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Product life cycle management

(marketing)
Product life cycle (PLC) Like human beings, products also have a life-cycle. From birth
to death, human beings pass through various stages e.g. birth, growth, maturity, decline
and death. A similar life-cycle is seen in the case of products. The product life cycle goes
through multiple phases, involves many professional disciplines, and requires many
skills, tools and processes. Product life cycle (PLC) has to do with the life of a product in
the market with respect to business/commercial costs and sales measures. To say that a
product has a life cycle is to assert three things:

Products have a limited life,


Product sales pass through distinct stages, each posing different challenges,
opportunities, and problems to the seller,
Products require different marketing, financing, manufacturing, purchasing, and
human resource strategies in each life cycle stage.

The five main stages of a product's life cycle and the accompanying characteristics are:
Stage

1. Market
introduction stage

2. Growth stage

3. Maturity stage

1.
2.
3.
4.
5.
6.
1.
2.
3.
4.
5.

Characteristics
costs are very high
slow sales volumes to start
little or no competition
demand has to be created
customers have to be prompted to try the product
makes no money at this stage
costs reduced due to economies of scale
sales volume increases significantly
profitability begins to rise
public awareness increases
competition begins to increase with a few new players in
establishing market

6. increased competition leads to price decreases


1. costs are lowered as a result of production volumes
increasing and experience curve effects
2. sales volume peaks and market saturation is reached
3. increase in competitors entering the market
4. prices tend to drop due to the proliferation of competing
products
5. brand differentiation and feature diversification is

emphasized to maintain or increase market share

4. Saturation and
decline stage

6.
1.
2.
3.

Industrial profits go down


costs become counter-optimal
sales volume decline
prices, profitability diminish

4. profit becomes more a challenge of production/distribution


efficiency than increased sales

There are five stages in a product's life cycle:

introduction
growth
maturity
saturation
decline

The location of production depends on the stage of the cycle.


Marketing Strategies: Introduction Stage

Because it takes time to roll out a new product and fill dealer pipelines, sales
growth
tends to be slow at this stage. Buzzell identified several causes for the slow
growth: delays in the expansion of production capacity, technical problems
(working out the
bugs), delays in obtaining adequate distribution through retail outlets, and
customer
reluctance to change established behaviors.Sales of expensive new products
are
retarded by additional factors such as product complexity and fewer buyers.
Profits are negative or low in the introduction stage because of low sales and
heavy distribution and promotion expenses. Much money is needed to attract
distributors. Promotional expenditures are high because of the need to (1)
inform potential consumers, (2) induce product trial, and (3) secure
distribution. Firms focus their selling on those buyers who are the readiest to
buy, usually higher-income groups. Prices tend to be high because costs are
high due to relatively low output rates, technological problems in production,
and high required margins to support the heavy promotional
expenditures.Companies must decide when to enter the market with a new
product. Most studies indicate that the market pioneer gains the most
advantage. Such pioneers as Amazon.com, Cisco, Coca-Cola, eBay, Eastman
Kodak, Hallmark, Microsoft, Peapod.com, and Xerox developed sustained
market dominance.

However, the pioneer advantage is not inevitable. Schnaars studied 28


industries
in which the imitators surpassed the innovators and found several
weaknesses among
the failing pioneers, including new products that were too crude, were
improperly
positioned, or appeared before there was strong demand; productdevelopment costs
that exhausted the innovators resources; a lack of resources to compete
against entering larger firms; and managerial incompetence or unhealthy
complacency. Successful imitators thrived by offering lower prices, improving
the product more continuously, or using brute market power to overtake the
pioneer. As one example, Apples Newton, the first handheld personal digital
assistant, failed because it could not decipher the handwriting of users
consistently. In contrast, imitator Palm Pilots smaller,
more advanced product was enormously successful because it allowed users
to input
information with a few standardized strokes of the stylus.
Still, the pioneer knows that competition will eventually enter the market and
charge a lower price, which will force the pioneer to lower prices. As
competition and
market share stabilize, buyers will no longer pay a price premium; some
competitors
will withdraw at this point, and the pioneer can then build share if it chooses.

Marketing Strategies: Growth Stage


The growth stage is marked by a rapid climb in sales, as DVD players are
currently
experiencing. Early adopters like the product, and additional consumers start
buying
it. Attracted by the opportunities, new competitors enter with new product
features
and expanded distribution. Prices remain where they are or fall slightly,
depending on how fast demand increases. Companies maintain or increase
their promotional
expenditures to meet competition and to continue to educate the market.
Sales rise much faster than promotional expenditures, causing a welcome
decline in
the promotion-sales ratio. Profits increase during this stage as promotion
costs are spread over a larger volume and unit manufacturing costs fall faster
than price declines owing to the producer learning effect. During this stage,
the firm uses several strategies to sustain rapid market growth as long as
possible: (1) improving product quality and adding new product features and
improved styling; (2) adding new models and flanker products; (3) entering
new market segments; (4) increasing distribution coverage and entering new
distribution channels; (5) shifting from product-awareness advertising to
product-preference advertising; and (6) lowering prices to attract the next
layer of price-sensitive buyers.

