the new product, should dictate the pricing strategy of the firm.
For example, when a company in the category of innovators and leaders, brings out a new luxury
product, intended for the affluent consumer, serving a created desire, it can probably fix the price
quite high and launch the product. The company knows that its product is not very price sensitive.
On the other extreme, if a company with the compulsion to expand its product mix goes in for a
new product, a convince product, essentially meant for the middle class consumer, it may decide
to keep the prices low, with the intention of attracting trial purchases and slowly building u pa
market for the product. It may take care to see that the costs are covered, but it not eager to take
home a big profit, through a high price. It may opt to earn the profits through a high price. It may
opt to earn the profits through bigger volumes at lower prices.
This leads us to the two broad strategy alternatives available in new product pricing. They are:
  Skimming pricing
  Penetration pricing
Skimming price. In skimming pricing, the new product is priced high and the cream of the market
is skimmed by concentrating on those segments of the market that are not price sensitive. Such
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high prices will fetch the firm substantial initial incomes which it can plough in for further market
promotion. Through this method the firm also recovers a substantial portion of its development
cost of the product. Later on, the firm may bring down the prices, when it enters mass markets
which are more price sensitive. However, skimming pricing cannot be employed if the product
does not enjoy the patronage of an affluent and non-price sensitive market segment.
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The skimming strategy can prove idea for really new and distinctive products on account of the
following factors:
The quantity of the product that can be sold in less effected by price in the early stages, especially
when the product has novelty
Through skimming, the product is tapping profitability those segments of the market, which do
not bother much about price. Such tapping will not be possible at a later stage in the life cycle
By skimming the cream of the market through a high price, the product is fetching big funds,
which could be used for market development n the initial stage.
The skimming pricing can be a way to feel and figure out the demand for the product. And by
starting at a high price it is always possible to come down on price, when the situation warrants
Penetration pricing. The skimming strategy cannot suit all new product contexts. When the new
product is likely to be highly price sensitive and when there is no elite market for the product, the
option is to go in for penetration pricing. As the very name implies, the intention is to penetrate a
broad market through low prices. The income is generated by large sales spread over large
markets. The large volume sales also facilitates substantial economies in unit cost of production
and marketing and the cycle can continue in establishing the product in the market, through the
low price strategy.
In brief, the penetration pricing becomes the choice for the new product, when the product market
characteristics are as follows:
The quantity of product that can be sold is highly sensitive to price, even in the early stages of
introduction.
There is not elite market for the product, there is n such segment which is willing to pay any price
to posses the product.
The product is likely to encounter heavy competition immediately after introduction
Large volume of sales is required even in the initial stages to ensure economy in production and
distribution.
Between these two divergent price options, there can be several intermediate positions depending
on the firm‟s compulsions and the product‟s characteristics discussed earlier.

Cost Data in Respect of New Products
An understanding of new product costing is essential at this juncture. Whether the new product
pricing is done on cost plus basis cost, data about new product costs is essential for the pricing
decision. And quite often, companies mess up the cost workings in respect of new products
because the new product for an ongoing multi-product company is a tricky affair. The company
has to use judgment, more than techniques in allocating the overheads. The company has to use
judgment, more than techniques in allocating the overheads. A wrong to costing can make the
pricing decision faulty.

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New Product Failure
New product development is a highly expensive, time consuming and risk laden affair. Only those
organization who have the capacity to absorb the shocks arising out of all these factors, can really
go ahead with the task of new product development and they often have several new product ideas
in the queue, each in different stages of formulation. While such firms remain leaders in their
chosen markets, with all the attendant advantages of being a leader, the vast majority of the
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companies prefer to be followers entering with similar products after the pioneer establishes his
new product. Majority of the firms shy away from the task of new product development for the
following reasons:
New products suffer from a high attrition rate. Many new product ideas, after years of caring do
not reach the market at all. Considerable time, money and effort is thus wasted.
New products suffer from a high rate of market failure. That means that even those products
which reach the market after years of preparation and work, often fail miserably in the market
Even in the case of successful new products, success is short lived. Many of them suddenly dies
out after the initial boom.
No wonder, new product development has mostly remained the forte of big companies who can
absorb the cost and fatigue of such failures.

How to Avert New Product Failures
Analysis shows that several new products turn out to be failures not because the products are
defective, but because the company in question is not equipped to handle that product. Such a
situation arises because the firm has not answered and solved certain basic questions at the
product idea stage itself. Before a firm proceeds with a new product idea, it should find
convincing answers to certain basic issues:
Does the proposed remain close to the existing business of the company? Close to the knittings?
Or, does it constitute an entirely new line of business to the company? In the latter case, can the
company handle the new business?
How new is the new product? Is it radically new for the market? Or, is it similar in some way to
already existing products in the market? If is a radically new product, how long would it take to
get established? Can the firm sustain the long pioneering stage? If it is a „me-too‟ product, can it
make a living in a market already dominated by early entrants? What is the current level of
demand and what is the extent of market share the new entrant can hope to get?
Is the product likely to invite retaliation from a strong competitor, who is already in the same line
or in a related line of business? What are the resources of the firm proposing the new product as
compared to those of the dominant competitors?
The firm must clear, whether to be a pioneer or follower in new products; whether to stay close to
its knitting or go out in al directions
Though there cannot be a one-line answer to the above issues, sizing up the situation based on
these issues will make the cards clear. For instance, there are companies who cannot handle
entirely new areas of business. They can succeed only when they remain „close to their knitting‟.
These companies should propose only such new products that can fit their existing market, meet
the needs of the existing customers, through their familiar channels, with an already familiar
marketing organization and strategy. On the other hand there are others who believe in reaping
big profits through entering totally new areas of business with totally new products. They can
enter totally new territories, win over new customers, establish new channels and ride comfortably
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on the back of the new product. So, identifying one‟s strengths and weaknesses vis-à-vis the
demands of the proposed product would help avoid a lot of future problems. A related issue, as
already explained, is the degree of newness of the proposed product. Most of the companies find
it safer to watch a pioneer fro a distance, and then enter the market with similar products, when
the product idea has already go established. Here too, there will be firms who choose products
belonging to their current line of business and others who are prepared to enter new business.

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 So, the awareness on the part of a firm that it cannot be a market pioneer, it can only be a
follower, or the confidence on the part of a firm that it can be a pioneer, are essential yardsticks
for proceeding with any new product idea.

The Firm Must be Well Prepared for Meeting Retaliation
From Strong Competitors
Similar screening has to be done on the possibility of retaliation from a strong competitor. If a
medium size firm with only moderate resources on hand is planning to introduce a new product, it
should check whether it is going to provoke a mighty competitor. The firm must have clarity
about the resource capacity and management style of such competitors. So, a firm trying to
introduce anew product has to do a lot of preplanning. While no secret formula can be prescribed
for the success of a new product, it should be possible to avert costly new product failures by
checking out some of the issues discussed above.




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Module 12 Promotional Practice Management                                   4 Place Operations

 4 Place Operations

How to Design a Distribution Channel
We have seen that a business firm can take its products to user in more ways than one. It can use
different types of marketing intermediaries; it can structure its channel into a single tier or two
tiers or a three-tier outfit. But it cannot easily determine which one is the best. It is faced with a
number of questions: should it go for its own channels or prefer conventional intermediaries?
How many wholesale points should it have to ensure satisfactory market coverage? Where to
locate these points? How many retail points should it have? Which are the places where it should
have them? The firm has to make a careful analysis and the select its channel.

Main Steps Involved in Developing the Channel Design
The following are the main steps involved in developing the channel design
  Formulation of channel objectives
  Identification of channel functions
  Analyzing the product characteristics and linking channel design to the product
  Evaluation of the distribution environment including legal aspects
  Evaluation of competitor‟s channel patterns
  Evaluation of company resources and matching the channel design to the resources
  Development of alternative channel designs and selection of the one that suits the firm most

Formulation of channel objectives
Formulation of channel objectives is the first step in planning and designing a distribution
channel. The objectives clarify as to what is sought to be achieved by having the channels.
Basically, any business firm seeks to realize that following main objectives through its channel:
   Coverage of the target market
   Ensuring that the consumer goes through minimum exertion in procuring the product
   Ensuring that the firm is able to carry on with its manufacturing activities, confident that the
    channel will take care of the distribution job
   Ensuring that the distribution is cost effective

Channel Design Emanates from Channel Objectives and Marketing Objectives
In each of the above area, the firm specifies the precise level it seeks to realize. The intensity of
market coverage sought, the service level sought to be maintained and other objectives will
naturally vary from firm to firm. And they will flow largely from the marketing objectives of the
firm. When Hindustan lever decides that lifebuoy should be available in eighty per cent of the
villages of India, the firm‟s channel objectives are also getting framed. Similarly, when FACT, a
manufacturer of chemical fertilizers decides that no farmer should have to travel more than three
kilometers to buy the company‟s fertilizers, the channel objectives of the company are getting
framed. It can be easily seen the latter determines to a good measure, the kind of channel design
to be opted for. With the channel objectives, the broad contours of the channel design to be
adopted also get fixed. This can be seen clearly in the two examples cited earlier. The channel
objectives of these two firms clearly dictate that their channels must be large and extensive and
must cover every nook and corner of rural areas of the country.

Channel Designs Vary from Firm to Firm as Channel Objectives Vary from Firm
By an extension of the above logic, it can be appreciated easily that the channel designs of firms
will differ from one another if their channel or marketing objectives differ from one another.
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Module 12 Promotional Practice Management                                        4 Place Operations

We shall illustrate this by considering the textile business of India. National textile corporation
(NTC), Reliance industries, Bombay dyeing, DCM and mafatlal offer their textile products in the
same market. NTCs objective is to cover the lower middle class and the middle class segments of
the population. Offering reasonable quality textiles of reasonable prices is their main objective. At
the other end of the spectrum, selling of „fashion‟ is the objective of reliance; well-to-do urban
segments are its target; premium product and premium price are the key elements of this
objective. Evidently, he channel design would be different in the case of NTC and reliance.
Reliance went in for a chain of exclusive VIMAL showrooms as its main channel outfit. Though
NTC had also set up showrooms in certain places, it mainly realised on the conventional trade.
Reliance went in for 2,000 odd showrooms in all metropolises and class 1 towns of India; located
them in the best shopping areas of the concerned towns; fabulously displayed the fabrics in these
showrooms and advertised aggressively the showroom strength of the company in distribution.
The other firms like Bombay Dyeing, DCM, etc, fall somewhere on the line between the two
positions taken by NTC and Reliance. Depending on their concerns and objectives, different firms
have gone ahead with the selection of their own channel design.

