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Managing the sales force successfully is a challenging task because they can make a company profitable and a market leader or a looser. The sales jobs are increasing world wide and many of the successful sales professionals are earning attractive packages and lucrative incentives. Even the president or chief executive officer (CEO) of a company is a salesman because he/she is also indirectly involved in sales.

Companies set sales force objectives, strategy, determine their size, compensation, recruiting and selection policies, training and development policies, and monitoring and evaluation policies. Companies determine the minimum sales target to cover a sales officer’s package and other selling expense in his territory.

HIRING FIELD FORCE
Mostly companies hire sales staff in various territories, such as at district level. Companies evaluate the potential of different territories, identify the work load and reckon the selling cost. If a new insurance company wants to reach 12000 customers in the first years while a sales representative can make two sales calls a day and can reach 300 customers a year, the company needs to hire 40 sales executives. Hiring sales force tends to be a very tough decision because in a competitive industry, sales force turn-over (means switching to other companies) seems higher because the rival firms offer them more attractive packages, while a company incurs a substantial amount in recruiting, selection, training, and development of its sales staff.

SALES FORCE COMPENSATION
Sales force packages are designed keeping in view government regulations and competitors policies. Mostly companies design a fixed amount as gross salary and amount as allowances to cover daily expenses allowance (DA) and traveling allowance (TA); the variable amount vary with the amount of workload (such as more working days in a month or more traveling) and sales including commission, bonuses, incentives, etc; and the fringe benefits include paid vacations, health and life insurance, discounted offer on purchase of the company’s products for self use, etc.

TRAINING AND DEVELOPING SALES REPRESENTATIVES

Before going in the field, sales force must know the company, its history, objectives, organization structure and line of authority, chief officers, facilities and offices, products, sale volume, customers, and competitors. In addition, they should know effective sales presentations, handling customer objections, administrative work procedures like filling the sales reports, customer comments, competitors’ information, reasons for low sales such as recession, etc, and other responsibilities.

DIRECTING AND MOTIVATING SALESFORCE & DEVELOPING NORMS FOR CALLS
Salesforce are directed and motivated through supervisors and sales managers. Normally, customers are categorized as A, B, and C class customers depending on sales volume, profit potential, and growth potential. The 80-20 rule is very famous in sales. It has multiple applications. 1, to make 80% sales from 20% customers (ie big customers); 2, to allocate 80% time to existing customers and 20% time to new customers; 3, to concentrate 80% of time on selling existing products and 20% time on selling new products. Another norm is to develop the salesforce from customers’ point of view, as they believe that the salesmen should be honest, reliable, knowledgeable, and helpful.

A research on measuring the attitude of sales reps about sales rewards explored that the most salient value was pay, followed by promotion, personal growth, and sense of accomplishment.

SALES SUPPORT STAFF
It includes sales assistants, telemarketers, and salesman. Sales assistants make calls to customers, seek appointments, check customers’ credit records, supply sales reps orders to the distribution department and make a follow up to ensure delivery of orders to customers in time, and so on. Telemarketers find new leads (or accounts, or customers), qualify them, and sell them. Salesmen are the lowest rank sales officers who collect orders, deliver to the distribution department, supply the stock to the customers and recover the payment of invoices.

SALES QUOTAS/ TARGET & EVALUATING SALES PERFORMANCE
Sales quotas/ targets are set to accomplish sales goals. Sales targets are set by considering individual territories current sales, sales potential, promotional budgets, and sales officers’ experience and performance level. Sales reps performance is continually monitored by supervisors and sales analysts who check their calls timing, call frequency, average expense per sales call, overall sales, periodic sales data, average sales or business per customers, number of small and large customers, new customers, lost customers, achievement of sales targets, sales revenue and profitability, customers satisfaction, customers’ complaints and so on.

STEPS IN SALES CYCLE/ EFFECTIVE SELLING
Prospecting & Qualifying ---- proach --- Approach ---

Presentation & Demonstration --- Handling Objections ---

Closing Sales--- Follow up & Servicing

Figure 14.1

1. PROSPECTING AND QUALIFYING: The sales reps ask the current customers for the names of prospects. They collect other referrals from suppliers, dealers, non-competing sales reps, bankers, trade associations’ executives, etc.

2. PREAPPROACH: It’s about qualifying a prospect and seeking an appointment through a phone call, letter, or personal meeting.