Marketing Strategies: Maturity Stage

At some point, the rate of sales growth will slow, and the product will enter a
stage of
relative maturity. This stage normally lasts longer than the previous stages,
and poses
formidable challenges to marketing management. Most products are in the
maturity stage of the life cycle, and most marketing managers cope with the
problem of marketing the mature product. Three strategies for the maturity
stage are market modification, product modification, and marketing-mix
modification:
Market modification. The company might try to expand the market for
its mature
brand by working to expand the number of brand users. This is accomplished
by
(1) converting nonusers; (2) entering new market segments (as Johnson &
Johnson
did when promoting baby shampoo for adult use); or (3) winning competitors
customers (the way Pepsi-Cola tries to woo away Coca-Cola users). Volume
can also
be increased by convincing current brand users to increase their usage of the
brand.
Product modification. Managers try to stimulate sales by modifying the
products
characteristics through quality improvement, feature improvement, or style
improvement. Quality improvement aims at increasing the products
functional
performanceits durability, reliability, speed, taste. New features build the
companys image as an innovator and win the loyalty of market segments
that value
these features; this is why America Online regularly introduces new versions
of its
Internet software. However, feature improvements are easily imitated; unless
there is
a permanent gain from being first, the feature improvement might not pay off
in
the long run.
Marketing-mix modification. Product managers can try to stimulate
sales by modifying other marketing-mix elements such as prices, distribution,
advertising, sales
promotion, personal selling, and services. For example, Goodyear boosted its
market share from 14 to 16 percent in 1 year when it began selling tires
through
Wal-Mart, Sears, and Discount Tire.27 Sales promotion has more impact at
this stage
because consumers have reached an equilibrium in their buying patterns,
and

psychological persuasion (advertising) is not as effective as financial


persuasion
(sales-promotion deals). However, excessive sales-promotion activity can hurt
the
brands image and long-run profit performance. In addition, price reductions
and
many other marketing-mix changes are easily imitated. The firm may not
gain as
much as expected, and all firms might experience profit erosion as they step
up
their marketing attacks on each other.

Marketing Strategies: Saturation


Saturation point occurs in the market when the potential customer or buyers are using the
product and the company has only replacement sale. Significance: To maintain market
share, prices becomes primary weapon, price may fall rapidly and profit margin may
become small
This is a period of stability. The sales of the product reach the peak and there is no further
possibility to increase it. This stage is characterized by:
Saturation of sales (at the early part of this stage sales remain stable then it starts falling).
It continues till substitutes enter into the market.
Marketer must try to develop new and alternative uses of product.

Marketing Strategies: Decline Stage


The sales of most product forms and brands eventually decline for a number
of reasons,
including technological advances, shifts in consumer tastes, and increased
domestic and foreign competition. All of these factors lead ultimately to
overcapacity,
increased price cutting, and profit erosion. As sales and profits decline, some
firms
withdraw from the market. Those remaining may reduce the number of
products they
offer. They may withdraw from smaller market segments and weaker trade
channels,
and they may cut their promotion budget and reduce their prices further.
In a study of company strategies in declining industries, Harrigan identified
five
possible decline strategies:
1. Increasing the firms investment (to dominate the market or strengthen its
competitive
position);
2. Maintaining the firms investment level until the uncertainties about the
industry are
resolved;

3. Decreasing the firms investment level selectively, by dropping


unprofitable customer
groups, while simultaneously strengthening the firms investment in lucrative
niches;
4. Harvesting (milking) the firms investment to recover cash quickly; and
5. Divesting the business quickly by disposing of its assets as
advantageously as possible.
The appropriate decline strategy depends on the industrys relative
attractiveness
and the companys competitive strength in that industry. Procter & Gamble
has,
on a number of occasions, successfully restaged disappointing brands that
were competing in strong markets. One example is its not oily hand cream
called Wondra,
which came packaged in an inverted bottle so the cream would flow out from
the bottom.
Although initial sales were high, repeat purchases were disappointing.
Consumers complained that the bottom got sticky and that not oily
suggested it
would not work well. P&G carried out two restagings for this product: First, it
reintroduced
Wondra in an upright bottle, and later, it reformulated the ingredients so they
would work better. Sales then picked up.
If the company were choosing between harvesting and divesting, its
strategies
would be quite different. Harvesting calls for gradually reducing a products
or businesss
costs while trying to maintain its sales. The first costs to cut are R&D costs
and
plant and equipment investment. The company might also reduce product
quality,
sales force size, marginal services, and advertising expenditures. It would try
to cut
these costs without letting customers, competitors, and employees know
what is happening.
Harvesting is an ethically ambivalent strategy, and it is also difficult to
execute.
Yet harvesting can substantially increase the companys current cash flow.

