Tuesday, January 29, 2013

India, the great market for childrens's products

India could be the world's largest market for children's products in the coming years. Obviously, this is not a short term trend, but given the country's birth rates and the good economic forecasts, opportunities are bound to arise.

For example the Indian toy market could double its turnover by 2015, up to €2.2 billion, ten times less than total 2011 revenue of the main market, the US, but near the €3.5 billion of the UK and France, and reaching the revenue of the Eastern Europe countries.
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According to a report by Spielwarenmesse, India has more than 800 toy manufacturers and distributors, which employ about two and a half million people. 60% of the market is controlled by Indian and multinational companies with subsidiaries in the country. These companies are increasingly providing higher quality products.

In fact, parents are spending more money every year in higher priced toys, although 43.8% of the market continues focused on cheaper products, under 100 rupees (€1.5), according to a report by Euromonitor. The upper ranges are increasing their share, with 29.2% for toys between 100 and 200 rupees (€1.5-3) and approximately 10% for each of the upper ranges (€3 to €6, between €6 and €10, and more than €10).

In addition, multinationals are also increasing their presence and market share. Also according to Euromonitor, between 2008 and 2010, the share of Mattel has increased from 15.2% to 18.5%, while Hasbro's share reached 14.3% from the previous 10.7%. Both companies are the top toy manufacturers in the country.

Lego, with 1.1% also has an important presence, as well as Meccano, with 0.4%. The Indian company with the highest share is Hanung Toys & Textiles, with a 4.3% market share, as much of the industry remains dominated by small and regional businesses.

The distribution sector has even more challenges ahead: it consists mostly of independent retailers, who control 65% of turnover, but there is a clear tendency towards organization and retail groups.

The key: birth rates
The forecasts are also good for the childcare market, that could grow 12% annually through 2014, with increased participation of international companies and increasing brands demand, especially in rural areas.

Both sectors will boosted by the fact that India is the country with more births per year: 25 million, surpassing the 18 million of China. Moreover, 30% of the Indian population is under 14, compared to 15% in Spain, 19% in France, 20% in the US and 19% in China.

Currently, India is the second most populous country, with about 1.240 billion people. China remains the first, with 1.34 billion, but the UN expects India to become the most populous country at the end of the decade, largely due to Chines birth control policies.

The greatest challenge: the economy
The economic situation in India is not as good as it could be. According to Unicef, in 2009 the infant mortality rate of children under one year was of 50 per thousand (in Spain is 4). In addition, 18% of newborns showed low weight (in Spain, 6%), the literacy rate for men aged 15 to 24 years was of 88%, while for women it reached 74% (in Spain, 100%). And the income per capita was $1,170 per year (in Spain, is of $31,870).

The outlook is positive. India's GDP reached $4.06 trillion in 2010 and is now the fourth largest in the world, behind China ($10 trillion), Japan ($14 trillion) and the US ($15 trillion). In addition, GDP is growing at a rate of 9.1% (2009) and 8.8% (2010), in great part thanks to the fact that the country has spent years establishing itself as an exporter of technology and software services.

Furthermore, with all the difficulties and contradictions, India is a democracy since 1947, a fact that facilitates not only the relations with the West, but the expectations of future economic improvement of its citizens. Of course, the great problem is the existing inequalities, that should be faced and solved.
India could be the world's largest market for children's products in the coming years. Obviously, this is not a short term trend, but given the country's birth rates and the good economic forecasts, opportunities are bound to arise.

For example the Indian toy market could double its turnover by 2015, up to €2.2 billion, ten times less than total 2011 revenue of the main market, the US, but near the €3.5 billion of the UK and France, and reaching the revenue of the Eastern Europe countries.

According to a report by Spielwarenmesse, India has more than 800 toy manufacturers and distributors, which employ about two and a half million people. 60% of the market is controlled by Indian and multinational companies with subsidiaries in the country. These companies are increasingly providing higher quality products.

In fact, parents are spending more money every year in higher priced toys, although 43.8% of the market continues focused on cheaper products, under 100 rupees (€1.5), according to a report by Euromonitor. The upper ranges are increasing their share, with 29.2% for toys between 100 and 200 rupees (€1.5-3) and approximately 10% for each of the upper ranges (€3 to €6, between €6 and €10, and more than €10).

In addition, multinationals are also increasing their presence and market share. Also according to Euromonitor, between 2008 and 2010, the share of Mattel has increased from 15.2% to 18.5%, while Hasbro's share reached 14.3% from the previous 10.7%. Both companies are the top toy manufacturers in the country.

Lego, with 1.1% also has an important presence, as well as Meccano, with 0.4%. The Indian company with the highest share is Hanung Toys & Textiles, with a 4.3% market share, as much of the industry remains dominated by small and regional businesses.

The distribution sector has even more challenges ahead: it consists mostly of independent retailers, who control 65% of turnover, but there is a clear tendency towards organization and retail groups.

The key: birth rates
The forecasts are also good for the childcare market, that could grow 12% annually through 2014, with increased participation of international companies and increasing brands demand, especially in rural areas.

Both sectors will boosted by the fact that India is the country with more births per year: 25 million, surpassing the 18 million of China. Moreover, 30% of the Indian population is under 14, compared to 15% in Spain, 19% in France, 20% in the US and 19% in China.

Currently, India is the second most populous country, with about 1.240 billion people. China remains the first, with 1.34 billion, but the UN expects India to become the most populous country at the end of the decade, largely due to Chines birth control policies.

The greatest challenge: the economy
The economic situation in India is not as good as it could be. According to Unicef, in 2009 the infant mortality rate of children under one year was of 50 per thousand (in Spain is 4). In addition, 18% of newborns showed low weight (in Spain, 6%), the literacy rate for men aged 15 to 24 years was of 88%, while for women it reached 74% (in Spain, 100%). And the income per capita was $1,170 per year (in Spain, is of $31,870).

The outlook is positive. India's GDP reached $4.06 trillion in 2010 and is now the fourth largest in the world, behind China ($10 trillion), Japan ($14 trillion) and the US ($15 trillion). In addition, GDP is growing at a rate of 9.1% (2009) and 8.8% (2010), in great part thanks to the fact that the country has spent years establishing itself as an exporter of technology and software services.