3. APPROACH: It is meeting the prospect in person.

4. PRESENTATION AND DEMONSTRATION: Sales reps deliver the presentation on the product and the company and may demonstrate the product’s functions. The key to success is to identify customer needs, wants, and problems and then providing a solution package.

5. HANDLING OBJECTIONS: Customers often pose objections about the product features, price, delivery terms, etc. Sales reps need thorough understanding and a lot of knowledge of the product, company policies and the industry to handle the objections successfully.

6. CLOSING SALES: Soon after guessing a customer’s interest, the sales rep should ask for the order and upon receipt of order, he/ she should write the purchase terms, payment, and delivery schedule.

7. FOLLOW UP AND SERVICING: Sales reps make a schedule for follow up visits. The final step is mandatory to ensure customer satisfaction and repeat business. This helps in generating even larger business, referrals, and turning customers as loyal customers.

NEGOTIATION
Negotiation is the settlement of a problem or dispute, or settlement of a price along with other terms, such as payment and delivery terms, etc. Bargaining on the other hand is holding discussion to receive maximum discount in price.

RELATIONSHIP MARKETING
The art of selling is building long-run productive relations with customers that go beyond simply friendly relations to business relations.

A company’s promotional-mix strategies and programs include many components from which, it chooses some options to apply at a particular time in order to promote its products. The promotional-mix includes the following components:

Some other forms of promotion include: free samples or free trials, coupons, bonuses, prizes on games, lucky draws, seminar sales, expo sales, conference sales, etc. Such companies place advertisements in the magazines, TV, internet, or mail letters and brochures to the customers, or make telephone calls or confer toll free numbers and when customers prescribe their products; the order is shipped to them.

ADVERTISING DEFINED. Advertising is a way of communication about goods, services, and ideas by organizations through mass media in order to promote products, businesses, or influence behavior.

2nd DEFINITION. ‘Advertising is a paid, non personal (i.e. not for a particular person but focused to a group of people) communication of information about goods, services and ideas by an identified sponsor through mass media, which is intended to influence or persuade behavior.’ Influencing the behavior of ad viewers may be for a number of reasons like creating awareness about products, selling products, appeal for raising charity funds or to vote for candidates, job interviews, corporate image shining ads, and so on.

INFORMAL DEFINITION. Advertising is about persuasive messages about goods, services, ideas, and institutions through media.

ADVERTISER is the company sponsoring an advertising / ad / commercial of a product.

ADVERTISING AGENCY is the company producing an ad for an advertiser.

CHARACTERISTICS OF ADVERTISING. Commercials are made for different types of customers (such as consumers or business customers), launched in a particular territory (ies) (such as from local to national level) in a specific medium or media (such as Geo TV, ARY, Daily Dawn, Jang News, etc) with some pre-planned purposes (such as to increase the sales, etc).


PURPOSES / OBJECTIVES OF ADVERTISING
1 to create awareness about the product (esp’ at the time of new product launching); 2 to urge product use; 3 to increase the sale of product; 4 to differentiate the product from competitors; 5 to expand product distribution; 6 to increase brand preference and loyalty; 7 to raise funds for charity reasons; 8 to appeal voters to vote a particular candidate; 9 job interview ads; 10 public notices; 11 auctions or bids; etc.

THE ADVERTISING PLANNING PROCESS. It includes 7 steps: 1 analyzing the current situation (like the product features, strengths, weaknesses, opportunities, and threats, ie SWOT analysis, competitors and industry analysis); 2 defining the target audience (consumer behaviour analysis); 3 developing advertising goals and plans based on the marketing goals and plans; 4 calculating the advertising budget; 5 & 6 developing and executing creative strategy and media strategy (about producing an ad and placing it appropriately in a media channel(s)); and 7 evaluating advertising effectiveness (that whether or not, it has served its goals).

THE SELLING STYLES AND ADVERTISING APPEALS

Hard-sale style persuades the audience to buy now, for instance, buy now and get a discount because many viewers soon target the ads to buy the product or avoid buying. The soft-sale style persuades and motivates the audience to build desire for a product. The rationale or logical appeals influence the audiences through logical reasoning about the product features and price, etc, for which our left brain hemisphere works. The emotional appeals influence the audience through heart by showing beautiful models or backgrounds in the ad, for which our right brain hemisphere works. A combination of both appeals can also be exploited.