Critique of the Product Life-Cycle Concept


The PLC concept is best used to interpret product and market dynamics. As a
planning
tool, this concept helps managers characterize the main marketing
challenges
in each stage of a products life and develop major alternative marketing
strategies.
As a control tool, this concept helps the company measure product
performance

against similar products launched in the past. The PLC concept is less useful
as a forecasting tool because sales histories exhibit diverse patterns, and the
stages vary in
duration.Critics claim that life-cycle patterns are too variable in their shape
and duration.
They also say that marketers can seldom tell what stage the product is in: A
product
may appear to be mature when it is actually only in a plateau prior to another
upsurge. One final criticism is that the PLC pattern is the result of marketing
strategies
rather than an inevitable course that sales must follow. For example, when
Borden owned Eagle Brand Sweetened Condensed Milk, its marketing
positioned
this mature product as a key ingredient in favorite holiday recipes. When the
brand
was sold to Eagle Family Foods, however, the new brand manager was able to
boost
sales with an ad campaign educating consumers on the wider range of uses
for condensed milk.30 Savvy marketers are therefore careful when using the
PLC concept to analyze their products and markets.

Product Level- The Customer-Value Hierarchy


The Marketer should understand the need of product levels before the produce is offered
in the market, since each level adds more customer value.

Core Product
The core product is the fundamental services or benefits that the customer is really
interested in buying. Ex. 1) A hotel guest is buying rest & sleep. 2) A two-wheeler
purchaser looking out for Money & Mileage. The marketer must act as benefit
provider. Basic Products the marketer should turn the core product benefit into basic
product by giving or telling him other extra attribute, which he can enjoy by taking the
product. Ex: (1) In hotel the basic product includes bed, bathroom, room service, towel,
desk, dresser etc. (2) For a bike free servicing for 1 years etc.

Tangible product
The product which can be touch and feel. At the second level, the
marketer must turn the core benefit into a basic product. Thus a hotel
room includes a bed, bathroom, towels, desk, dresser, and closet.

Expected Products
At the third level, the marketer prepares an expected product, a set of
attributes and conditions buyers normally expect when they purchase
this product. Ex.: (1) Hotel guest expects a clean bed, T.V., phone
connection, pure water supply etc., (2) For a bike mileage, pick up, disk

brakes, etc. In fact almost majority of the hotels meet all these
expectations. But the market has to tell the facility being provided is
best not reasonable to others.

Augmented Products
Augmented Product is one where the customers wish beyond the
expectation towards a particular product. The marketer prepares an
augmented product to meet such expectation (beyond). For ex. A hotel
can augment the product by including fresh flowers, rapid check in,
express check out, fine dining and good room service.
At the fourth level, the marketer prepares an augmented product that
exceeds customer expectations. In developed countries, brand
positioning and competition take place at this level. In developing and
emerging markets such as India and Brazil, however, competition takes
place mostly at the expected product level.

Potential product
The potential product is tomorrows product carrying with it all the
improvements and finesse possible under the given technological,
economic and competitive condition. There are no limits to the
potential product. Only the technological and economic resources of
the firm set the limit.
At the fifth level stands the potential product, which encompasses all
the possible augmentations and transformations the product or
offering might undergo in the future. Here is where companies search
for new ways to satisfy customers and distinguish their offering
Kotler noted that much competition takes place at the Augmented Product level rather
than at the Core Benefit level or, as Levitt put it: 'New competition is not between what
companies produce in their factories, but between what they add to their factory output
in the form of packaging, services, advertising, customer advice, financing, delivery
arrangements, warehousing, and other things that people value.'

Product mix decision


1. Expansion of Product Mix: A firm may choose to expand its product mix by
increasing the number of product line or depth with in the product line such as new line
may be related or unrelated to products. Ex.: Raymonds Blazers, Shirts, Ties, etc.

2. Contraction of Product mix Another product mixes strategy in to thin our


product mix either by eliminating entire product line or mi eliminating a product forms
the product line. Ex.: Entire product line Alwyn. Hero Honda Street

3) Alteration of Product Mix: Another product mix strategy is that of alternating or


improving the design or packaging of the product . Usage and operation of established
product which yields more profit and less risky than producing or developing new
product. For eg.cadbury and perk comes with new packaging cover.

4) Trading Up & Trading Down a) Trading Up - Adding a higher price prestige


product to lower price product hoping to increase sales of lower price product. Ex.:
Mysore Sandal Gold, Lux, etc. b) Trading down Adding a lower price product to higher
price prestige product line to capture every segment of market. Ex.: Wheel detergent cake
& powder.