Furthermore, with all the difficulties and contradictions, India is a democracy since 1947, a fact that facilitates not only the relations with the West, but the expectations of future economic improvement of its citizens. Of course, the great problem is the existing inequalities, that should be faced and solved.

The Future of Marketing

In marketing, as in the rest of life, there is much to learn from history. Postmortems of marketing failures are important factors in making decisions about the future. The spectrum of marketing failures ranges from inadequate return on the original investment to corporate bankruptcy. According to the largest marketing research company in the world, the A.C. Nielsen Company, these are the thirteen most common marketing errors as per marketing basics:
 
                                                                                                        
 
 
1. Failure to keep a product up-to-date. Products must be suited to the market.
2. Failure to estimate the market potential accurately. Enthusiasm should be tempered with realism.
3. Failure to gauge the trend of the market. Adjustments in the marketing program must be made readily.
4. Failure to appreciate regional differences. Advertising and distribution efforts must reflect environmental and cultural limitations.
5. Failure to appreciate seasonal differences in demand. This is important not only among nations and cultures, but within product areas.
6. Failure to develop the advertising budget fully. Advertising budgets based on immediate sales are frequently short-sighted.
7. Failure to adhere to long-range goal policies. Significant trends need time to develop.
8. Failure to test-market new ideas. There is a difference between what people say and what they actually do.
9. Failure to differentiate between short-term tactics and long-range strategy. Special promotional activities cannot substitute for advertising.
10. Failure to try new ideas. Changes must be made before competitors force them.
11. Failure to integrate all phases into the overall program. Coordination is the key.
12. Failure to appraise the competition objectively. The tendency is to underestimate the resources and the ingenuity of the competition while overestimating one’s own position or reputation.
13. Failure to admit defeat. A realistic appraisal of errors is vital.
As production techniques and marketing systems become more sophisticated, cross-cultural trading increases. As people of different cultures become more dependent on each other for their living standards, they appreciate the need for peace and stability. Communication and transportation systems have created a small world, in a marketing sense. Every year more and more firms, even relatively small ones, enter the international market. The problems encountered there are significantly different from those encountered in domestic operations. Marketers are accustomed to risk-taking; but in interna- tional dealings the dimensions of these risks are often misjudged and misunderstood.
One area of special interest is the literal translation of advertising names, slogans, and concepts from one language and culture to another. It must have been embarrassing to General Motors when its "Body by Fisher" became "Corpse by Fisher" in Flemish. Colgate-Palmolive made an expensive mistake when it introduced its Cue toothpaste into French-speaking countries; the brand name and trademark turned out to be pornographic in French. Advertisements that do not conform to local lifestyles are wasted. One toothpaste manufacturer found that promising white teeth was inappropriate in many regions of Southeast Asia, where chewing betelnut is an elite habit and black teeth are symbols of prestige.
 
Export marketing companies are another result of international marketing. These independent businesses act as agents for firms that want to participate in worldwide trade, instead of their own names, they often use special letterheads showing their address as the manufacturer's "export department" or "international division." The services performed by the export company for its client include:
1. Researching the foreign market;
2. Conducting on-site tours to determine the best methods of distribution;
3. Appointing commission representatives, sometimes within an existing sales network, in the foreign country;
4. Exhibiting the products at overseas trade shows;
5. Handling the paperwork of export and import declarations, shipping and customs documentation, insurance, banking, instructions for special handling, and similar details;
6. Preparing and adapting appropriate sales literature;
7. Adapting the goods to local conditions and legal and trade standards;
8. Meeting patent and trademark requirements.
The emergence of the multinational corporation (MNC) is of major significance in the future of marketing. Many firms that entered the export business in a modest way eventually became fully committed to an international perspective. The two basic roles of these MNCs are the transmission of resources, especially technological and managerial skills, and organization of the economic activities of several nations. Global approaches to economic decisions often differ with the aims of specific countries. There may be resistance to multinational activities for reasons of nationalism, control, and the extraction of profits.
It is enormously expensive, in global terms, for each country to duplicate advanced research, technology, and production. Despite obstacles, multinationals have expanded steadily because they reduce this duplication and contribute to the economy of their host nations. It seems likely that those MNCs that can evolve effective accommodations with nationalism will flourish.
General improvements in marketing can be expected in three major areas. The first is the enterprise of private traders and corporations seeking profits. Competition will always stimulate cheaper and more effective distribution methods, more economical production, and the reduction of profit margins.
The second is joint action by firms or individuals. More and more cooperative will provide economical marketing facilities and a firm bargaining base for their members. Many marketing boards have developed to require producers and handlers of certain commodities to observe rules and procedures. In some countries, such a board assumes full responsibility for marketing certain products, either with its own staff or with private firms and cooperatives. In the United States, a board of trade, or commodity exchange, is an organized market for agricultural goods, handling commodities in much the same way as stock exchanges do for stocks and bonds. Trading companies in Japan function similarly; their combined sales figures represent almost 30 percent of Japan's GNP. They are involved in trading, resource development, manufacturing, mining, urban and regional development, and a number of service industries.
One facet of the trend toward joint action in world marketing is the formation of cartels. These may be made up of individual companies, marketing boards, trading companies, or a combination; their influence, particularly on raw materials markets, is substantial. Probably the most renowned group of this sort is OPEC, the Organization of Petroleum Exporting Countries, which has controlled the marketing of petroleum products in virtually every nation in the world.
The third area in which marketing improvements are expected is governmental assistance. This can take three major forms:
Regulatory aid includes the standardization of weights, measures, and containers, and the establishment of minimum health standards. Quality inspection and grading is vital to everyone, and the regulation of transport and market facilities helps insure fair practices. Some laws are designed to define sales contracts and how they must be fulfilled. Laws prohibiting deceptive advertising, price discrimination, and price-fixing protect consumers. Anti-trust laws prohibiting monopolies and assisting fair competition create a healthy market climate. Other laws deal with bankruptcy, patents and trademarks, and financial statements.
Facilitating aid provides market information and statistics, sets up training and extension services, and finances research into ways of raising efficiency or reducing marketing costs.
Direct intervention is government involvement in the purchase, sale, storage, and movement of goods. In some cases, a government will be its own largest consumer and may be so involved in purchasing goods and services for defense and social welfare that it virtually defines the marketing process from start to finish. Governments may influence prices, supplement existing market channels, and increase competition. They also try to protect producers and consumers against emergency pressures or chronic weaknesses in a marketing system. Some governments practice such support activities as stockpiling, subsidies, and a price equalization aid to farmers known as parity.
The trends noted in this unit will all affect the future of marketing, as will the new attitudes, customs, mores, institutions, and economic systems. The following is an outline of the major forces in society which will affect marketing in the years ahead. The main headings represent the four major breakdowns of the system in which marketing operates.
A. Sociocultural
1. Demographics : A slowing population growth with corresponding smaller family size, in industrial nations and regions; a rising average age in the United States as post-World War II babies move through their life cycle; increased participation of women in the work force.
2. Knowledge: increasing education and sophistication with less faith and acceptance.
3. Values: More secular, humanistic, and rational; less traditional, religious, and mystic.
4. Social Structure: More open and fluid societies; more varied subcultures and life styles; patterns of a "one-world" mentality.
B. Economic
1. Structure: More concentration, larger companies, and more multinational trade.
2. Competition: More visible; closer government observation,'
3. Technology: Extremely important; accelerated.
C. Governmental
1. Increased complexity and size.
2. More interaction with business.
3. More direct intervention in the economic system,
4. More restrictions on marketing with a struggle surrounding the regulatory role.
D. Ecological
1. Much of the world burdened by population growth.
2. Limited resources.
3. Increased interdependence among nations.
4. Need to preserve the environment.
Marketing is more than business techniques and economic activities; it is a social process that fulfills a basic social need. It is comprised of and affected by the diverse interrelationships of individuals, organizations, governments, and society. What forms it will take in the future depend on political and economic changes, but one thing is certain; marketing will always be with us in an important way.