Identification of Channel Functions
The next step in working out a channel design or model is the clear identification of the functions
to be performed by the channel. Suffice to add here that channel functions must be identified in
the specific context of the concerned firm in order to get a practical direction in working out he
channel design for the firm. Obviously, channel functions have to be in tune with the channel
objectives of the firm.

Analyzing the Product Characteristics and Linking Channel Design to the Product
Different products require different channel arrangements. The firm should analyse the
characteristics of the product and choose the channel design suited to the product. For example,
the channels used for consumer and industrial products have to be different from one another.
And within each of these broad categories of products, channel choices can vary in relation to
specific products/product types. It is common knowledge that the product aspects change as one
moves through the large spectrum of products from the simplest of consumer durables, consumer
specialties, agri-inputs, industrial intermediates, spares and capital goods of the standard variety,
all occupy a position somewhere between the two extremes. Accordingly, there is a wide variety
of possibilities in product-channel matching. For convenience of discussion, we shall classify the
products into two standard categories, and see how product characteristics have a bearing on
channel design chosen. Simultaneously, we will also see how within each of these categories,
channel types will differ depending on the characteristics of specific product/product types.

Industrial Product and Consumer Products may Need Different Channels
The fact that channel design requires to be linked to product characteristics can be easily
understood by considering the distinct requirements of industrial and consumer products in this
matter. In the case of industrial products, the size of sales to each customer at a time is very large;
the potential buyers to be approached are few; the products are complex and technically
sophisticated; they are often made to order as per specifications of buyers; they have a very high
unit value; hey need extensive pre-sale services, installation services, commissioning services,
post-sale services and repairs and maintenance; and they are purchased only once in a way as their
replacement rate is low. Consumer products differ from industrial products in all these respects.
Barring a few exceptions, consumer products are mass products and are non-technical and least
complex; they have a low unit value; hey are regularly consumed and replaced; and they require
little or no after-sale services.

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Module 12 Promotional Practice Management                                                   4 Place
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It is these differences between the two categories that necessitate different channel designs for the
two categories. Even within the category of consumer products, different products may need
different approaches to channel design. Let us elaborate.

Different kinds of Consumer Products Need Different Types of Channels
In the buyer behavior, it is discussed of three distinct categories within consumer product: (i)
convenience goods, (ii) shopping goods, and (iii) specialty goods. Different categories would
require different types of channels since buyer behavior and habits in respect of these categories
differed. Convenience goods in general, require very intensive coverage of the market and
therefore need a full-fledged and comprehensive channel arrangement. Shopping goods and
specialty goods need lesser intensity of coverage in relation to convenience goods. One tier in the
channel can be easily dispensed with in these cases compared with he convenience goods. The
number of outlets too can be far lesser. In the locations and shopping and specialty goods on the
other.

The Case of Industrial Products
Only Some Industrial Product Lend to Selling Through Channels
As regards industrial products, first of all, the firm should check whether their items are
appropriate at all, for selling through distributors. And then it must analyze which type of
distributors could be appropriate for the items under consideration. Some useful guidelines have
emerged from experience for testing the amendabilty of a given industrial product to distribution
through distribution channels.
The Product Must have a Sizeable Customer Base
In the first place, the industrial product under consideration must have a sizeable customer base.
The broader the customer base for the product, the greater will be the degree of success of a
channel dependent selling approach. It is seen that distribution channels normally do not perform
a good job when he customer base for the product is small. Most of them are also not enthusiastic
about such products. In their perception, he products which appeal to just a handful of customers
are not profitable for the trade to handle. The producer may market such products directly to users
without depending on distribution channels.

The Product must be Standardized to a Reasonable Extent
The second consideration is the extent of standardization of customer requirements in the product.
The larger the standardization, the greater would be he chance of success of a channel dependent
selling. Conversely, when the extent of standardization in the product is small, direct selling may
produce better results.

It must be a Stackable Item
Thirdly, the product must be a stackable item, if it is to go through channels. Generally speaking,
non-stockable items must not be considered for channel dependent selling.

It must be a Non-custom Made Item
Fourthly, there are products, which are essentially „custom made‟ items. Even if the customer
base is reasonably large, it may not be a wise strategy to treat the custom made products as
distributor items. Experience sows those producers who market such products, as distributor items
do not get encouraging results. Distributors bring only repeat orders from he same accounts that
were originally developed by the producer‟s sales people.

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Module 12 Promotional Practice Management                                                    4 Place
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The Unit Value Should not be too High
Fifthly, he unit value of the industrial product should not be very high if a distributor-dependent
sales approach is to succeed. The higher the unit value of the product, the greater is the scope for
direct sale to the customer.

The Product Should not be too Complex to Handle
Sixthly, he product should not have highly complex mechanical parts if channels are to be
successful. Products with complex parts are more suited for direct selling by the producer to the
producer customer. Such products usually require installation services and subsequent
maintenance services. The channels may not be in a position to provide these facilities. The
manufacturers should either have specialised channels that can take care of the job or go in for
direct marketing.

Need for Specialists Distributors
After considering all such factors, if a given industrial product ends itself to marketing through
distributors, it must still be remembered that:
a. As a general rule, industrial products require specialist distributors and entrusting the products
    to general purpose (consumer product) distributors does not produce the best results.
b. Different industrial products need different types of distributors.
For example, for industrial products that require a demonstration to customers, distributors
handling a limited number of products lines would be more suitable. They will be able to provide
the required demonstrations and technical assistance and concentrate on the development of the
market for the product. There are products, which are hazardous form the distribution point of
view. Petroleum products, explosives and certain chemicals are examples of this category.
Distribution channels in these cases must be specialised agencies; they must have specialised
transportation and storage facilities. And for products that require extensive servicing, distributors
with such service facilities will be required.

Product Characteristics Influence not only the Channel Design, but also the Type and
Number of Intermediaries Required
Product characteristics influence not only the basic channel design, but also the type and number
of channel intermediaries required. For example, for textiles or shoes, the showroom may be an
effective type of marketing intermediary. For a product like detergent, conventional wholesaler-
retailer arrangements may be the appropriate ones. For a product like tea, the channel members
may be to be spread out in every nook and corner and must be serviced directly by the
manufacturer. It is a product that is purchased by the users repeatedly and it has to be fresh.
Evidently, it needs speedy and frequent delivery form producer to the final users. Major tea
manufacturers like Brooke Bond and Lipton have actually built an intensive channel network and
a system under which their salesmen contact retail outlets at fixed intervals and supply stocks. It
can be seen that the product characteristics are a major determinant of their channel pattern. Their
„direct to retailer policy‟ can be essentially attributed to he need for delivering the product fresh
and at frequent intervals.

Channel Choice can also be Related to the PLC
The stage of the product in its PLC is also relevant consideration in the selection of the channel
model. Different types of channels could be suitable for products in the different stages of PLC. A
new product which is in the introduction stage of its PLC would be relatively known to the
market; its customer base would be small; it sales volume would be low.
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Module 12 Promotional Practice Management                                                   4 Place
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It may be a good idea to sells this product directly to the customer dispensing with channels. And
in some cases, it may also be wise to establish such direct contacts as a strategic move, because
such a move will enable a manufacturer to get direct contacts as a strategic on the new product
and thereby improve the product as required. This is very vital in the introductory stage.
Alternatively, specialized channel also could be used for distributing such a product. A specialised
distributor can introduce it in the market and also provide the required technical assistance to the
user. For a product in the growth and maturity stages, the requirements of distribution may be
different. In these stages, the product is usually an off the shelf item; convenience in delivery and
price are more important factors. For products in these stages conventional and general-purpose
distributors could be more suitable. Producers usually appoint a number of general-purpose
distributors at this stage and also make more and more territories non-exclusive. Some pushing of
the product also becomes necessary at this stage. Conventional market channels admirably suit
this requirement. With the advent of the decline stage in the PLC, the market of a product gets
reduced to a core customer group and it may be advantageous to revert back to the position of
direct distribution to customers at this stage. Alternatively, the firm may serve the core group of
customers through a minimal use of middlemen.

Evaluation of the Distribution Environment
Selection of channel model should also take into account the distribution environment obtaining
in the country. A firm has to evaluate the vital features of the distribution environment and ensure
that he channel model to be adopted is compatible with them. Distribution environment in the
broader sense includes the legal environment as well, in so far as its implications on distribution
are concerned. The legal implications of the channel model too have to be examined before taking
the decision on channel design.

Evaluation of Competitors’ Channel Patterns
The firm should also study the competitors‟ channel patterns before deciding on its own channel
design. While the firm may not necessarily follow the competitors, it will be worthwhile for the
firm to analyse in depth the pros and cons of the channel patterns adopted be each of the major
competitors. A number of firms do settle own for a „follow the leader‟ policy in the choice of
channel design. They find it an easy route. But such an approach deprives them of the chance to
have an edge over competition in channel design. Moreover, when a firm adopts the policy of
„follow the leader‟, the firm loses its flexibility this vital matter.

Matching the channel design to company resources
The resources available at he disposal of the organization also govern the choice of the
distribution channel.

Firms with Limited Resources Opt Conventional Channels
Small firms with limited resources and small volume of business will normally find it
uneconomical to opt for won channels. In their case, establishing branch offices, depots and retail
outlets of their won would involve a heavy unit cost of distribution and they cannot afford it. Such
firms normally depend on conventional channels. As a matter of fact, they find it most economical
to sell to a small number of conventional intermediaries operating in the market.