5) Positioning the product: utilizing new formulas or a tag line to a existing


product which positions the product in the minds of the customers for eg. Cadbury now
comes with kuch meetha hojaye, thanda matlab Coca-Cola and kurkure tedha hai par
mera hai and etc.
Product Mix

A product mix (also called product assortment) is the set of all products
and items that a particular marketer offers for sale. At Kodak, the product mix
consists of two strong product lines: information products and image
products. At NEC (Japan), the product mix consists of communication
products and computer products.
The product mix of an individual company can be described in terms of width,
length, depth, consistency and inconsistency. The width refers to how many
different product lines the company carries. The length refers to the total
number of items in the mix. The depth of a product mix refers to how many
variants of each product are offered. The consistency of the product mix
refers to how closely relate the various product lines in end use, production
requirements, distribution channels, or some other way.
These four product-mix dimensions permit the company to expand its
business
by (1) adding new product lines, thus widening its product mix; (2)
lengthening each+
product line; (3) depending the product mix by adding more variants; and (4)
pursuing more product-line consistency

Product item
When a new product is added to the same co. for eg.fasttrack when they started the
business they were basically dealing with watches but now, they deal with bags, shoes
and etc

Product line
A product line is a group of products that are closely related in terms of functional
benefit, the same customer group, price range or marketing through same outlet.
Like In detergent the P&G Has Tide, Joy, Gain, Bold and other products having same
functional benefit of washing cloths to the consumers.
A line can comprise related products of various sizes, types, colors, qualities, or prices.

Width
The width of a company's product mix pertains to the number of product lines that a
company sells. For example, if a company has two product lines, its product mix width is
two. Small and upstart businesses will usually not have a wide product mix. It is more
practical to start with some basic products and build market share. Later on, a company's
technology may allow the company to diversify into other industries and build the width
of the product mix.

Length
Product mix length pertains to the number of total products or items in a company's
product mix, according to Philip Kotler's textbook "Marketing Management: Analysis,
Planning, Implementation and Control." For example, ABC company may have two
product lines, and five brands within each product line. Thus, ABC's product mix length
would be 10. Companies that have multiple product lines will sometimes keep track of
their average length per product line. In the above case, the average length of an ABC
Company's product line is five.

Depth
Depth of a product mix pertains to the total number of variations for each product.
Variations can include size, flavor and any other distinguishing characteristic. For
example, if a company sells three sizes and two flavors of toothpaste, that particular
brand of toothpaste has a depth of six. Just like length, companies sometimes report the
average depth of their product lines; or the depth of a specific product line.

Consistency
Product mix consistency pertains to how closely related product lines are to one another-in terms of use, production and distribution. A company's product mix may be consistent
in distribution but vastly different in use. For example, a small company may sell its
health bars and health magazine in retail stores. However, one product is edible and the
other is not. The production consistency of these products would vary as well.

Inconsistency
It deals with different products by the same company for eg.ITC co.

Types of Pricing strategy


Given the customers' demand schedule, the cost function, and
competitors' prices, the company is now ready to select a price. It
basically, summarizes the three major considerations in price setting:
Costs set a floor to the price. Competitors' prices and the price of
substitutes provide an orienting point. Customers' assessment of
unique features establishes the price ceiling.
Companies select a pricing method
that includes one or more of these
three considerations. We will
examine six price-setting methods:
markup pricing, target-return pricing,
perceived value pricing, value
pricing, going-rate pricing, and
auction-type pricing.

Skimming pricing
Selling a product at a high price, sacrificing high sales to gain a high profit, therefore
skimming the market. Usually employed to reimburse the cost of investment of the
original research into the product: commonly used in electronic markets when a new
range, such as DVD players, are firstly dispatched into the market at a high price. This
strategy is often used to target "early adopters" of a product or service. These early
adopters are relatively less price-sensitive because either their need for the product is
more than others or they understand the value of the product better than others. In market
skimming goods are sold at higher prices so that fewer sales are needed to break even.
This strategy is employed only for a limited duration to recover most of investment made
to build the product. To gain further market share, a seller must use other pricing tactics
such as economy or penetration. This method can come with some setbacks as it could
leave the product at a high price to competitors.

Penetration pricing
Setting the price low in order to attract customers and gain market share. The price will
be raised later once this market share is gained. Prices of the product increases after
gaining popularity or market share in the market or we can say that, first selling the
product at lower prices and then increasing the price. For eg.orio biscuits and amul.

Prestige pricing
These products are basically the high costs product especially made for luxuries class.
The prices of this product is charge keeping a brand or famous celebrity in mind. For
eg.james bond wearing a watch, omega seamester and the price was tag as rs.2,00,000
when it was launched.