Pricing


What is given in exchange for a product or service is its price. In the process of this exchange, the seller or producer and the buyer or user agree on the price. The meeting of those who supply or sell with those who demand or buy is how market prices are determined.


                                                                                                                      
                                                                                                                         


In any particular region at a particular time, similar goods tend to have the same market price because the costs of producing and marketing them tend to be similar. Even before goods reach the market, buyers and sellers are generally not too far apart in their ideas of what prices should be. They are aware of the range of prices in the past and have a notion of what they will be in the future, based on producers’ costs sad consumers’ needs. This awareness produces a "normal price" with little variation. This average norm is the price toward which market prices theoretically move.
 
According to the law of supply and demand, formulated by the British economist Thomas R. Malthus, for each commodity some price must exist that will cause its supply and demand to be equal. In other words, the willingness of buyers to buy and of sellers to sell generally reveals some price at which the two activities intersect to create the equilibrium, or normal price. If sellers cannot find buyers, they will cut prices. Buyers who are looking for sellers will offer to pay higher prices. Thus any variation from the equilibrium price seems to automatically correct itself by market forces which push toward the norm. At least, this is the theory. Speculation and price controls are inhibiting factors to this natural process. When goods are considered in the aggregate, with the complex issues of unemployment, the international balance of trade, and national priorities, the equilibrium will still be reached, but in an altered, controlled form.
 
 
 
The effect of supply on price depends on the number and size of the suppliers. When there are many suppliers of a standard product, the amount offered by any one of them has little or no effect on the market price. This condition allows for a stable, competitive market. The price is kept stable— and usually low—by the availability of the product. In an abnormal atmosphere, such as war or famine, prices may vary widely in spite of the number of producers. A less-than-perfect competitive market occurs when the number of producers is so small that the output of any one of them can cause a change in price. This competition, or oligopoly, allows producers to set prices higher than they could in a more competitive market.
 
The producers must still contend with some competition, so prices cannot be too high unless there is a unique feature or quality.
 
 
When a few large producers furnish the entire supply of a given product monopoly exists. If they establish a fixed price among themselves, they can be fined or, in extreme cases, closed down. Even though price fixing is illegal, it is relatively easy to do and, therefore, quite common. Where a single producer has the entire market, the price of a product can be high. If it goes too high, however, the noticeably large profit will encourage others to enter the market. Monopolists often set different prices for markets separated by distance and in those markets which are least responsive to price change. This increases profitability. However, the Robinson-Patman Act of 1936 makes any price discrimination illegal, that is selling the same goods to different buyers at different prices. There must be "like price for like quality and quantity." The only differences permitted must be based on cost differences or the need to meet competition.
 
 
In some cases, producers or distributors of certain goods want to protect the retail sales of their products against price cutting. They set a price below which their product cannot be sold, by printing the price on the package or announcing the price through advertising. Usually these measures involve well-known brands or trademarked goods. These price maintenance procedures are regulated by law in most countries.
 
In the strict theory of competition, price policy has no role and individuals do not put prices on their products. Prices are assumed to be determined by that automatic mechanism which adjusts prices to bring supply and demand into equilibrium. Price policy is therefore associated with imperfect competition since marketing-conscious producers will set prices at the lowest unit cost of the most efficient production method to insure the widest market.
Price, along with product, place, and promotion, are the variables that the marketing manager controls. Pricing is extremely important since it so directly affects an organization's sales and profits. Naturally, profit objectives will guide pricing decisions. The marketing manager has to decide whether to maximize profits or establish a target return. A particular target might be a certain percentage return on sales or a certain percentage return on investment or, for a small family operation, the return might be a fixed dollar amount of profit to cover overhead and living expenses. With any objective, the time factor is crucial. What is an appropriate objective for the short-term may not be for the long-term and vice-versa.
 
 
Marketers are concerned with all the factors affecting price, in order to keep their products from faring poorly in a widely variable atmosphere. Even in service areas such as passenger fares and freight rates, where detailed prices are printed and distributed, influences may cause fluctuation. The marketing manager knows that the costs of the separate elements of the marketing mix can be recovered by proper pricing. The cost of the product itself—the promotion and selling associated with it, the distribution expenses, and profit — are all directly related to price. Thus price knits together the elements of the marketing mix and pays for their respective contributions. The marketing manager must analyze and reconcile the various elements of those variables which influence price, and must then decide on an optimal price policy.
 
 
 
The most fundamental part of any marketing analysis is the recognition of the competitive structure of the industry. Where there are many competitors offering the same type of product, price competition will be active. When there are great numbers of similar offerings, products tend to lose their individuality. Then differentiation becomes difficult, and marketers have little discretionary power to influence prices. It is in this circumstance that marketers and merchants alike look to sales techniques. Disposing of goods at reduced prices draws attention to the specific brand, in the hope that customers will continue to buy when prices return to "normal."
 