Firms with Larger resources have Greater Options to set up Own Channels
Firms with larger resources and larger marketing operations will be in a position to go in for a
highly intensive distribution channel, investing good deal o resources on the distribution task. In

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fact, number of firms in India who are strong in resource, operate two parallel channels, on
leading to the customer through company depots an showrooms and the other through
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conventional marketing intermediaries. The textile business is a good example of this
phenomenon. Firms like reliance industries, Bombay Dyeing, DCM and Mafatals have gone in for
such a pattern of distribution in a big way. These firms are able to follow the two-pronged
distribution patter, mainly because they command good resources. In some other cases, even large
sized firms look for a distribution arrangement wherein they will not be required to pump much of
their own resources in terms of men, materials, facilities and money. Many manufacturers of
pharmaceutical, machine tools, agricultural equipment, electronic motors and household
appliances take to this route, making use of the services of large distribution houses.

Identifying Alternative Channel Designs and Selecting the One, Which Suits the Firm Best.
The range of alternatives in channel design open to a firm will get narrowed down after the firm
goes through the steps described in the preceding paragraphs. Since quite a few possibilities
would be still left in the field, the firm must carefully evaluate the alternative possibilities. The
two main elements are cost and efficiency. Often, though not necessarily, these elements are
directly proportional to each other. A compromise may be called for between the efficiency
expected of the channel and the cost of the channel. The channel that is efficient but relatively less
expensive has to be chosen. Two types of evaluations an economic evaluation, detailed exercise
must be undertaken to determine the sales volume that can be obtained through the chosen
channel. The relative costs of direct selling of he desired sales volume and those of selling them
through the channel alternatives must be analysed. The unit cost of selling as per each of the
channel alternatives and the risk factors controllability and flexibility of each of the channel
alternatives and the risk factors involved in each of them must also be studied. Conceptual
evaluation will assess the controllability and flexibility of each of the channel alternatives.
Whereas economic considerations may justify one particular channel alternative for example,
leaving the distribution to a couple of large marketers it may have severe limitations form the
standpoint of controllability, market development for the future and market feedback. The
conceptual evaluation also attempts to see whether the channel alternatives are compatible with
the marketing goals of the firm. The firm should also examine whether and channel members in
the desired alternative would be willing to work enthusiastically for the firm and the product.

Deciding the Number of Tiers
One critical decision concerns the number of tiers. How many levels should there be in the
distribution channel? In fact, the same considerations explained in the preceding pages would
indicate the answer to the questions. In majority of cases, the choice is between single tier and two
tiers; a few firms opt for a three-tier channel. In the case of firms that opt for a sole selling
agency, the latter may be having its own channel arrangement and thee tiers operating in the outfit
of the agency become a part and parcel of the total channel of the firms. The choice depends on a
number of factors. In the first place, in certain businesses, a particular channel pattern may exist
for many years as a standard trade practice of that business. There may be some advantage in
going along with the existing trade pattern. The product characteristics too indicate the choice of a
particular channel pattern. For example, for selling passengers cars, a firm may need only a single
tier distribution channel. The intermediaries at one level can effectively link the maker and the
buyer. In a product like cosmetics or cigarettes, it may be necessary to the two tiers or three tier or
three tier channel pattern in view of the mass nature of the product. It may not be possible to
achieve adequacy of market coverage in such products, with just one tier of marketing
intermediaries.

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Comparative Merits of Single Tier and Two Tier Channel Patterns
Both single tier and two tier channels patterns have their associated advantages and
disadvantages.
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The single tier pattern provides better motivation to each member in the disadvantages. The single
tier pattern provides better motivation to each member in the channel. With the elimination of the
wholesale tier, the trade discount is available in full measure to the retail dealer. Elimination of
the wholesale tier, the trade discount in available in full measure to the retail dealer. Elimination
of one tier also brings in savings in distribution expenses to the firm by avoidance of multiple
transport and handling requirements. The firm can also services all the outlets directly. But the
single tier pattern involves greater administrative burden. It also sometimes results in inadequate
market coverage. In the single tier pattern, the producer or the principal should be in a position to
perform by himself, the functions that are normally passed on to middlemen at eh wholesale level.
The producer will have to increase the spread of his field storage points and the size of his sales
force to make up for the absence of whosale middlemen in the distribution outfits. The two-tier
pattern helps quicker outflow of stocks and more intensive coverage of the market. But two tier
pattern results on lower profits to retailers, as the available margin has to be shared between the
wholesaler and retailer. It also weakens principal‟s control over the outfit, compared with the case
the single tier pattern.
It is evident that he choice between a two tier and single tier pattern has to be made after studying
in detail the associated merits and demerits of the two alternatives in the specific context of the
firm, its marketing objectives and marketing requirements. The choice must be made with great
care since many other marketing decisions depend on this vital decisions relating to the number of
tiers.
In recent years, as a general trend, the number of tiers in the distribution channels is getting
shorter in many businesses. Businesses the used to have a three-tier structure earlier now have a
two-tier structure and those with a two-tier structure earlier are now happy with a single tier
channel. And many cases, the axe has fallen on the stockists. Asian paints are one of the
companies which chose, as a matter of conscious policy, a single tier channel going directly to the
retail trade.
In summary, the chosen channel must have the capability to sell the product and to provide the
required market coverage. It should also ensure that the user gets the amenable to the control of
the company to the extent required for operating the marketing system. And it must be cost-
effective.

Selection of Channels of Distribution
Many factors have to be considered in taking a decision about the channel of distribution. The
most important problem before companies is their capacity to establish or use a particular channel.
A particular company may not have resources of facilities to set an ideal distribution channel, and
may, therefore hve to resort to the use of the channel available, which may not be the optimal
channel of distribution, form the point of view of the producer. In most of the cases, the channel
decision depends upon local conditions and opportunities. A manufacturer may use the services of
a general retail merchant for rural markets have direct dealings with retailers in small and medium
cities or deal through stockiest and distributors in big urban centers. In another part of the country,
he may distribute his products through sole agents.

Factors to be Considered for the Channel Decisions
The following are some of the factors, which must be considered in taking a channel decision:
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1. Type of product
2. Type of consumer
3. Resources and facilities with the company
4. Competitors‟ channels objectives
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5. Channel alternatives, and
6. The financial factors.
Type of Product
The nature and type of product is an important factor in the selection of the channel of
distribution. For perishable products like butter, vegetables, fish, tobacco, tea, etc., controlled and
expensive channels of distribution are needed so that the products reach the consumers in time.
For non-perishable products a cheaper channel of distribution having more stages and
intermediaries may be used. But in the marketing of fall products, the endeavor of the producer
should be to select a close structure distribution system by reducing stages to the largest
essentials.

Types of Consumer
The type of customer i.e age, income, sex, vocation, likes and dislikes, the place and frequency of
purchases etc. have to be considered in deciding about the distribution channel. Modern marketing
is fully customer oriented and all products should reach the customer at the time, place manner in
which he desires.
Buying habits influence the selection of channels greatly. The urgency of the need, the location
preferred and also the way of buying or purchasing affects this selection. As a general rule, for
low priced, more competitive, frequently purchased, products in low consumers generally make
very little effort, they want them at the most convenient outlet e.g. cigarette, plan (betel), tea,
bread, soap, etc., all these products need an intensive network of distribution channels.
As the amount of effort made by the buyers begins to increase, the number of channels required is
fewer i.e. high priced, more specialty products need exclusive distribution products need direct
channels.

Resources and Facilities with the Companies
The resources and facilities available with the company also play a large part in the selection of
channels. Many medium and small scale manufacturers in India are unable to use the best
distribution arrangements for their products because of lack of finances and facilities e.g.
Chunaries and toys of Udaipur, marble products of Agra, metalware of Moradabad, leather
products of Agra, Kanpur and Madras, and thousands of other products manufactured in the
country on a small scale are not properly distributed throughout the country‟s markets only
because, the manufacturers of these products have no resources and facilities to distribute their
products. The efforts of the Cottage Industries Boards, and State Trading Corporation, etc to
undertake the distribution of such products are neglible considering the magnitude of the problem
of distribution faced by such small-scale manufacturers.

Competitors’ Channel of Distribution
To a large extent, the competitive companies‟ channels of distribution influence the distribution
channel of a company. Manufacturers of many products want to compete in or near the same
outlets that are carrying the competitors‟ products.


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Market Coverage and Channels Objectives
The market that a company wants to cater to also has an impact on the distribution channel. The
market of some companies is a small area or region, while in the cases of other companies, it may
be the whole country and also some foreign market. Therefore a very important consideration
before a company is to first determine its channel objectives.




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Module 12 Promotional Practice Management                                                  4 Place
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Channel objectives include the determination by the company about markets to be covered and
the product to be sold. To a great extent. The distribution channel is based on the overall product
market objectives of the company.

Channel Alternatives
Whenever there is more than one method of taking the product form the producer to the use the
same methods and intermediaries for the distribution of their products. A company in such an
industries, different manufacturing units use different channels of distribution. A company in such
an industry has to choose between alternative channels. There are also cases where individual
companies have managed to develop their own distribution system. In selecting a channel
alternative, many points have to develop their won distribution system. In selecting a channel
alternative, many points have to be considered such as the number of intermediaries who will be
used at each stage of distribution, specific marketing task to be performed by the intermediaries,
the terms and mutual responsibilities of he manufacturer and intermediaries. Each alternative
channel of distribution should be properly evaluated before taking a final decision. Even after the
selection and use of a distribution channel, continuous and effective management of all the
intermediaries and the distribution system as a whole is required. In the changing marketing
environment, changes in the distribution system may also be needed.

The Financial Factors
Some other factors, which influence channel selection decisions, are the sales volume and rate of
return on investment (ROI) on a channel often referred to as financial factors. To arrive at a
decision, data are to be analysed in respect of all channel choices available. Distribution cost
accounting helps in calculating the cost of operation of different channels. On the basis of
estimated data about sales and costs, return on investment (ROI) on the channel may be worked
out by using the following formula.