Mark down pricing


Prices of the product decreases after a certain period of time. For eg.mcdonald burger
which was costing at rs.45 has decreases to rs.25,so there is a fall down in a price of the
product.

Consumer expectation pricing


An increasing number of companies now base their price on the
customer's perceived value. Perceived value is made up of several
elements, such as the buyer's image of the product
performance,customer support.In short we can say that,prices are
charge according to customer expection.Companies must deliver the
value promised by their value proposition, and the customer must
perceive this value. Firms use the other marketing-mix elements, such
as advertising and sales force, to communicate and enhance perceived
value in buyers' minds.
Sealed-Bid Pricing
Competitive-oriented pricing is common when firms submit sealed bids for
jobs. In
bidding, each firm bases its price on expectations of how competitors will
price rather
than on a rigid relationship to the firms own costs or demand. Sealed-bid
pricing
involves two opposite pulls. The firm wants to win the contractwhich means
submitting
the lowest priceyet it cannot set its price below cost.
To solve this dilemma, the company would estimate the profit and the
probability
of winning with each price bid. By multiplying the profit by the probability of
winning
the bid on the basis of that price, the company can calculate the expected
profit for each bid. For a firm that makes many bids, this method is a way of
playing the odds to achieve maximum profits in the long run. However, firms
that bid only occasionally
or that badly want to win certain contracts will not find it advantageous to
use the
expected-profit criterion.

Psychological Pricing
Many consumers use price as an indicator of quality. Image pricing is
especially effective
with ego-sensitive products such as perfumes and expensive cars. A $100
bottle of
perfume might contain $10 worth of scent, but gift givers pay $100 to
communicate
their high regard for the receiver. Similarly, price and quality perceptions of
cars interact:
16 Higher-priced cars are perceived to possess high quality; higher-quality
cars are
likewise perceived to be higher priced than they actually are. In general,
when information about true quality is unavailable, price acts as a signal of
quality.

Odd pricing
Sellers set prices that end in an odd number, believing that customers who
see a television priced at $299 instead of $300 will perceive the price as
being in the
$200 range rather than the $300 range. Another explanation is that odd
endings convey
the notion of a discount or bargain, which is why both toysrus.com and
etoys.com
set prices ending in 99. But if a company wants a high-price image instead of
a low price
image, it should avoid the odd-ending tactic. For eg.bata sleepers at rs.499 or
homeshop 18 channel selling products at rs.999 which usually ends with an
odd number.

Markup pricing
The most elementary pricing method is to add a standard markup to
the product's cost. Construction companies submit job bids by
estimating the total project cost and adding a standard markup for
profit. Lawyers and accountants typically price by adding a standard
markup on their time and costs or shopkeeper decides the price of the
product.
Geographical Pricing
In geographical pricing, the company decides how to price its products to
different

customers in different locations and countries. For example, should the


company
charge distant customers more to cover higher shipping costs, or set a lower
price to
win additional business? Another issue is how to get paid. This is particularly
critical
when foreign buyers lack sufficient hard currency to pay for their purchases.
Many
buyers want to offer other items in payment in a practice known as
countertrade, which
accounts for 1525 percent of world trade. For eg.petrol prices at different
places.

Dual Pricing
Dual pricing occurs when a company sells a product or service at two or more
prices that do not reflect a proportional difference in costs.Here,shopkeeper
charges different price for a product.For eg.purchasing sugar from normal
shop and ration shop, prices differs or purchasing a pc or a laptop or airlines
tickets.

MARKETING CHANNELS
Most producers do not sell their goods directly to the final users;
between them stands a set of intermediaries performing a variety of
functions. These intermediaries constitute a marketing channel (also
called a trade channel or distribution channel). Formally, marketing
channels are sets of interdependent organizations involved in the
process of making a product or service available for use or
consumption. They are the set of pathways a product or service follows
after production, culminating in purchase and use by the final end
user.2
Some intermediaries-such as wholesalers and retailers-buy, take title to, and resell the
merchandise; they are called merchants. Others-brokers, manufacturers' representatives,
sales agents-search for customers and may negotiate on the producer's behalf but do not
take title to the goods; they are called agents. Still others-transportation companies,
independent warehouses, banks, advertising agencies-assist in the distribution process but
neither take title to goods nor negotiate purchases or sales; they are called facilitators.
The Importance of Channels
A marketing channel system is the particular set of marketing channels
a firm employs, and decisions about it are among the most critical
ones management faces. In the United States, channel members
collectively have earned margins that account for 30% to 50% of the
ultimate selling price. In contrast, advertising typically has accounted
for less than 5% to 7% of