 
Another key input variable in making pricing decisions is industry demand. If the average price of a product is reduced, will there be large, modest, or no expansion of demand? When demand increases significantly as prices are lowered, the demand is said to be highly elastic, if demand is little affected by price, it is said to be inelastic. This price sensitivity or insensitivity is influenced by various factors, making precise forecasting of the impact of price changes difficult Occasionally, consumer response occurs after a time lag, so that elasticity of demand for a product may be greater over a longer time period.
 
Certain products are important to consumers because they are necessities- i e. rice to the Japanese cook or gas to the taxi driver Where this is true, the industry demand will be insensitive; as prices rise, consumers will be forced to pay more. On the other hand, there are many areas which are not so important, such as an extended vacation at the beach or a night at the opera. These less important items may be highly sensitive to price. There have been rare cases where consumers boycotted items in such numbers that they forced prices down, no matter why they had risen originally.
Other factors affect industry demand and elasticity. Some products have a derived demand, such as the need for tourist hotels only where there are sufficient numbers of tourists to warrant them. If the cost of zinc rises, industries which use it may substitute a plastic substance. Whenever substitute products are available, there is danger of losing customers if prices rise too much. The income level of the current customer is also a factor. Private planes are affordable only by the very rich, so a price rise or dip may not affect sales as much as a similar rise or dip in the cost of a color television set. Finally, there is the perceived saturation of need for a product. If Argentinians are already eating all the beef they want, it is unlikely that the beef industry will stimulate demand further by lowering the price. On the other hand, the demand for coffee in many countries seems far from satiated, and price reductions would reasonably accelerate sales.
 
 
Cost of production is one of the several inputs into the pricing decision. Marketers separate these costs into those which are fixed and those which are variable. The data is then used to compute various break-even points at various price assumptions. Break-even calculations provide a measure of the minimum sales required to avoid losing money. The same type of projection may be used to compute projected earnings at given sales levels. A particular level of profit may be built into the calculation as another fixed cost to be recovered.
Average-cost pricing, which consists or adding a "reasonable" mark-up to the average cost of an item, is typical in business. For the producer, costs do drop steadily as the quantity produced increases.
 
Therefore, the "average" cost, and subsequently the price, may vary with the quantity purchased. This is why large scale production and distribution are potentially more profitable.
Retailers mark-up their prices enough to cover their buying prices and overhead and make a profit at the same time, but not so high as to prevent sales and a turnover of merchandise. In an effort to keep goods moving and insure profits, retailers must continually decide when to cut prices, what to discount, and which items to market as loss leaders. Ultimately, to stay in business, profits must keep pace with sales.
 
 
Finally, marketing managers must take into account the goals, positions, and resources of their own firms. Large companies with large financial resources may absorb short-term losses in order to ultimately gain a secure position, or even leadership, in the market. Smaller firms may decide that the best pricing strategy is to stay close to the big competition, hoping not to suffer a price war retaliation. Whether the pricing policies involve active or passive roles, short-range tactics or long-range strategy, they must ultimately become part of the total marketing mix.
How can the best prices for a company's products be established? There is no current technique available for setting prices at an optimal level. Mathematically, it would be possible to choose the best price for a single product if all the variable factors were known. But that wishful thought is a contradiction in terms: variable factors, by definition, vary. The cost of raw materials and labor, consumer demand, plus other factors are all dynamic, ever-changing, and unstable. Pricing is not a one time decision. Changes in the competitive environment, changes in a product's cost structure, the pressures of inflation—these and many other factors demand continuing attention to pricing.

Distribution Channels



As we have noted, bringing together the buyer and seller and facilitating their exchange is the essence of marketing. From the time of the Roman mercatus (Latin, for a public place where sellers and buyers meet), the town market square has been an important center of commerce where direct transactions between producers and consumers take place. In this type of locale, each producer accepts major responsibility for advertising, finding customers, and setting a price.
 
With the spread of trade, more and more specialized artisans were able to live without growing their own food. By the second century, Ostia, one of Rome's ports, already had large consumer warehouses. Overseas purchases, shipments, and distribution of grain, oil, and fish were common. Long- distance marketing of textiles and other wares took place along the so-called silk road from China to the Middle East at centers like Samarkand. And by the fourteenth century, Timbuktu, in the Upper Niger region, was one of the world's busiest inland markets with its trans-Saharan caravan trade. The opening of the sea routes between Europe and the East Indies stimulated marketing channels for sugar and other tropical goods. Today the trend in marketing food and other commodities is such that most of the preparation is handled in bulk by specialized agencies. A growing proportion of the food consumers purchase today is ready to eat or has only to be heated.
What this means in practical terms is that many foodstuffs, as well as other products, pass through numerous channels before being sold at countless consumer outlets. They may even be marketed all over the world. The product itself most often determines the places for and methods of distribution. Today, the "rule-of-thumb," or normal method, is that goods go from producers to intermediaries before they get to us.
 
To the merchant, whether a wholesaler or a retailer, the decision as to what goods to select for resale is the key element of merchandising. To the supplier of these goods, finding the best channels of distribution is a key problem. Marketers must decide what methods are best for distributing their particular products. They may sell directly to customers, to the customers through sales agents, to jobbers, directly to retailers, or to retailers through sales representatives. If they decide to sell to the ultimate consumer through wholesalers who, in turn, sell to retailers, they may also choose intermediaries such as brokers or manufacturers' agents. The producers of industrial goods face similar decisions. Larger firms frequently use their own sales force working out of the main offices or branch offices located throughout the sales territory.
 
                                                           
 
 
Distribution systems develop in such a way as to match the available supplies to the consumers' demands. Just as the supplies or goods themselves differ in type, quantity, and quality, so do consumer demands. Variations may occur according to season, climate, local customs, fashion, or state of the economy. Distributors must adapt the flow of their supplies to such variations. Distribution channels are an integral part of a complex system that has evolved from cultural and social patterns in order to facilitate exchange transactions. They are governed not only by economic and social restraints, but frequently by legal and political ones as well. Thus, the interaction of the component parts of the marketing mix is considered in selecting channels.
Policies are formulated not only as to the types of intermediaries, but also as to their numbers. At one extreme is the policy of exclusive distribution, where one wholesale or retail intermediary is the sole outlet for the product or service in a given territory. Piano manufacturers typically issue franchises to one dealer in a specific region. At the other extreme, ball-point pen manufacturers use a policy of extensive distribution for the maximum number of outlets. Between these extremes are manufacturers who are variously selective in their channel choices While the entire complex of getting products to users may be complicated for some products or geographic areas, there are fundamentally just three categories of channels: wholesalers, retailers, and agents who may supplement or benefit the other two.
 