                  R1 = S1- C1
                        C1
Where
R1 = return on investment associated with marketing channel
S1 = estimated sales associated with using channel (1), and
C1 = estimated costs associated with using channel (1).
Other factors being constant, the channel emerging with a higher return on investment is
preferred.

Distribution Channel of M/s Ayuirved Sevashram (P) Ltd., Udaipur
Ayurved Sevashram (P) Ltd., which is a leading concern in cosmetic mainly in perfumed hair oils
and black tooth powder, sells its products the following channels:
1. Sevashram has a network of agents throughout the country and these agents sell Sevashram‟s
   products in their areas only, the company gives commission to their agents ranging form 3%
   to 6% on their annual turnover.
2. Sevashram also supplies goods directly, if any party7 or firm contacts the company, but the
   commission on these sales goes to the account of the agent who caters to that purchaser‟s area.
3. Sevashram‟s paid representatives also book orders from various parties in India, but on these
   orders also, the commission goes to the agent‟s account.
4. Ayurved Sevashram has appointed in all 167 agents in India including one agent for Nepal
   (Kathmandu). The company also gives incentive bonus (between ½% and 3%) to their agents,
   if they complete their annual targets, which are fixed by the company.
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5. The company and agents both are bound for the appointment contracts for one year.
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6. Every year, the company makes new appointment contracts.
7. The company has three branches and four depots in the country.

Branches
a. Udaipur
b. Varanasi
c. Hyderabad

Channels of Distributions
A. The Udaipur Branch covers the states of Rajasthan, Gujarat, Madhya Pradesh, Punjab,
   Harvaya, Jammu and Kashmir Himachal and Delhi.
B. The Varnasi Brach coverts the states of Uttar Pradesh, Bihar, West Bengal, Orissa, Assam,
   Nagaland, Meghalaya, Manipur, Arunachal Pradesh and Mizoram.
C. The Hyderabad Branch covers the states of Maharastra, Mysore, Andhra, Kerala, Tamil-Nadu
   and Goa.

Depots
a. Indore Depot, and
b. Patna Depot
c. The Patna Deport distributes Seveshram‟s products in the whole of Madhya Pradesh.
d. The Patna Depot covers whole of Bihar state and similarly other depots cover Gujarat, Assam
   and Bombay-Bombay Presidency and Greater Bombay.
The company takes security deposits from all the agents and the amount depends upon the size of
the are an agent caters to security deposits are amounting between Rs. 100 and Rs. 3,000.

Hindustan Lever Ltd
Distribution of Essential Commodities
In the recent past, there has been a growing awareness in our country of the need for equitable
distribution of essential commodities and this has now been aptly adopted as a national objective.
Hindustan Lever has built up one of the largest and most efficient national distribution systems for
the distribution of consumer products in the country.

1. Importance of Distribution Function
It is customary to refer to the distribution system as „trading‟, which in our country does not
command the same glamour as „manufacturing‟ and „technology‟. Yet, an efficient distribution
system in very important, especially in a marginal economy as our government and people, in
general, have realized in times of shortage. This function is important for the following reasons.

2. Delivery of Progress to the Consumer.
   The distribution system constitutes the vehicle that delivers the fruits of progress to the people
   at large.
3. Significant Value Added.
   The distribution system creates value added to almost all products. The value added in
   distribution in the case of several consumer articles is significant as compared to value added
   during manufacture.
4. Employment.
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For every five persons engaged in actual manufacture, there are another four engaged in
distribution. A note worth feature here is that employment in distribution does not require a
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   high degree of education or substantial capital. Such opportunities for employment should
   therefore, be maximized in a country like India where capital is scarce and education is
   limited.

5. Stimulation of Savings and Investment.
   Because of its widespread nature and the variety of scales on which the network can be
   operated, the distribution function attracts a large number of investors from the village
   shopkeeper to the large distribution companies.

6. Collection of Taxes
It is a very effective channel for the collection of indirect taxes such as exercise duties, sales tax,
etc. which the government is relaying increasingly.

Working of Distribution System and its Economies
1.The System.
It is a chain of activities linking the producer the consumer. The essential elements consist of-
a. The capital invested by the trade each stage
b. The risk in giving credit
c. The margins earned
d. The service it provides ultimately to the consumer and producer, and
e. The inoperative skills employed by the trade.
To obtain a fuller appreciation of the working for this system, let us examine in depth the
distribution for the most essential articles viz, food grains.
1. Distribution of Food grains in Cites’ Organisation.
   Distribution of food grains in urban areas presents one of the best examples of the
   complementary existence of the private trade and government agencies. In Greater Bombay,
   for example, rationing covers a population of 8.4 million and provides specified quantities of
   food grains at uniform prices fixed by the government. There are 2,100 licensed ration shops,
   which distribute over 0.7 million tones of grains per annum against rations specified on about
   2 million cards.

2. Economies.
    The economies of a typical ration having 7,500 units registered with it may be summarized as
    follows: one a turnover of Rs. 48,000 per month, the commission/income is about Rs. 1,370,
    therefore the gross margin is 2.8%. The expenses of operating the shop would amount to Rs.
    900 while investment required was Rs. 21,000. The return of capital (Rs. 1,370 less Rs. 470
    per month) is, therefore, 27% before tax on investment. The fallowing interesting features of
    this trading activity may be noted:
a. Although return on capital appears satisfactory as a percentage, the absolute amount of Rs.
    470 per month is not significant enough and less than even a semi-skilled factory worker will
    earn in Bombay.
b. The retailer is, therefore, forced to supplement this income by extending his trade to other
    „kirana‟ items.
c. For a capital investment of only Rs. 21,000, such a total outlet provides employment for three
    persons.

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d. The retailer can operate on the incredibly low gross margin of 2.8% and net margin of just
   under 1% of sales value because he is able to turn around stocks about 24 times a year.
e. The retailer does not normally extend credit for food grains rations.
Module 12 Promotional Practice Management                                                  4 Place
Operations

4. Distribution of Essential Commodities.
There are some items like textiles and sugar, which have their own characteristics distribution
system, but items (vanaspati, matches, tea, soap, cigarettes, pharmaceutical, etc.) are distributed
through the normal wholesale and retail trade. The terms of trade, involvement of the
manufacturer in actual distribution and sophistication of outlets may vary according to the
products and the manufacturers but, ultimately, all of them are competing for the same capital and
skills available in the trade and, therefore, measure of competitive terms of trade has been
evolved.

5. Marketing Support of the Distribution System
The distribution system for most consumer products rests on marketing support provided by the
manufacturer. It varies according to the economics of manufacturing and distributing the
products. On a fast selling product, the out of the retail trade may be happy with a gross margin of
3%, but if the product takes longer to move out of the retailer‟s shops to the consumer for lack of
marketing and distribution support, the investment in stocks by the trader would be higher and,
therefore, the margin charged by the retailer would also go up; ultimately, the consumer pays for
the extra margin. Therefore, when the manufacturer provides marketing and distribution support
and thereby enables the trade to reduce the stock turn-around period, the consumer is the gainer.
An essential ingredient in marketing is the institution of brand names. In our country, there is a
small, but vocal and influential section, which thinks that broad names are unnecessary, but they
forget that names are used even in the Soviet Union and other socialist countries who insist on
buying from India those brands through which the manufacturer‟s guarantee is conveyed to their
consumers. For instance, the detergent powder of Hindustan Lever is sold in Russia as a branded
product, and the Russian customer wants the name printed in Russian for the consumer to identify
our product which, incidentally, is reported to sell out very fast in Russia because of the quality
standard which the Russian consumer has by now come to associate with the product, it is also
worth examining the other common idea that international brand names enjoy certain advantages
over local brand names. On the other hand, wherever adequate marketing inputs have been made,
local brand names like Amul, Usha, Dalda, Hamam, Hima, Godrej, Viva, Chairminar, Postman,
etc have flourished because of consumers goodwill and confidence gained by their manufacturers.
The real distinction, therefore, is not between international and domestic brand names, but in the
degree of marketing support extended to the products.
6. Consumer Protection and Regulation of Trade Practices
In order to protect the interests of the consumer, there are several agencies, which monitor trade
practices instituted by manufacturers of consumer goods. The Consumer Guidance Society has
done very useful service drawing the attention of manufacturers and the public to the deficiencies
of the distribution system. We also have militant consumer organisation who keep a vigil on
distribution of scarce commodities, especially during times of shortage. In addition, there are
governmental and quasi-judicial bodies like the Department of a Civil Supplies, Weights and
Measures Department, Monopolies Commission, etc. all of whom are concerned with regulating
the behaviour of the manufacturers and the wholesale trade. The problem of disciplining the retail
trade is, more complex because of the numbers involved and the remoteness. We have been able
to overcome this partially in times of shortage, by the issue of cards stating the quantity each
retailer received the scarce item and sending out staff (incognito in some cases) to the markets to

   Professional Diploma in Sales and Marketing Management                                        77
check kon malpractices. The only remedy, however, is to ensure adequate supplies, and this
brings up to the current debate on a national distribution system foe essential articles.


Module 12 Promotional Practice Management                                                   4 Place
Operations

Options for Distribution of Essential Articles
In considering the options, we have to bear in mind a few very important factors:
a. The malpractices and deficiencies of 1972-74 were a result of shortages in supplies and are
    not inherent features of the existing system. Thi8s has been proved by the fact that with
    resorting of supplies of such products as soaps, vanaspati, cars, tyres, etc., the malpractices
    have disappeared. Therefore the real remedy is to increase supplies so that distribution
    becomes a competitive activity.
b. In designing a distribution system, we should be clear about the target group which is aimed
    for. In most cases, the real concern is about the urban sector (towns with population of above
    5,00) which constitutes about 20% of the total population).
c. The existing Indian trade channels provide one of the most efficient and economical
    distribution systems in the world because
Therefore, the options open for distribution of essential commodities to the urban population are
as follows:

1. State Emporia.
Apart from high overhead costs of operating such emporia there are problems with regard to
service and control on inventory and finance. Besides, they cater only to a small number of
consumers. State emporia utilise in urban areas, public finance which has been collected for the
benefit of the less affluent in non-urban areas. Therefore, while state emporia do exist in
metropolitan cities, they are not really suitable for distribution of essential articles.