thefinalprice.3Marketingchannelsalsorepresentasubstantialopportunity
cost. One of the chief roles of marketing channels is to convert
potential buyers into profitable customers. Marketing channels must
not just serve markets, they must also make markets.
The channels chosen affect all other marketing decisions. The
company's pricing depends on whether it uses mass merchandisers or
high-quality boutiques. The firm's sale force and advertising decisions
depend on how much training and motivation dealers need. In
addition, channel decisions include relatively long-term commitments
with other firms as well as a set of policies and procedures. When an
automaker signs up independent dealers to sell its automobiles, the
automaker cannot buy them out the next day and replace them with
company-owned outlets. But at the same time, channel choices
themselves depend on the company's marketing strategy with respect
to segmentation, targeting, and positioning. Holistic marketers ensure
that marketing decisions in all these different areas are made to
collectively maximize value.
In managing its intermediaries, the firm must decide how much effort
to devote to push versus pull marketing. A push strategy uses the
manufacturer's sales force, trade promotion money, or other means to
induce intermediaries to carry, promote, and sell the product to end
users. Push strategy is appropriate where there is low brand loyalty in
a category, brand choice is made in the store, the product is an
impulse item, and product benefits are well understood. In a pull
strategy the manufacturer uses advertising, promotion, and other
forms of communication to persuade consumers to demand the
product from intermediaries, thus inducing the intermediaries to order
it. Pull strategy is appropriate when there is high brand loyalty and
high involvement in the category, when consumers are able to
perceive differences between brands, and when they choose the brand
before they go to the store. For years, drug companies aimed ads
solely at doctors and hospitals, but in 1997 the FDA issued guidelines for TV
ads that opened the way for pharmaceuticals to reach consumers directly. This is
particularly evident in the burgeoning business of prescription sleep aids.

Types of channels
The producer and the final customer are part of every channel. We will
use the number of intermediary levels to designate the length of a
channel. There are several consumer-goods marketing channels of
different lengths.
A zero-level channel (also called a direct marketing channel) consists
of a manufacturer selling directly to the final customer. The major

examples are door-to-door sales, home parties, mail order,


telemarketing, TV selling, Internet selling, and manufacturer-owned
stores. For eg.Eureka Forbes and Apple sells computers and other
consumer electronics through its own stores.
A one-level channel contains one selling intermediary, such as a retailer. For eg.petrol,
titan, McDonald and etc.
A two-level channel contains two intermediaries. In consumer markets, these are
typically a wholesaler and a retailer. For eg.FMCG goods
A three-level channel contains three intermediaries. In the meatpacking industry,
wholesalers sell to jobbers, who sell to small retailers. In Japan, food distribution may
include as many as six levels. From the producer's point of view, obtaining information
about end users and exercising control becomes more difficult as the number of channel
levels increases.

TYPES OF INTERMEDIARIES
A firm needs to identify the types of
intermediaries available to carry on its channel
work.
Companies should search for innovative marketing channels. Medion
sold 600,000 PCs in Europe, mostly via major one-or two-week "burst
promotions" at Aldi's supermarkets.23 Columbia House has successfully
merchandised music albums through the mail and Internet. Other
sellers such as Harry and David and Calyx & Corolla have creatively
sold fruit and flowers, respectively, through direct delivery. (See
"Marketing Insight: How CarMax Is Transforming the Auto Business.")
Sometimes a company chooses a new or unconventional channel
because of the difficulty, cost, or ineffectiveness of working with the
dominant channel. The advantage is that the company will encounter
less competition during the initial move into this channel. Years ago,
after trying to sell its inexpensive Timex watches through regular
jewelry stores, the U.S. Time Company placed them instead in fastgrowing mass-merchandise outlets. Frustrated with a printed catalog it
saw as out-of-date and unprofessional, commercial lighting company
Display Supply & Lighting developed an interactive online catalog that
drove down costs, sped up the sales process, and increased revenue.
NUMBER OF
INTERMEDIARIES