 
 
 
Industrial marketing channels feature a large proportion of raw materials, semi-finished products, and component parts. Consumer channels sell finished products; service is usually more important to the industrial product, so sellers frequently maintain more direct channels to those users than to the household consumer. There are three types of agents employed in marketing channels:
 
1. Manufacturers' agents may work for several different manufacturers and sell part or all of the producers' product line within a sales territory. These agents usually have no authority to set prices, but may stock items in their own warehouses. They generally work for small firms with no sales staff, for firms carrying products unrelated to their normal line, or for firms entering a new geographic market.
 
2. Brokers are essentially used to sell food products. They call on grocery wholesalers for the manufacturers who are their clients and help them make inroads into broader markets.
 
3. Selling agents have the authority to negotiate prices and usually work without territorial limits. They represent the entire line of a manufacturer and may render financial assistance to their principals. This type of agent sells products like textiles, coal, lumber, metals, and clothing.
The first decision in determining channels of distribution is the form it should take. Should a manufacturer of skis sell through retail stores, by direct mail, or both? If retail stores are chosen, what level or type of store: specialty shops, department stores, discount houses, sporting goods stores, or a combination of these? Even within these types, questions of reliable or prestigious reputations and sufficient financial standing may enter into the decisions. Regional considerations, of course, play a role as well. Skis will sell better in regions near the slopes than in those far away. Other considerations for specific products might include taste characteristics of the product, proximity to associated types of goods and services.
These are the major types of retailing found, in one form or another, around the world:
Specialty stores usually sell a complete assortment of one line, or a limited number of closely related lines, of merchandise. Ranging from jewelry, books, and home furnishings to ice cream, baked goods, and electrical appliances, they can usually fulfill any demand for their type of product.
Department stores, because of the many lines of goods they carry, are actually consolidations of many specialty shops under one roof.
Mail order houses are large operations selling a great range of merchandise directly to consumers by mail, without a personal sales force. They are practical where catalog printing, parcel post, and freight services are reliable and economical.
Chain stores are a group of stores under the same management. These mass distribution organizations save money for themselves and the consumer by buying and selling in large quantities. The major types of chains specialize in groceries, drugs, auto supplies, and clothing. In some product areas, they dominate the market; in Canada, five chain supermarkets sell 40 percent of all the food in the country.
Consumers' cooperatives, owned and operated by local groups of farmers or other consumers, are also called "co-ops”. They are popular in rural areas, marketing such items as groceries, animal food, gasoline, and food preparation services. Their chief attraction to consumers is the patronage dividend, based on volume of purchases over a given period.
Direct retailing, or house-to-house selling, makes up a large part of the retail business in certain products, notably household items and makeup. Usually the sales representative carries a small stock or shows samples, takes orders, and makes deliveries later. The overhead is small, and the consumer has the convenience of home shopping.
Vending machines sell many types of small-sized, low-cost, popular- demand, standard-quality goods. Candy, cigarettes, soft drinks, and books are vended in high-traffic areas.
For the most part, wholesalers buy from manufacturers and suppliers and resell to retailers. Usually, they extend credit and make deliveries. They may carry specialized or diverse lines of products. Merchant wholesalers maintain warehouses, so the manufacturer does not need extensive storage facilities. In addition to maintaining a sales force, they are able to regroup different types of goods into acceptable lots and screen the goods presented by the manufacturers. Cash-and-carry wholesalers require customers to transport their own goods and to pay for them in cash. Another type of wholesaler is the drop shipper, who never takes possession of merchandise, but merely takes orders which the producer or supplier fills directly to the customer.
Manufacturers' branch offices also function as wholesalers. They are able to sell to other wholesalers, to retailers, or to final industrial or household consumers. Some have a limited geographic range or sell to a few large customers. They operate entirely from the factory or central office.