2. Consumer Co-operatives.
Here we will discuss about co-operatives in the field of consumer goods and not the types of co-
operatives, which have a remarkable record of success like The Kaira District Co-operative for
milk. The strengths and weaknesses of the consumer co-operative distribution system may be
summarized as follows:

Strengths
a. Consumer co-operative enjoy a high level of confidence by the consumers who believe,
   rightly or wrongly, that cooperatives will not indulge in malpractices or in charging unofficial
   prices during rimes of shortage.
b. Because of there relatively larger size and organisation, cooperative are bale to provide certain
   services like cleaning and packaging of cereals and pulses, which are valued by the consumer.
c. Co-operative have access to cheap money which they borrow at comparatively low interest
   rates
d. Co-operatives enjoy a measure of political patronage, which helps them in availability of
   products.

Weaknesses
a. High overheads constitute the largest weakness, when they have to compete with the normal
   trade in a situation of free supplies.
b. Deficiency in financing management. This is a serious handicap when they have to compete
   with retailers who operate with lower margins
   Professional Diploma in Sales and Marketing Management                                        78
c. Their access to cheap government money with little responsibility for risks is yet another
   weakness.

It may be conducted that cooperatives have a define place in the urban markets, perhaps more as a
contingent channel of distribution during periods of shortages or of items in short supply.
Module 12 Promotional Practice Management                                                   4 Place
Operations

3. Retail and Wholesale Trade.
The third option is to use the traditional channels of trade and attempt to correct deficiencies.
Hindustan Lever has used these trade channels over the decades with great success and
satisfaction. The products of the company move from factories to about 40 depots located in
different parts of the country. These depots serve as the point of storage and distribution to the
company‟s „Redistribution Stockists‟ who can be found in almost all medium and large cities in
India. The company has 400 such redistribution Stockists who generally deal in the full range of
the company‟s product. Through them, the products reach about 200,000 retailers who are the
ultimate point of contact with the consumer. It would be presumptuous to say that these traditional
channels of trade are without any weaknesses. Their biggest weakness is the behaviour during
shortages. But there is considerable scope for disciplining them by manufacturers who could
nominate and declare selected outlets for distribution of the scarce items under advice to the Civil
Supplies Department, which could monitor the trade. It is far simpler and less expensive to
improve this system than to attempt its replacement.

Modernization of Distribution System
In many western countries, the traditional wholesale and retail chain stores and supermarkets are
displacing trades. But his is unlikely to happen in India for two reasons- it will reduce avenue of
reemployment as compared to our traditional channel and it will not cater to the lower income
groups who constitute the majority of our population. It is however, possible to improve the
present system by providing vocational training in distribution and evolving a simpler system for
collection of taxes.

1. Vocational Training
One-step towards modernisation would be to provide vocational training in distribution, that is
retail and wholesale trades. Just as we teach our young man for many other trades, it is
advantageous to teach them formally some aspects of distribution such as inventory management,
cost of capital, minimizing the use of capital, pricing, consumes attitude and service, product
quality determination, etc. some of our universities may consider introducing such courses.

2. Simpler System for Distribution Taxes
Another innovation that could improve the ethics of the trade would be to evolve a simpler system
of taxation arising from distribution. At present, in addition to excise duty collected at the
manufacture‟s end, there is control, central sales tax, states sales tax, multipoint sales tax, etc., all
of which are to be collected separately. Al these lead to not only unnecessary expenses on the
bureaucracy, but also open out vistas for corruption and malpractices. It is, therefore, urged that
the Central Government should appoint a National Commission on Distribution Taxes and
institute a simpler and standardized system for levying and sharing of such among the states.

Responsibility of Manufactures
These may be summarized as follows:
1. Equitable Distribution.
   This is a particularly important in times of shortage.
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2. Penetration into Rural Markets
   Instead of continuing only in the fixed circuit of markets, manufacturers should spread the
   distribution network further for essential articles as the years go by.

3. Vigilance in Pricing
Module 12 Promotional Practice Management                                                   4 Place
Operations

   Through retailer stock cards and auditing of retail prices.
4. Product Quality
   Delivery of an assured quality is the most vital responsibility and for this the marketing of
   branded products is the most suitable support to the distribution system.

5. Training for the Trade
   Hindustan Lever started cources for wholesalers in specialised products, like cattle and poultry
   feed which proved very effective and, therefore, believes that training could contribute to
   amore efficient distribution system.

6. Ensuring Adequate Return for the Trade.
   It is the manufacturer‟s responsibility to ensure that the wholesale and retail trades are not
   dined adequate returns for their efforts. If not, they will either give up trading in the products
   or indulge in malpractices.

7. Innovation in Distribution
   Innovations in distribution are also the responsibility of the manufacturer.




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Module 12 Promotional Practice Management                        5 Integration, Implementation &
Evaluation


 5 Integration, Implementation and Evaluation

Budgeting and Evaluation
purpose of Budgeting
An organization needs to budget in order to ensure that its expenditure does not exceed its planed
income. It has already been shown that the sales forecast is the starting point for business planning
activities. The company-costing department takes the medium term sales forecast as its starting
point, and from this budgets are then apportioned to departments (or cost centers in accounting
parlance). Budgets state limits of spending; they are thus a means of control. The company can
plan its profits based upon anticipated sales, minus the cost of achieving those (which is
represented in the total for the organization).
The consequence of an incorrect medium term forecast can be immediately forecast can be
immediately seen because then the whole company profit plan will be incorrect. It has already
been mentioned, but it is re-emphasized here, that if the forecast is pessimistic and the company
achieves more sales than those forecast, then potential sales might being available to achieve
those sales. On the other hand, if the sales forecast problems will arise, with the company having
to approach a lending institution most probably a bank to fund its short-term working capital
requirements (which can be very expensive when interest rates are high). This latter factor is a
prime cause of many business failures, not necessarily because of bad products or a bad sales
force, but through insufficient money being available to meet working capital requirements. These
problems all stem form incorrect medium term forecasting in the first place.

Budget Determination
Cost accountants do not prepare departmental budgets. Cost accountants, in conjunction with
general management, apportion overall budgets for individual departments. It is the departmental
manager who determines how the overall departmental budget will be utilised in achieving the
planned for sales (and production). For instance, a marketing manager might decide that more
needs to be apportioned to advertising and less to the physical effort of selling in order to achieve
the forecasted sales. He or she will therefore apportion the budget accordingly and may
concentrate upon image rather than product promotion; it is a matter of deciding beforehand
where the priority must lie when planning for marketing.
Thus, the overall sales forecast is the basis for company plans and the sales department budget
(other names sales and marketing department budget and marketing department budget) is the
basis for marketing plans in achieving those forecasted sales. The sales department budget is
consequently a reflection of, marketing‟s forthcoming expenditure in achieving those forecasted
sales.
At this juncture it is useful to make a distinction between the sales department budget and the
sales budgets. The sales department period ahead. Cost accountants split this budget into three
elements of cost.
    Professional Diploma in Sales and Marketing Management                                   81
1. The selling expense budget includes those costs directly attributable to the selling process, e.g.
    sales personnel salaries and commission, sale expenses and training.
2. The advertising budget includes those expenses directly attributable to above the line
    promotion, e.g. television advertising, and below the line promotion, the line promotion/ e.g. a
    coupon redemption scheme. Methods of ascertaining the levels of such a budget are as
    follows:
   A percentage of last year‟s sales.




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Module 12 Promotional Practice Management                       5 Integration, Implementation &
Evaluation

  Parity with competitors, whereby smaller manufacturers take there cue from all larger
   manufacture and adjust their advertising budget in line with the market leader.
  The affordable method, where expenditure is allocated to advertising after the other cost
   centers received their budgets. On other words, if there is anything left over it goes to
   advertising.
  The objective and task method calls for an ascertainment is a tangible item that extends
   beyond the budget period. It looks at advertising expenditures as longer-term investments and
   attempts to ascertain the return on such expenditure.
  The incremental method is similar to the previous method; it assumes that the last unit of
   money spent on advertising should bring in an equal unit of revenue.
   The first method assumes that increasing sales will generate increasing promotion and vice
   versa, whereas the converse might spend. The second method assumes status quo within the
   market place. The third method does not really commend itself because the assumption is that
   advertising is a necessary evil and should only be entered into when other expenditures have
   been met. It quite often happens in times of company squeezes that advertising is the first item
   to be cut because of its intangibility. The cure for the company ailment might rest in increased
   promotional awareness. The fourth method seems to make sense, but the main difficulties are
   in measuring likely benefits like increased brand loyalty resulting form such advertising
   expenditures, and determining when marginal revenue equals marginal expenditure. In
   practice, firms deciding their advertising budget.
3. The administrative budget represents the expenditure to be incurred in running the sales force.
   Such expenses cover the costs of marketing research, sales administration and support staff.
The marketing manager (or whoever is responsible for the overall marketing and selling function)
must then determine, based upon the marketing plan for the year ahead, what portion okf the sales
department budget must be allocated to each of the three parts of budget described above. Such
expenditure should of course ensure that the forecasted sales will be met as the forecasting period
progresses.
What has been stated so far relates to the sales department budget; the sales budget itself has no
been dealt with. The sales budget has far more implications for the company and this merits a
separates section by way of explanation.

The Sales Budget
The sales budget may be said to be the total revenue expected form all products that are sold, and
such as this affects all other aspects of the business. Thus, the sales budget comes directly after
the sales forecast.
It can therefore be said that the sales budget is the starting point of the company budgeting
procedure because all other company activities are dependent upon sales and the total revenue
anticipated form the various products that the company sells. This budget affects other functional
areas of the business, namely finance and production, because these two functions are directly
dependent upon sales.