Companies must decide on the


number of intermediaries to use
at each channel level. Three
strategies are available:
exclusive distribution, selective
distribution, and intensive
distribution.
Exclusive distribution means severely limiting the number of
intermediaries. It's appropriate when the producer wants to maintain
control over the service level and outputs offered by the resellers, and
it often includes exclusive dealing arrangements. By
Granting exclusive distribution, the producer hopes to obtain more
dedicated and knowledgeable selling. Exclusive distribution requires a
closer partnership between seller and reseller and is used in the
distribution of new automobiles, some major appliances, and some
women's apparel brands. Exclusive deals between suppliers and
retailers are becoming a mainstay for specialists looking for an edge in
a business world that is increasingly driven by price. When the legendary
Italian designer label Gucci found its image severely tarnished by overexposure from
licensing and discount stores, it decided to end contracts with third-party suppliers,
control its distribution, and open its own stores to bring back some of the luster.
Selective distribution relies on more than a few but less than all of the intermediaries
willing to carry a particular product. It makes sense for established companies and for
new companies seeking distributors. The company does not need to worry about too
many outlets; it can gain adequate market coverage with more control and less cost than
intensive distribution. Still is a good example of selective distribution.
Or
Selective distribution involves the use of more than a few but less than all
of the
intermediaries who are willing to carry a particular product. In this way, the
producer avoids dissipating its efforts over too many outlets, and it gains
adequate
market coverage with more control and less cost than intensive distribution.
Nike,
for example, sells its athletic shoes and apparel through seven types of
outlets:
(1) specialized sports stores, which carry a special line of athletic shoes; (2)
general
sporting goods stores, which carry a broad range of styles; (3) department
stores,
which carry only the newest styles; (4) mass-merchandise stores, which focus
on
discounted styles; (5) Niketown stores, which feature the complete line; (6)
factory
outlet stores, which stock mostly seconds and closeouts, and (7) the popular
Fogdog

Sports site (www.fogdog.com), its exclusive Web retailer.


Intensive distribution consists of the manufacturer placing the goods or
services in as
many outlets as possible. This strategy is generally used for items such as
tobacco
products, soap, snack foods, and gum, products for which the consumer
requires a
great deal of location convenience.

or
In intensive distribution the manufacturer places the goods or
services in as many outlets as possible. This strategy is generally used
for items such as snack foods, soft drinks, newspapers, candies and
gum, products the consumer seeks to buy frequently or in a variety of
locations. Convenience stores such as 7-Eleven, Circle K, and gasstation-linked stores such as ExxonMobil's On the Run have survived by
selling items that provide just that-location and time convenience.
Manufacturers are constantly tempted to move from exclusive or selective distribution to
more intensive distribution to increase coverage and sales. This strategy may help in the
short term, but it can hurt long-term performance. Intensive distribution increases product
and service availability but may also encourage retailers to compete aggressively. Price
wars can then erode profitability, potentially dampening retailer interest in supporting the
product and harming brand equity. Some firms avoid intensive distribution and do not
want to be sold everywhere. After Sears department stores acquired discount chain Kmart
in 2005, Nike pulled all its products from Sears to make sure that Kmart could not carry
the brand.28

Types of Conflict
Suppose a manufacturer sets up a vertical channel consisting of
wholesalers and retailers. The manufacturer hopes for channel
cooperation that will produce greater profits for each channel member.
Yet vertical, horizontal, and multichannel conflict can occur.
Vertical channel conflict means conflict between different levels
within the same channel. General Motors came into conflict with its
dealers in trying to enforce policies on service, pricing, and advertising.
Greater retailer consolidation-the 10 largest U.S. retailers accounted
for 80% of the average manufacturer's business in 2005 versus roughly
30% a decade earlier-has led to increased price pressure and influence
from retailers.50 Wal-Mart, for example, is the principal buyer for many
manufacturers, including Disney, Procter & Gamble, and Revlon, and is
able to command concessions from its suppliers through reduced
prices or quantity discounts.51
Horizontal channel conflict is conflict between members at the
same level within the channel. Some Pizza Inn franchisees complained

about other Pizza Inn franchisees cheating on ingredients, providing


poor service, and hurting the overall Pizza Inn image.
Multichannel conflict exists when the manufacturer has established
two or more channels that sell to the same market. It's likely to be
especially intense when the members of one channel get a lower price
(based on larger-volume purchases) or work with a lower margin. When
Goodyear began selling its popular tire brands through Sears, WalMart, and Discount Tire, it angered its independent dealers. It
eventually placated them by offering exclusive tire models that would
not be sold in other retail outlets. Other strategies to reduce
multichannel conflict are creating and enforcing rules of engagement
beforehand (rather than mediating disputes after the fact) and
compensating both parties that participate in a sale regardless of
which one books the order.52

Causes of Channel Conflict


Some causes of channel conflict are easy to resolve, others are not.
Conflict may arise from:
Conflicting objectives. For example, the manufacturer may want to
achieve rapid market penetration through a low-price policy. Dealers, in
contrast, may prefer to work with high margins and pursue short-run
profitability.
Demand for extra discounts. Channel members may ask for
additional discounts for pushing the products and company may not be
in fvaour of such proposal to leading conflicts.
Unethical practices. Some companies product and services are
charge more price on actual value of the product. For eg. A shopkeeper
charging more price on halls or a recharge voucher.
Unclear roles and rights. HP may sell personal computers to large
accounts through its own sales force, but its licensed dealers may also
be trying to sell to large accounts. Territory boundaries and credit for
sales often produce conflict.
Differences in perception. The manufacturer may be optimistic
about the short-term economic outlook and want dealers to carry
higher inventory. Dealers may be pessimistic. In the beverage
category, it is not uncommon for disputes to arise between

manufacturers and their distributors about the optimal advertising


strategy.
Intermediaries' dependence on the manufacturer. The fortunes
of exclusive dealers, such as auto dealers, are profoundly affected by
the manufacturer's product and pricing decisions. This situation creates
a high potential for conflict.
Reduction in area of operation
Direct marketing. Company may supply directly to the customers.
For eg.eureka forbes