Distributtion Channels

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As we have noted, bringing together the buyer and seller and facilitating their exchange is the essence of marketing. From the time of the Roman mercatus (Latin, for a public place where sellers and buyers meet), the town market square has been an important center of commerce where direct transactions between producers and consumers take place. In this type of locale, each producer accepts major responsibility for advertising, finding customers, and setting a price.
With the spread of trade, more and more specialized artisans were able to live without growing their own food. By the second century, Ostia, one of Rome's ports, already had large consumer warehouses. Overseas purchases, shipments, and distribution of grain, oil, and fish were common. Long- distance marketing of textiles and other wares took place along the so-called silk road from China to the Middle East at centers like Samarkand. And by the fourteenth century, Timbuktu, in the Upper Niger region, was one of the world's busiest inland markets with its trans-Saharan caravan trade. The opening of the sea routes between Europe and the East Indies stimulated marketing channels for sugar and other tropical goods. Today the trend in marketing food and other commodities is such that most of the preparation is handled in bulk by specialized agencies. A growing proportion of the food consumers purchase today is ready to eat or has only to be heated.
What this means in practical terms is that many foodstuffs, as well as other products, pass through numerous channels before being sold at countless consumer outlets. They may even be marketed all over the world. The product itself most often determines the places for and methods of distribution. Today, the "rule-of-thumb," or normal method, is that goods go from producers to intermediaries before they get to us.
To the merchant, whether a wholesaler or a retailer, the decision as to what goods to select for resale is the key element of merchandising. To the supplier of these goods, finding the best channels of distribution is a key problem. Marketers must decide what methods are best for distributing their particular products. They may sell directly to customers, to the customers through sales agents, to jobbers, directly to retailers, or to retailers through sales representatives. If they decide to sell to the ultimate consumer through wholesalers who, in turn, sell to retailers, they may also choose intermediaries such as brokers or manufacturers' agents. The producers of industrial goods face similar decisions. Larger firms frequently use their own sales force working out of the main offices or branch offices located throughout the sales territory.
Distribution systems develop in such a way as to match the available supplies to the consumers' demands. Just as the supplies or goods themselves differ in type, quantity, and quality, so do consumer demands. Variations may occur according to season, climate, local customs, fashion, or state of the economy. Distributors must adapt the flow of their supplies to such variations. Distribution channels are an integral part of a complex system that has evolved from cultural and social patterns in order to facilitate exchange transactions. They are governed not only by economic and social restraints, but frequently by legal and political ones as well. Thus, the interaction of the component parts of the marketing mix is considered in selecting channels.
Policies are formulated not only as to the types of intermediaries, but also as to their numbers. At one extreme is the policy of exclusive distribution, where one wholesale or retail intermediary is the sole outlet for the product or service in a given territory. Piano manufacturers typically issue franchises to one dealer in a specific region. At the other extreme, ball-point pen manufacturers use a policy of extensive distribution for the maximum number of outlets. Between these extremes are manufacturers who are variously selective in their channel choices While the entire complex of getting products to users may be complicated for some products or geographic areas, there are fundamentally just three categories of channels: wholesalers, retailers, and agents who may supplement or benefit the other two.
Industrial marketing channels feature a large proportion of raw materials, semi-finished products, and component parts. Consumer channels sell finished products; service is usually more important to the industrial product, so sellers frequently maintain more direct channels to those users than to the household consumer. There are three types of agents employed in marketing channels:
1. Manufacturers' agents may work for several different manufacturers and sell part or all of the producers' product line within a sales territory. These agents usually have no authority to set prices, but may stock items in their own warehouses. They generally work for small firms with no sales staff, for firms carrying products unrelated to their normal line, or for firms entering a new geographic market.
2. Brokers are essentially used to sell food products. They call on grocery wholesalers for the manufacturers who are their clients and help them make inroads into broader markets.
3. Selling agents have the authority to negotiate prices and usually work without territorial limits. They represent the entire line of a manufacturer and may render financial assistance to their principals. This type of agent sells products like textiles, coal, lumber, metals, and clothing.
The first decision in determining channels of distribution is the form it should take. Should a manufacturer of skis sell through retail stores, by direct mail, or both? If retail stores are chosen, what level or type of store: specialty shops, department stores, discount houses, sporting goods stores, or a combination of these? Even within these types, questions of reliable or prestigious reputations and sufficient financial standing may enter into the decisions. Regional considerations, of course, play a role as well. Skis will sell better in regions near the slopes than in those far away. Other considerations for specific products might include taste characteristics of the product, proximity to associated types of goods and services.
These are the major types of retailing found, in one form or another, around the world:
Specialty stores usually sell a complete assortment of one line, or a limited number of closely related lines, of merchandise. Ranging from jewelry, books, and home furnishings to ice cream, baked goods, and electrical appliances, they can usually fulfill any demand for their type of product.
Department stores, because of the many lines of goods they carry, are actually consolidations of many specialty shops under one roof.
Mail order houses are large operations selling a great range of merchandise directly to consumers by mail, without a personal sales force. They are practical where catalog printing, parcel post, and freight services are reliable and economical.
Chain stores are a group of stores under the same management. These mass distribution organizations save money for themselves and the consumer by buying and selling in large quantities. The major types of chains specialize in groceries, drugs, auto supplies, and clothing. In some product areas, they dominate the market; in Canada, five chain supermarkets sell 40 percent of all the food in the country.
Consumers' cooperatives, owned and operated by local groups of farmers or other consumers, are also called "co-ops”. They are popular in rural areas, marketing such items as groceries, animal food, gasoline, and food preparation services. Their chief attraction to consumers is the patronage dividend, based on volume of purchases over a given period.
Direct retailing, or house-to-house selling, makes up a large part of the retail business in certain products, notably household items and makeup. Usually the sales representative carries a small stock or shows samples, takes orders, and makes deliveries later. The overhead is small, and the consumer has the convenience of home shopping.
Vending machines sell many types of small-sized, low-cost, popular- demand, standard-quality goods. Candy, cigarettes, soft drinks, and books are vended in high-traffic areas.
For the most part, wholesalers buy from manufacturers and suppliers and resell to retailers. Usually, they extend credit and make deliveries. They may carry specialized or diverse lines of products. Merchant wholesalers maintain warehouses, so the manufacturer does not need extensive storage facilities. In addition to maintaining a sales force, they are able to regroup different types of goods into acceptable lots and screen the goods presented by the manufacturers. Cash-and-carry wholesalers require customers to transport their own goods and to pay for them in cash. Another type of wholesaler is the drop shipper, who never takes possession of merchandise, but merely takes orders which the producer or supplier fills directly to the customer.
Manufacturers' branch offices also function as wholesalers. They are able to sell to other wholesalers, to retailers, or to final industrial or household consumers. Some have a limited geographic range or sell to a few large customers. They operate entirely from the factory or central office.

Product Policy What You want to Sale

Few products or services offered today are simple to market. From refrigerators to religions, they compete for customers in a world which is growing not only in size but in sophistication and complexity. Even if one product is clearly superior to another, this may not be evident for a variety of reasons. Marketers must know what attracts customers and keeps them, and must respond accordingly.
 
 
Whether designing new products, redesigning old ones, or improving established ones, there are certain basic objectives. One of the goals should be to benefit the consumer, as well as the producer. The product should be designed to function as efficiently as possible in relation to its price and use. Additional uses and styles should be incorporated to supplement the basic value. Take watches, for example. Think of the variety of styles and features offered consumers.
This element of variation increases the functions of the product as well as attracting particular segments of the market. Some design elements, such as more jewels or special bands, may add nothing to the basic utility of the watch. They will, however, add to sales appeal at the point of purchase and further expand the potential market.
 
                       One of the vital factors in merchandising is the ability to cope with fashion. This element is basic to all kinds of products and services, from clothing to entertainment. Sometimes the marketer's job is almost entirely to gauge fashion trends. Fashion is a manifestation of group psychology and is, at best, difficult to predict. A fashion has its beginning when a few people are influenced by it, culminates when large numbers follow it, and declines when it is abandoned by its following. A style may or may not be a fashion at any given time: it becomes a fashion only when widely accepted.
 
Fashion designers, naturally, try to influence public taste. Many businesses have developed methods for scrutinizing the trends of sales in their special fields. They use these results to produce products that they hope will sell.
 