Budget Allocation
The sales budget itself is a statement of projected sales by individual salespeople. The figure that
reaches the individual salesperson is sometimes called the sales quota or sales target and this is
the amount that must be sold in order to achieve the forecasted sales.
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Module 12 Promotional Practice Management                         5 Integration, Implementation &
Evaluation

Such quotas or sales targets are that must be reached, and quite often incentives are linked to
salespeople reaching (and surpassing) such quotas or targets.
Each salesperson knows the individual amount he or she must sell in order to achieve their quota,
and such quotas are in effect performance targets. Quotas need not necessarily be individually
based, but can be group based say, collectively throughout a region with everybody form the
regional or area manager downwards equally sharing the sales commission. Quotas may also be
for much shorter periods than the year. The entire year‟s budget may be broken down in the same
manner, say, month by month; when administered in this way the time horizons is more realistic
and immediate than one year. Thus there is more of an incentive for a salesperson to achieve the
quota or target.
For established firms the most common practice of budget allocation is simply to increase (or
decrease) last year‟s individual budgets or quotas by the appropriate percentage, depending on the
change in the overall sales budget. However, periodically it is sensible to review individual sales
quotas in order to establish if they are reasonable given current market conditions.
The first step in this procedure is to attempt to determine the sales potential of territories. Usually
surrogate measures will be employed to give at least relative measures of potential. For consumer
products, disposable incomes and number of people in the target may be used to assess relative
potential. For industrial products, the number and size of potential customers may be used.
Another potential may justify different quotas if one is compact while the other is more
widespread. By assessing sales potential for territories and allowing for workload, the overall
sales budget can be allocated in as fair a manner as possible between salespeople.
Not only does the sales quota act as an incentive to the sales force; it also acts as a prime measure
of performance. The following sections of this chapter look at he whole area of evaluation of sales
personnel.

The Purpose of Evaluation
The prime reason for evaluation is to attempt to attain company objectives. By measuring actual
performance against objectives, shortfalls can be identified and appropriate has other benefits.
Evaluation can help improve an individual‟s motivation and skills. Motivation is affected since an
evaluation programme will identify what is expected of him or her, and what is considered good
performance. Second, it provides the opportunity for the recognition of above average standards
of work performance, which improves confidence and motivation. Skills in those areas.
Thus, evaluation is an important ingredient in an affective training programmed. Further,
evaluation may show weakness perhaps in not devoting enough attention to selling certain product
lines, which span most or all the sales team. This information may lead to the development of a
compensation plan designed to encourage salespeople to sell those products by means of higher
commission rates. Evaluation provides information which affects key decisions area within the
sales management function. Training, compensation, motivation and objective setting are
dependent on he information derived form evaluation. It is important, then, that sales management
develop a system of information collection which allows fair and accurate evaluation to occur.

Setting Standards of Performance
Evaluation implies the setting of standards of performance along certain lines which are believed
to be important for sales success. The control process is based upon the collection of information


   Professional Diploma in Sales and Marketing Management                                           84
on performance so that actual results can be compared against those standards. For the sales team
as a whole the sales budget will be the standard against which actual performance will be
Module 12 Promotional Practice Management                       5 Integration, Implementation &
Evaluation

evaluated. This measure will used to evaluate sales quota will be a prime standard of sales
success.

Standards provide a method of fairly assessing and comparing individual salespeople. Simply
comparing levels of sales achieved by individual salespeople is unlikely to be fair since territories
often have differing levels of sales potential and varying degrees of workload.

Gathering Information
The individual salesperson will provide much of the information upon which evaluation will take
place. He or she will provide head office with data relating to sales achieved by product brand and
customer, a daily or weekly report of the names of customers he or she has called on, and
problems and opportunities revealed, together will expense claims.
Sales management during will supplement such information filed visits. These are important in
providing more qualitative information on how the salesperson performs in front of customers as
well as giving indications of general attitudes, work habits and degree of organizational ability, all
of which supplement the more quantitative information provided by the salesperson
himself/herself.

Market research projects can also provide information on the sales team from customers
themselves. A specific project, or a more general one which focuses on the full range of customer
seller relationships, e.g. delivery, product reliability, etc, provide information on salespeople‟s
performance on salespeople‟s performance. A market research study commissioned by Perkins
Engines (Reed, 1983) found that salespeople with technical backgrounds were basing their sales
presentation on features, which were not properly understood by their audience. This led Perkins
Engines to retrain their sales force so that their sales presentation focused upon a simple
presentation of features and the customer benefits, which arose form those features.
Finally, company records provide a rich source of information for evaluation. Records fo past
sales levels, call achieved, expenses levels, etc., can provides bases for comparison and
indications of trends which can be used both for evaluation and objective setting.

Measures of Performance
Quantitative Measures of Performance
There are two fundamental groups of performance measure, for both groups, management may
which to set targets for their sales team. One group is a set of input measures, which are
essentially diagnostic in a nature they help to provide indications of why performance is below
standard. Key output measures for individual salespeople include:
   Sales revenue achieved
   Profits generated
   Percentage gross profit margin achieved
   Sales per potential account
   Sales per active account
   Sales revenue as a percents of sales potential
   Number of orders
   Sales to new customers
   Number of new customers.
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All of these measures related to output.
The second group of measures relates to input and includes:
Module 12 Promotional Practice Management                        5 Integration, Implementation &
Evaluation

   Number of calls made
   Calls per potential account
   Calls per active account
   Number of quotations (in part, an output measure also)
   Number of calls on prospects.
By combining output and input measures a number of hybrid ratios can be determined. For
example:
1. Strike rate = numbers of orders
                  Number of quotations
2. Sales revenue per call ratio
3. Profit per call ratio        call effectiveness
4. Order per call ratio
5. Average order value = sales revenue
                            Number of orders
6. Prospecting success ratio= number of new customers
                                Number of prospects visited
7. Average profit contribution per order= profits generated
                                            Number of orders

All of these ratios can be applied to individual product and customer types. These ratios help to
answer the following questions.
   Is the salesperson achieving a satisfactory level of sales?
   Is sales success reflected in profit achievement?
   Is the salesperson; buying‟ sales by giving excessive discounts?
   Is the sales person devoting sufficient time to prospecting?
   Is time spent prospecting being rewarded by orders?
   Does the salesperson appear to be making a satisfactory number of calls per week?
   Is he or she making enough repeat calls on different customer categories? Is he or she making
    too many calls on low potential customers?
   Are calls being reflected in sales success?
Are the numbers of quotations being reflected in orders taken?
How are sales being achieved a large number of small or a few large orders?
Are the profits generated per order sufficient to justify calling upon the account?
Many of these measures are clearly diagnostic. They provide pointers to possible reasons why a
salesperson may not be reaching his or her sales quota. Perhaps he or she is lazy not making
enough calls. Perhaps call rate is satisfactorily but call effectiveness e.g. sales per call, is low,
indicating a lack of sales skill. Maybe the salesperson in calling on too many established accounts
and not enough new prospects.
Ratios also provide clues to problem areas, which require further investigation. A low strike rate
(order to quotations) suggests the need for an analysis of why orders are not following quotations.
Poor call effectiveness suggests a close examination of sales technique to identify specific areas
of weakness so that training can be applied more affectively.


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A further group of quantitative measures will explore the remuneration, which each salesperson
receives. The focus will be on expenses and compensation. With respect to expenses, comparisons
will be made between salespeople, and between current year and last year. Ratios which may be
used include:
Module 12 Promotional Practice Management                    5 Integration, Implementation &
Evaluation

1.   Expenses/sales revenue generated
2.   Expenses/profit generated
3.   Expenses per call
4.   Expenses per square mile of territory.
Such measures should give an indication of when the level of expense is becoming excessive.
Compensation analysis is particularly valuable when:
  A large part of salary is fixed
  Salespeople are on different of fixed salary
The latter situation will be found in companies, which pay according to the number of years at the
firm or according to age. Calculating for each salesperson the following two ratios can expose
unfairness, in terms of sales results:
   Total salary (including commission)/sales revenue
   Total salary (including commission)/profits.
These ratios will reveal when a compensation plan has gone out of control, and will allow changes
to be made before lower paid higher achievers leave for jobs which more closely relate pay to
sales success.
A study by Jobber, Hooley and Shipley survey a sample of 450 industrial products organisations
(that is firms manufacturing and selling repeat industrial goods such as components, and capital
goods such as machinery). The objective was to discover the extent of usage of sales evaluation
criteria among small (less than £3 million sales turnover) and large (greater than £3 million sales
turnover) firms.
The growth in the penetration of personnel computers is mirrored by the development ok software
packages that provide the facilities for the simple compilation and analysis of sales force
evaluation measures. The creation of a databank of quantitative measures over time allows a rich
source of information about how the sales force is performing.
These quantitative measures cannot solely produce a complete evaluation of salespeople. In order
to provide a wider perspective, qualitative measures will also be employed.

Qualitative Measures of Performance
Assessment along qualitative lines will necessarily be more subjective and will take place, in the
main, during field visits. The usual dimensions, which are used, are given below.
1. Sales skills. These may be rated using a number of sub-factors.
   Handling the opening and developing rapport
   Identification of customer needs, questioning ability.
   Quality of sales presentation
   Use of visual aids
   Ability to overcome objections
   Ability to close the sales


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2. Customer relationships.
   How well received is the salesperson?
   Are customers well satisfied with the service, advice, reliability of the salesperson, or are there
    frequent grumbles and complaints?
3. Self-organasition. How well does the salesperson carry out the following?
Module 12 Promotional Practice Management                        5 Integration, Implementation &
Evaluation

  Prepare calls
  Organize routeing to minimize unproductive traveling.