To resolve conflicts or managing channel


conflicts
Some channel conflict can be constructive and can lead to more dynamic
adaptation
in a changing environment. Too much conflict can be dysfunctional, however,
so the
challenge is not to eliminate conflict but to manage it better. There are
several mechanisms for effective conflict management:
Adoption of superordinate goals. Channel members come to an
agreement on the
fundamental goal they are jointly seeking, whether it is survival, market
share, high
quality, or customer satisfaction. They usually do this when the channel faces
an
outside threat, such as a more efficient competing channel, an adverse piece
of
legislation, or a shift in consumer desires.
Exchange persons between channel levels. General Motors executives
might work for a short time in some dealerships, and some dealers might
work in GMs dealer policy
department, as a way of helping participants appreciate each others
viewpoint.
Cooptation. Cooptation is an effort by one organization to win the support of
the

leaders of another organization by including them in advisory councils,


boards of
directors, trade associations, and the like. As long as the initiating
organization treats
the leaders seriously and listens to their opinions, cooptation can reduce
conflict.
Diplomacy, mediation, arbitration for chronic or acute conflict.
Diplomacy takes place when each side sends a person or group to meet with
its counterpart to resolve the conflict. Mediation means having a skilled,
neutral third party reconcile the two
parties interests. Arbitration occurs when the two parties agree to present
their
arguments to an arbitrator and accept the arbitration decision.
Communication
Aligning the goals with channel members and giving incentives on
selling of products.

MARKETING MIX
The marketer's task is to devise marketing activities and assemble fully integrated
marketing programs to create, communicate, and deliver value for consumers.
Marketing activities come in all forms. McCarthy classified these activities as
marketing-mix tools of four broad kinds, which he called the four Ps of marketing:
product, price, place, and promotion.
Product-product variety, quality, design features, brand name, packaging, sizes, services,
warranties and returns.
Price-list price, discounts, allowances, payment periods and credit terms.
Promotion-sales promotions, advertising, sales force, public relations, direct marketing.
Place-channels, coverage, assortments, locations, inventory, transport.
The particular marketing variables under each P are shown in Figure 1.5.
Marketers make marketing-mix decisions for influencing their trade channels
as well as their final consumers. Once they understand these groups,
marketers make or customize an offering or solution, inform consumersrecognizing that many other sources of information also exist-set a price that
offers real value, and choose places where the offering will be accessible.
The firm can change its price, sales force size, and advertising expenditures
in the short run. It can develop new products and modify its distribution
channels only in the long run. Thus the firm typically makes fewer period-to-

period marketing-mix changes in the short run than the number of marketingmix decision variables might suggest.
The four Ps represent the sellers' view of the marketing tools available for
influencing buyers. From a buyer's point of view, each marketing tool is
designed to deliver a customer benefit. A complementary breakdown of
marketing activities has been proposed that centers on customers. Its four
dimensions (SIVA) and the corresponding customer questions these are
designed to answer are:
1.
2.
3.
4.

Solution: How can I solve my problem?


Information: Where can I learn more about it?
Value: What is my total sacrifice to get this solution?
Access: Where can I find it?

Winning companies satisfy customer needs and surpass their expectations


economically and conveniently and with effective communication.
Two key themes of integrated marketing are that (1) many different
marketing activities communicate and deliver value and (2) when
coordinated, marketing activities maximize their joint effects. In other words,
marketers should design and implement anyone marketing activity with all
other activities in mind.
For example, using an integrated communication strategy means choosing
communication options that reinforce and complement each other. A
marketer might selectively employ television, radio, and print advertising,
public relations and events, and PR and Web site communications, so that
each contributes on its own as well as improving the effectiveness of the
others. Each communication must also deliver a consistent brand image to
customers at every brand contact. Applying an integrated channel strategy
ensures that direct and indirect channels, such as online and retail sales,
work together to maximize sales and brand equity.
Online marketing activities play an increasingly prominent role in building
brands and
selling products and services. Created for $300,000 and no additional
promotional expense,
online site Carnival Connections made it easy for cruise fans to compare
notes on cruise
destinations and onboard entertainment, from casinos to conga lines. In a
few short months,
2,000 of the site's 13,000 registered users planned trips aboard Carnival's
22 ships, generating
an estimated $1.6 million in revenue for the company.