Quality is a judgment made by both manufacturers and customers. Educated consumers consider more than comparative prices. While marketers are not directly involved in production activities, they do receive the feedback on product acceptance. For this reason, quality control is important to the entire merchandising process. Maintaining quality in a product adds to the cost of production and to final price. Questions of quality are thus carefully considered in the process of deciding what to buy and what to sell.
Marketing managers must, at some point, consider the breadth of their product line—how many different items to offer. By designing consumer goods in various models, sizes, and classes, a producer is able to reach for parts of the market that would be unavailable if the pattern or product were single or limited. In products like table salt, image is unimportant to the consumer, so salt comes in limited types and packages. Cars, on the other hand, are highly visible prestige items; most automobile manufacturers offer a wide choice of models and options.
In addition to marketing "finished" goods to consumers, businesses also market industrial goods and services to other businesses. This is called industrial marketing. More dollars are actually involved in sales to industrial buyers than to consumers. In the United States, more than $1 trillion of such income is generated annually.
 
Regardless of the type of good, it is important to focus a marketing strategy on target customers. Target marketers believe that in most product areas the market is composed of widely dissimilar submarkets. By selecting smaller, more homogeneous segments, better oriented, more profitable marketing practices are developed.
                        
When deciding questions of diversification and simplification, marketers must also look at the potential size of a market, at the financial position and practices of their firm, and at the resources available. All these elements influence the breadth of the product line. Determining where to position particular products is an important marketing decision.
An item such as deodorant may be introduced specifically as a men's or women's product, but later may be repositioned as a family product. In addition to positioning with respect to consumer segments, marketing managers position their products with respect to the competition. A magazine publisher may wish to position a publication so as to challenge the leader in a given market. Changes in format, emphasis, or editorial policy can appeal to the same consumer interests that buy the leader If, in this example, the result is also to appeal to a market which is more affluent and more quality- conscious, the price will be raised. This process is known as trading up.
 
 
Another aspect of product policy, particularly relevant to consumer goods marketers, deals with brands. Branding is commonly used by marketers to influence consumers' perceptions and is closely related to the issue of positioning. It identifies merchandise and differentiates it from competing products. The marketer hopes for sales stability due to consumer loyalty to the brand. Ideally, this occurs when consumers are so satisfied with the merchandise that they note and remember the brand. When a manufacturer sells more than one product, there is a brand choice issue. A firm which merchandises many types of soap may choose individual brands for each of its products. The hand soap, dish detergent, clothes detergent, and scouring powder will all be labeled with different brand names.
 
The opposite policy is that of family branding. A paper products company may market all its products—tissues, towels, napkins, toilet paper— under one recognizable brand name.
In recent years distributors, particularly large ones, like department stores and supermarkets, have been branding products. Some carry manufacturer's brands only, while others carry a combination of manufacturer's brands and their own. These dealers don't actually produce the goods; they arrange to sell manufacturers' products under their private brand. This practice has grown tremendously, so that elegant department stores such as Bloomingdales do it as well as supermarkets like the A&P.
Closely related to brand identification, and sometimes considered more important, are trademarks. Because of their importance as short cuts to the customer's memory, and their legal protection to assure exclusivity, well- established trademarks have a large cash value. In mergers, some well-known trademarks have been valued at millions of dollars. Through constant use on packages and in advertising, many trademarks have almost eclipsed the name of the manufacturer. Vaseline, the trademark for the petroleum jelly produced by Chese-brough-Ponds, Inc., is such an example. Many people refer to any petroleum jelly as "Vaseline."

Product Planning


Marketing starts in a market, where individuals or organized groups who want to buy goods or services meet people who want to sell them. The buyers must have money to spend and a willingness to spend it, or a product or service they themselves are willing to trade.
 
The sellers must have what the buyers want. The first step in marketing is to understand these groups. The marketers must determine the number of buyers, what they want to buy, how, when, and where they want to buy it, at what price and what they expect from it. Elaborate techniques of research have been developed to supply this information. Of course, marketers have to decide which needs they want to meet. A concept for a product or service may develop long before any marketing research is done, or it may be a response to identifying need.
 
In part, at least, marketing determines what products and services are to be offered. Historically, marketing experts were supposed to sell any product in any way possible. The techniques of marketing research have now given marketers new ways to learn and analyze the needs and wants of consumers. They can now play a critical role in determining what—as well as how — to market. Most large companies now produce only what their market researchers tell them will profitably sell.
All products were new at one time. Today, a product is new if it is unique—a "first"—or if it is new for the manufacturer who is entering the market to challenge the existing competition, or if it has had enough substantial design modifications to make it a new product issue. For the manufacturer, merchandising includes selecting the products to be produced; deciding on the size, appearance, form, and packaging; and "having the right goods at the right place at the right time at the right price."
 
 
The product planners try to determine whether there will be a demand for a given product, and if so, how much. Marketing managers then, working closely with top management, integrate these predictions with an analysis of all the areas of the business which will be affected. Does the firm possess the capacity and the funds to enter into the new product area? What are the existing marketing strengths, skills, and resources? How strong is the competition? The commitment of a company's energies and funds may be far- reaching. Not only may substantial investments be required to develop and market new products, but contracts or even mergers with other firms may be necessary.
 
Professional marketing managers know that appraising new products and changing an existing product line are ongoing processes. There are many motivations for constant surveillance of the product line. Scrutiny may reveal opportunities to increase sales by offering customers more functional products, greater convenience, more prestige, greater value, or some combination of these qualities. Volkswagen of Germany, for example, introduced three entirely new models in a few years in an attempt to fill the needs of a more affluent market seeking different qualities in an automobile. Additional products added to the line may reduce certain costs by more fully utilizing the firm's production or marketing capabilities. The airline which gets into the business of car rental for its passengers requires minimal extra cost while making fuller use of its personnel and company resources. At the same time, the existing sales pitch is easily integrated. Sometimes a new product will enhance those already in the line. Lipstick and nail polish sales rise when their manufacturers add perfume to the line, and libraries seem to lend more books when they also offer records, paintings, and films to the community.
 