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Module 12 Promotional Practice Management                             6 Current and Future Issues
Module 12 Is
 6 Current and Future Issues

Law and Ethical Issues
Consumer protection by the law is very much a twentieth-century phenomenon. Before that the
prevailing attitude can be described by the phrase caveat emptor - let the buyer beware. Much of
the legislation has been drawn up since 1970 when there was recognition that sellers may have an
unfair advantage compared with consumers when entering into a contract of sale. The major laws
controlling selling activity in Britain include the following:
   Weights and Measures Act 1878, 1963, 1979
   Sales Of Goods Act 1893, 1997
   Resale Prices 1964, 1979
   Restrictive Trade Practices Acts 1956, 1968, 1976
   Misrepresentation Act 1967
   Trade Descriptions Act 1968, 1972
   Unsolicited Goods and Services Acts 1971, 1975
   Supply Of Goods (Implied Terms) Acts 1973, 1982
   Fair Trading Act 1973
   Hire Purchase Act 1973
   Consumer Credit Act 1977
   Consumer Safety Act 1978
   Consumer Protection Act 1987
In addition to these Acts, are protected by a range of codes of practice covering such activities as
advertising, market research and direct selling. Trade associations such as the Association of
British Travel Agents, Society of Motors Manufacturers and Traders, and Radio, Electrical and
Television Retailers‟ Association have also drawn up codes of practice which have been approved
by the office of fair trading.
The consumers‟ interest is also protected by the Consumers‟ Association, which campaigns for
consumers and provides information about products, often on a comparative basis, allowing
consumers to make a more informed, rational choice between products and brands. This
information is pushed in their magazine which? The National Consumer Council was established
in 1975 to represent the consumer interest at national level and to issue reports on various topics
of consumer concern, e.g. consumer credit.
The Contract
All this activity is centred upon the contract entered into when a seller agrees to part with good or
provide a service in exchange for monetary payment. A contract is made when a deal is agreed.
This can be accomplished verbally or in writing. Once an offers £1,000 and this offer is accepted,
the builder is obliged to carry out the work and the householder is under an obligation to pay the
agreed sum upon completion. Although contracts do not have to be in writing – except, for
example, house purchase – to place an offer and acceptance in writing can minimize the like hood
of misunderstanding over the nature of the action. Important in written contracts are the terms and
conditions, which apply. This aspect of the contract will now be considered, before an
examination of some business practices and the way in which they are controlled by law is
undertaken.
In a binding contract, one party should have made a firm offer and the offer should have received
an unequivocal acceptance. An offer should be distinguished from „an invitation to treat‟ an
invitation to treat (negotiate) is not an offer.
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For example, the display of goods at a certain price in a shop is not an offer by the shopkeeper to
sell. Rather it is an invitation to shoppers to make an offer to buy. Thus if a product is accidentally
priced too low, the customer cannot demand to buy at that price.

Terms and Conditions
As the name suggests, terms and conditions state the circumstances under which the buyer is
prepared to purchase and the seller is prepared to sell. They define the limit of responsibility for
both buyer and seller. Thus both buyer and seller are at liberty to state their terms and conditions.
Usually the buyer will state them on the back of the order form and the seller will do so on the
reverse of the quotation form. Often a note is typed on the front of the form in red ink: „your
attention is drawn to our standard terms and conditions on the reverse of this order.‟ Typical
clauses incorporated into the conditions of a purchase order include the following:
1. Only orders issued on the company‟s printed order form and signed on behalf of the company
    will be respected.
2. Alterations to orders must be confirmed by official amendment and signed.
3. Delivery must be within the specified time period. The right to cancel is reserved for late
    delivery.
4. Faulty goods will be returned and expenses charged to the supplier.
5. The supplier shall pay for all insurance of goods in transit.
6. This order is subject to a cash of 2.5 per cent, unless otherwise arranged, for payment within
    28 days of receipt. Any payment made is without prejudice to our rights if the goods supplied
    prove to be unsatisfactory or not in accordance with our agreed specification or sample.
7. Tools supplied by us for the execution of this order must not be used in the service of any
    other firm without permission.
Careful drawing up of terms and conditions is essential in business since they provide protection
against claims made the other party should problems arise in fulfillment of the contract.

Terms of Trade
In addition to the tactical and strategic aspects of international, sellers and buyers need to be
aware of the terms of trade, which apply when trading overseas. Differences in the terms of trade
can have serious profit consequences for the unwary. Terms of trade are used to define the
following:
a. Who is responsible for control over the transfer of goods between importer and exporter?
b. Who is responsible for each part of the cost incurred in moving of goods between importer
    and exporter.
A number of terms are used to cover these aspects of delivery and cost. Variations in definitions
led to the international chamber of commerce drawing up formal definitions in 1936. These were
published under the title of INCOTERMS and have since been subject to update. For example, in
1980 a new edition of INCOTERMS covered two new terms which were required because of the
increasing importance of container transportation.
Terms of trade are useful in that they cover a range of situations extending from the case where
exporters merely make their goods available for collection by importers or their agents at their
factory (ex works) the case where the exporters agrees to deliver the goods to the importer‟s
factory, thereby taking responsibility for the costs and administration of that delivery (free
delivered). The following sections list the more commonly used terms.


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Bills of Lading
A bill of lading is receipt for goods received on board a ship, which is signed by the shipper (or
gent) and states terms on which the goods were delivered to and received by the ship. The Bills of
Lading Act 1855 laid down the following principles:
1. It maintained the right of the shipper to „stoppage in transit‟. Thus an unpaid exporter could
    reclaim the good during shipping.
2. It set up the principle of transferability which allowed the transfer of the bill of lading from
    the holder to a third person who then assumed ownership of the goods as well as any rights
    and liabilities stated in the bill.
3. It stated that the bill of lading was prima facie evidence that the goods had been shipped.
The bill of lading thus acts as evidence that the shipper has received the goods. It can also act as
part of the contract between the shipper and person or organization paying for the shipping. For
example, if the goods are damaged upon arrival at the port of departure, a shipper can „clause‟ the
bill of lading to that effect. A bill of lading will usually cover the following details:
   Name of the shipper
   Ship‟s name
   Payment details, e.g. whether freight has been paid or is payable at destination
   Name of consignee
   Terms of the carriage contract
   Date when the goods were loaded in the ship
   Who is to be notified on arrival of the shipment at its destination
   Ports of departure and final destination
In summary, the bill of lading is a receipt for the goods shipped, a transferable document of title
to the goods allowing the holder to claim his or her goods, and evidence of the terms of the
contract of shipping.

Ex Works
An exporters may quote a price to an importer „ex works‟. This places the exporter‟s liability for
loss or damage to the goods at a minimum and also means that the exporter‟s duties in delivering
the goods are minimal. Ownership of the goods passes to the buyer once they have leave the
factory and the buyer pays all costs of exporting and accepts the risk once goods pass through the
factory gates. Quoting ex works may make sense if the goods are to be combined with those of
another organization to form a joint export cargo, or when the buyer has well-developed
transportation facilities e.g. buyers of commodity items such as tea and coffee beans. However,
for other customers, quoting an ex works price may not meet their needs, since they cannot easily
compare the actual cost of such goods against buying in their own country where prices are
quoted with delivery.

Free on Board (FOB)
This extends the responsibility, liability and costs of delivery for the exporter until the goods have
been loaded on to the ship („passed the ship‟s rail‟.) from this point; the importer pays the costs of
insurance and freight. However, the exporter still has the fright of „stoppage in transit‟ should the
importer fail to pay for those goods. Variations for land transport are „free on rail‟ (FOR) and
„free on wagon‟ (FOW) which mean that the seller has the responsibility and cost of delivering
goods on board a railway transporter or wagon.

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Free Alongside Ship (FAS)
This extends the responsible, for and must pay all the costs of transport up to the point of placing
the goods alongside the ship. A provision should be made covering who is responsible for any
loss or damage before the goods are actually loaded on to the ship. The importer thus pays for the
loading of the charge and the cost of insurance and freight to its destination.

Cost, Insurance and Freight (CIF)
If a cost, insurance and freight agreement is reached, the exporter is responsible for the delivery of
the goods onto the ship and pays the insurance on the part of the buyer against loss and damage
while on ship. Should any loss or damage occur after the shipping company has received the
goods and given the shipment a clean bill of lading, the buyer can take action against the ship
owner or underwriter. Thus responsibility has passed from the exporter once the cargo ship,
although it is the exporter who pays for the shipping to the importer‟s port.
The term cost and freight (C& F) is similar to CIF except, as its name suggests, the exporter is not
responsible for insurance during shipping. Instead the importer incurs the cost of this insurance.

Free Delivered
This places maximum responsibility and cost on the exporter since he undertakes to deliver the
goods to the importer with all costs paid of the administrative duties (e.g. obtaining an import
licence) carried out by the exporter. From a marketing perspective, quoting a delivered price has
the advantage that it minimizes customer uncertainty and workload since the costs of transport,
obtaining documentation, arranging shipping, etc. are borne by the seller. Furthermore, it allows
the customer to compare actual prices from a foreign source with local prices where delivery costs
are included or are of minimal amount. However, customers who have an efficient importing
system may prefer to pay, „ex work‟ or „free on board‟ and organise carriage themselves, rather
than pay the higher „free delivered‟ price.

Business Practices and Legal Controls
False Descriptions
Unscrupulous salespeople may be tempted to mislead potential buyers through inaccurate
statements about the product or service they are selling. In the UK a consumer is protected form
such practice by the Trade Descriptions Act 1968. The Act covers descriptions of products, prices
and services and includes both oral and written descriptions.
Businesses are prohibited from applying a false trade description to products and from supplying
falsely described products. The false description must be false to a material degree, and the Act
also covers „misleading‟ statements. Not only would a salesperson be contravening the Act if s/he
described a car as a achieving 50 miles per gallon when in fact it only achieved 30 miles per
gallon, he would also be guilty of putting a false trade description if s/he described a car as
„beautiful‟ if it proved to be unroadworthy.
The Trade Description (Place of Production) (Marking) Order 1988 requires that where products
are marked in such a way as to suggest they were made elsewhere than is the case, a clear
statement of the actual place of manufacture must be made. Misleading price indications are
covered by the Consumer Protection Act 1987. This Acts states that it is an offence to give a
misleading indication of the price at which goods; services, accommodation or facilities are

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available. The Act as well as the person or organization offering goods or services cover agents,
publishers and advertisers. Prices can be misleading when:
   It is suggested that a price is less than it actually is
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  It is suggested that other charges are included in the price when in fact they are
  It is suggested that prices will increase, decrease or stay the same
  It is suggested that the price depends on certain circumstances or particular facts
  Consumers are encouraged to depend on the truth of the price indication by circumstances
   which do not apply
The Act covers both products and services.
Confusion over value for value money due to differing pack sizes can be reduced by unit pricing
whereby packs are marked with a price per litre or kilogram, etc. an EU Directive which came
fully into force in 1994 requires that many supermarkets products, for example, must be marked
with a unit price unless packed in EU-approved pack sizes.

Faulty Goods
The principal protection for the buyer against the sale of faulty goods is to be found within the
Sale of Goods Act 1979. The Act states that a product must correspond to its description and must
be of merchantable quality, i.e. „fit for the purpose for which goods of that kind are commonly
bought as it is reasonable to except‟. An example is a second-hand car which is found to be
unroadworthy after purchase; it is clearly not of merchantable quality, unless bought for scrap.
Finally a product must be fit for a particular purpose which may be specified by the buyer and
agreed by the seller. If, for example, a buyer bought a car in this country with the expressed desire
to use it in Africa, a retailer may be committing an offence if s/he agrees that the car is fit to be
used when in fact, because of the higher temperatures, it is not.
The condition that products must correspond to their description covers both private and business
sales, whereas the merchantability and fitness for purpose conditions apply to sales in the course
of a business only. The latter two conditions apply not only at the time of purchase but for a
reasonable time afterwards. What exactly constitutes „reasonable‟ is open to interpretation and
will depend upon the nature of the product.
In order to protect the consumer against faulty goods, some companies give guarantees in which
they agree to replace or replace or repair those goods should the fault become apparent within a
specified period. Unfortunately, before the passing of the Supply of Goods (Implied Terms) Act
1973, these so-called guarantees often removed more rights than they gave. However, since the
passing of that Act it has been unlawful for seller to contract out of the conditions that goods
should be merchantable and fit or their purpose. Buyers can now be confident that signing a
guarantee will not result in them signing way their rights under the Sales of Goods Acts 1979.
The Consumer Protection Act 1987 came into operation in response to a EU Directive. This
protects buyers if they suffer damage (e.g. death, personal injury or damage to goods for private
use). They must be able to prove that the good was defective and that the damage was caused by
the defect in the product. Usually liability falls kon the manufacturers or importer of the finished
product or of be detective component or raw material. A product is considered to be defective
when it does not provide the safety, which a person is entitled to except (including instruction for
use). A major defence against claims is the „development defence‟ where the manufacturer proves
that the state of technical knowledge when the product was launched did not enable the existence
of the defect to be discovered. Further consumer protection is provided by the Consumer Safety
Act 1978, which prohibits the sale of dangerous products, and by various EU regulations. For
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example, the EU mark can only be used on aerosol containers if they conform to EU regulations
regarding dimensions, strength, etc.

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Inertial Selling
Inertia selling involves the sending of unsolicited goods or the provision of unsolicited services to
people who, have received them, may feel an obligation to buy. For example, a book might be
sent to people who would be told that they had been specially chosen to receive it. They would be
asked to send money in payment or return the book within a given period, after which they would
be come liable for payment. Non-payment and failure to return the good would result in letters
demanding payment, sometimes in quite threatening terms.
The growing use of this technique during the 1960s led to a campaign organized by the
Consumers‟ Association demanding that legislation be enacted curbing the use of the technique.
As a result the Unsolicited Goods and Services Act 1971 was passed, followed by the Unsolicited
Goods and Services (Amendment) Act 1975.
These Acts have not prohibited the use of the technique but have created certain rights for
consumers which make the use of the method ineffective. Unsolicited goods can be treated as a
free gift after a period of six months form receipt if the sender has not reclaimed them. Further, if
the recipient notifies the sender that they are unsolicited, the sender must collected them within 30
days or they become the property of the recipient and the rights of the sender who may be the
subject of a false order placed by a third party.
The practice of sending threatening letters demanding payment has been out-lawed, as have the
threats of legal proceedings or placing of names on a published list of defaulters.
Law has also controlled unsolicited services. For example, the practice of placing unsolicited
entries of names of firms in business directories and then demanding payment has been
controlled.
The law therefore gives sufficient rights to consumers effectively to deter the practice of inertia
selling. Fortunately for the consumer, the trouble and costs involved in using this technique
nowadays outweigh the benefits to be gained.

Exclusion Clauses
Another practice, which some sellers employed in order to limit their liability, is the use of an
exclusion clause. For example, a restaurant or discotheque might display a sign stating that coats
are left at the owner‟s risk, or a dry cleaners might display a sign excluding themselves from
blame should clothes be damaged. This practice is controlled by the Unfair Contract Terms Act
1977. a seller is not permitted to limit liability or contract out his liability for death or injury
arising from negligence or breach of contract or duty.
For other situations, where loss odes not include death or injury, an exclusion clause is only valid
if it satisfies the requirements of „reasonableness‟. This means that it is fair taking into account the
circumstances prevailing when the sales was made. Relevant factors, which are taken into account
when making a judgment about „reasonableness‟, include the following:
    The strength of the bargaining positions of the relevant parties
    Whether the customer received an inducement to agree to the exclusion clause
    Whether the customer knew or ought to have known of the existence of the exclusion clause
    Whether the goods were produced to the special order of the customer

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 For an exclusion clause which applies when some condition is not complied with, whether it
  was practicable for the condition to be met




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Buying by Credit
Before 1974 obtaining consumer credit through a hire-purchase agreement was treated differently,
under the law, to consumer credit of bank loan. However, from the consumer‟s point of view little
difference between paying for a good by installments (hire purchase) or paying in cash through a
bank loan which is itself repayable by installments. The Consumer Credit Act 1974 effectively
abolished this distinction. Almost all consumer credit agreements up to £15,000 are termed
regulated agreements. A notable exception is a building society mortgage. Regulations concerned
with „truth in lending‟ provisions of the Act came into operation in 1985. The Act now replaces
now replaces all former statutes concerning credit (e.g. hire purchase).
An important consumer protection measure, which resulted from the Act, was that al lender
should disclose the true interest rate in advertisements and sales literature. This true rate now
appears in advertisements as the annual percentage rate (APR) and enables consumers to compare
rates of interest charged on a common basis. Prior to this Act, cleverly worded advertisements and
sales literature could give the impression that the scale of charges was much lower than the true
case.
Control of credit trading was achieved by a system of licensing which is placed in the hands of the
Director General of Fir Trading. This system was designed to ensure that only people with a
sound trading record are able to deal in credit. Not only finance companies but also retailers who
arrange credit in order to sell their products must have a licence. Exempt form the act, however, is
weekly or monthly credit. Thus, many credit card agreements are exempted since total repayment
is often required at the end of each month.
People entering credit agreements are entitled to receive at least a copy of the agreement so that
they are informed of their rights and obligations. A „cooling of‟ period is provided for in the Act
when the agreement is preceded by „oral representations‟ (sales talk) and the agreement was not
signed on business premises. This provision was designed to control doorstep selling through
credit arrangements. A consumer who wishes to cancel must serve notice of cancellation within
five days of the date of receiving the copy of the signed agreement.
The Consumer Credit (Advertisements) Regulations 1989 laid down the minimum and maximum
information which may be given in credit or hire advertisements. Advertisements are categorized
as being simple, intermediate or full advertisements and the information content is regulated
accordingly.

Collusion Between Sellers
In certain circumstances it may in the sellers‟ interests to collude with one another in order to
restrict supply, agree upon prices (price fixing) or share out the market in some mutually
beneficial way. The Restrictive Practices Act 1979 requires that any such trade agreement must be
registered with the Director-General of Fir Trading, a post established under their Fair Trading
Act 1973. If the Director-General of Fair Trading considers that the registered agreement is
contrary to the public interest, he is empowered to refer it to the Restrictive Court. If the Court
agrees, the agreement may be declared void. The EU Commission also has powers over collusion
and has had notable successes in breaking down prices cartels, for example, in plastics.

Ethical Issues
Salespeople face many ethical issues including bribery, deception, the hard sell and reciprocal
buying.

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Bribery
This is the act of giving payments, gifts or other inducements to secure a sale. Such actions are
thought to be unethical because they violate the principle of fairness in commercial negotiations.
A problem is that in some countries bribes are necessary simply to compete for business.
Organizations need to decide if they are to market in such countries. Taking an ethical stance may
cause difficulties in the short term but over a longer period the positive publicity (or lack of
exposure to the risk of bad publicity) that can follow may be of greater benefit.

Deception
A problem which many salespeople face is the temptation to mislead the customer in order to
secure an order. The deception may take the form of exaggeration, lying or withholding important
information that would significantly lessen the appeal of the product. Such behaviour should be
discouraged by training, sales management promoting ethical actions by their won words and
behaviour and by establishing codes of conduct for their salespeople. Nevertheless, occasionally
reports of mal-practice in selling reach the media. For example, in the UK it was alleged that
some expected returns. The scandal resulted in millions of pounds of compensation being paid by
the companies to their clients.

The Hard Sell
A criticism that I sometimes made of personal selling behaviour is the use of high pressure (hard
sell) sales tactics to secure a sale. Some car dealerships have been accused of such tactics to
pressure customers into making hasty decisions on a complicated purchase that may involve
expensive credit facilities. Such actions encouraged Daewoo to sell cars using non-commission
customer advisors whose job it is to help customers choose the car which best meets their needs
rather than pressure them into all ill-considered purchase.

Reciprocal Buying
Reciprocal buying occurs when a customer only agrees to buy from a supplier if that suppliers
agrees to purchase something form the customer. This may be considered unethical if the action is
unfair to other competing suppliers who may not agree to such an arrangement or not be in a
portion to buy form the customer. Proponents of reciprocal buying claim that it is reasonable for a
customer to extract the best terms of agreement form a supplier, even if this means reaching
agreement to sell to the supplier. Indeed, they argue, counter-trade where goods may be included
as part payment for supplies has been a feature of international selling for many years and can
benefit poorer countries and companies that can not afford to pay in cash.




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