 
Regardless of the motivation for new or additional products, marketing managers must consider the full range of effects the products will have on the business. Prime considerations are the similarity of the proposed product to the existing product line of the company, the similarity to the competition's products, and the resources of the firm. Marketing people determine if the products are suitable for distribution through normal or existing channels. They ask if the regular sales methods are appropriate and if the new products can be linked to others in the line. They make whatever changes are necessary in the promotion or advertising policies, while carefully thinking out the costs of production and the final pricing.
 
 
At one extreme, a new product will be sold to current customers by the existing sales force, using the distribution channels previously developed and the same price and advertising appeals. In this case, the only major question is whether or not the product will result in additional sales or merely siphon off sales from existing company products. Frozen vegetable marketers, for example, saw their products' sales rise with a proportionate dip in sales of their canned produce. But when the major soft drink manufacturers added low-calorie diet sodas to their line, new sales were generated without detriment to the existing line.
 
In contrast, some new products appeal to previously untapped markets. When Pierre Cardin introduced its first products for women, the firm's marketers were presented with new and complex problems. Distribution channels were different, a specialized sales force was required and unfamiliar promotion and pricing problems arose. It is between these two extremes that most marketers find themselves.
 
While pioneering is risky, some firms seek to develop and market radically new products. Trusting that, as leaders in a field, they will reap rewards for being first, some firms invest large sums on new product research and development. The failure rate for this approach is high, so not all companies have such inclinations. In a less expensive way, some firms monitor the product development of others to see if an item is demonstrably salable. Similar to this approach is the strategy wherein firms spend nothing on research and development and introduce products only into mature markets. This kind of business has low overhead and usually manufactures large volumes at low cost, relying on price as its only important sales advantage.
 
After deciding to produce a product, the planners carefully weigh all of the input. Settling on a final design involves many processes, taking into account the style, fashion, quality, packaging, and complexity of the product. Marketing a new product is always a gamble, but information and planning greatly reduce the risk of failure.

The Scope of Marketing

 
It is common knowledge that marketing has lately developed into a separate discipline that is being taught at universities now. When did it really come into existence? This century, last century, or in the Middle Ages? – Wrong on all three counts.
 
 
The transfer of goods from one person to another was probably one of our earliest social acts. Whether through violence or barter, this transfer established that few people can satisfy all their desires alone. The inability to produce everything desired creates reliance on others for both necessities and luxuries. As societies grow more complex, so does the transfer of goods.
The basic motive for trading is that someone has something you want more than what you already have. When that someone is willing to exchange what you want for what you have, a mutually satisfactory transaction can be arranged. Generally speaking, then, trade is the exchange of surplus items for shortages of items. The reasons for having surplus items range from geographic and resource variations to division and amount of labor, skill variation, and differences in taste. One group or person may create a surplus of some product in the hope of profitably exchanging it for other products.
 
 
As society and production expanded, so did the limits of trade, the range of goods, and the distance between the traders. It became increasingly difficult for the producers to locate each other and arrange mutually satisfactory exchanges without the help of intermediaries or "middlemen." These intermediaries, in the role of bringing together interested parties, must perform a variety of tasks which can be called marketing.
 
As defined by the American Marketing Association, marketing is "the performance of business activities directed toward, and incident to, the flow of goods and services from producer to consumer or user " Marketing, therefore, is made up of such physical activities as transporting, distributing, storing, and selling goods, and of the decisions which must be reached by individuals or groups who want to move goods from production to use. Of course, not all producers engage in every marketing activity. The local carpenter in Guatemala or the supermarket manager in Japan does not do product planning; most retail stores around the world have few or no storage facilities. However, most products are repeatedly subjected to all marketing operations. In addition to an analysis of these activities, marketing involves understanding the consumer circumstances and attitudes that determine why certain people want certain products.
 
 
Marketing trends, activities, and organizations are constantly changing and developing. In the role of bringing together interested parties, the intermediary may also be involved in grading, financing, assembling, packaging, refining, or altering the form of the goods Indeed, a large portion of the working population in many countries is involved in some form of marketing. In West Germany today, for example, manufacturing and the marketing activities of retail and wholesale trade account for one-third of the national income, while twenty-five percent of the work force is engaged in full-time marketing activities.
 
 
The contribution of marketing to society is a subject of controversy among economists. Contributions such as refining, transporting, assembling, and packaging are considered productive; speculating, storing, accepting commissions, and merchandising activities such as advertising are considered parasitic and of little value to society
The general belief is that prime costs of distribution should be eliminated and supplemental cost excesses should be reduced. Supplementary costs of distribution such as packaging, storing, and selling are generally considered to be continuations of the production process, and are thus acceptable as an added value to the product. In the free enterprise system, the full range of marketing activities operates with little control. Other more controlled economies regulate and limit some of these functions.
 
 
Capitalist economies do acknowledge that marketing has its excesses, as in cases where a product is stored for an undue period of time merely to raise the price. Consumerism has arisen out of a belief that consumers have rights which are often abused. People like consumer advocate Ralph Nader have fought to have laws enacted which would protect these rights.
On the whole, however, functions can continue only if they perform a service and fulfill a need. If unnecessary marketing activities raise the cost of goods above that of the competition, the product will be priced out of the market. The corollary to this is that marketing functions will only produce a profit—the basic motive for doing business—if they provide a service worth the money. It is argued that almost all marketing activities thus contribute to the real value of a product. Whether or not this is true, the aim of this text is to explore those marketing activities and functions which do exist and which are practiced.
 
 
The following questions face those involved in marketing: How should the product be designed? How should it be packaged? What retail and/or wholesale channels should be used? Is advertising advisable? If so, how much and what kinds? What prices should be set? Will it sell, and to whom?
Although marketing activities have expanded tremendously in the past hundred years, there was little formal study of them until the past few decades. Today, there are many publications on the various aspects of marketing and colleges give courses and degrees in this field. Marketing research has developed into a highly specialized activity employing tens of thousands of people around the world. There is general agreement among marketing people that, in many cases and countries, marketing activities account for more than half the cost of the product to the consumer. In many countries, those engaged in marketing activities outnumber those engaged in manufacturing or production.
 
We have noted that, in general, marketing directs the flow of goods and services from producers to consumers or users. Marketing is not confined to one particular type of economy; goods in all but the most primitive societies must be marketed. Indeed, a broader concept of marketing does not limit its application to business enterprises. Schools, hospitals, libraries, and many other services must also be marketed to be used.
 
Ref : Marketing Basics.