THE MOST IMPORTANT PARTS OF ADVERTISING: COPY, ART, & PRODUCTION
Copy includes every word written in an ad, or shown, spoken, and sung on a TV ad, or radio ad. The art deals with visual images of an ad including illustrations, graphics, pictures, painting, photos, cartoons, caricatures, drawings etc. It’s important to note that in radio advertising, the art director deals with the dialogue delivery for beauty and perfection. In electronic advertising, the art director assists the direct in selecting sets or locations, cast, costumes and get up. Production deals with production of an ad in the print media (such as, in newspapers, magazines, flyers, catalogues, etc) or on the electronic media (such as, TV and radio).

MEDIA PLANNING
“Media planning is the process of distributing the advertising message to the target audience at the appropriate time and place through appropriate channel.” Media planning helps answer such question as: What audience do we want to reach? When and where to reach them? How many people to reach? How often to reach them and at what cost?

A media plan outlines specific media objectives, strategy and tactics to be used in advertising a particular product or brand. A media vehicle is an individual medium / media unit or media channel in print or electronic media, for example, BBC, Dawn, Geo, ARY, Ham TV, KTN, FM Radio, Jang, Kawish, etc are all individual media vehicle. A media mix is the combination of two or more media units. A media plan might include a couple of media units. Mass media includes the media that reach at macro level.

MEDIA PLANNING VERSUS MEDIA BUYING

It is important to note that media buying deals only with the process of buying space or time on media with efficacy and efficiency, while the media planning is a complex process of designing the whole media campaign including media buying.

REACHING THE TARGET AUDIENCE AND ITS FREQUENCY. Reach is a measure of how many target audience are exposed to a particular medium or media vehicle at least once in a given period. For example, the reach of Daily Dawn newspaper is 2.5 million people every day and 2 million people a week for weekly Akhbar-e-Jahan. Frequency measures how many times or the number of times people in the target audience are exposed to a media vehicle in a given period. For example, the frequency of working women group is 60 times for Geo TV, 40 times for Star Plus and 20 times for The Music TV in a month. Reach and frequency help media plan determine the most suitable media units for particulars audience.

Media 1, electronic media reach 1 million; frequency 4 times a month
Media 2, print media reach 0.5 million; frequency 2 times a month

Total number of exposures = 1,000,000 ( reach ) x 4 ( frequency ) +
500,00 ( reach ) x 2 ( frequency ) = 5,000,000
Total target audience reach = 1,500,000
Total target audience frequency = 6 times a month
Average frequency (considering all media) = no. of exposures
total reach
= 5,000,000 = 3 times a month
1,500,000
It means that media experts and planers assure that 1.5 millions people will watch Geo TV and read Jang News, for instance, 6 times a month, as an average 3 times a month on the two media vehicles and the total numbers of exposures will be 5 millions, which means the media channels are seen 5 million times in a month. The more a channel is seen or read, the more chances are that the ad will be viewed by the target audience.

Developing Media Strategy
Two of the salient decisions here are: 1, Determine geographic scope. Where the advertisement will be shown at a local district level, provincial level, national level, or international level? 2, Scheduling the message. Decide about the timings to run the ad. A number of techniques are available for scheduling. Refer the book of Advertising Excellence by Courtland Bovie.

IMPLEMENTING MEDIA PLAN
The advertising agencies design a chart to highlight media timings at different days of a week, in various months in a year. Refer page 365 on the book of Advertising Excellence by Courtland Bovie. Finally, the media planner and media buyers tally the actual timing and quality of and ad with the planned ad timings and quality. If the ad does not appear at appropriate times, as directed by the media planners, or the quality output isn’t delivered, the media buyers ask the media to make a discount or repeat the advertisement to offset the loss.

ADVERTISING VERSUS PUBLICITY: Many people think that they are the same but it’s not true. Refer the advertising definition above. Publicity includes various tools such as public speeches by the company executives, press releases, press conferences, letters to editors, articles in the newspapers and magazines, publishing booklets, annual reports and so forth in order to publicize the company and its products.

A company’s distribution channel supports its sales programs and activities. The distribution channel is the point to supply the products to the customers. The distributors of Nestle and Konica, for example, supply the goods to dealers, wholesalers, and retailers, who distribute the goods to the end users/consumers. A company or its distributors can also supply the goods or services directly to the consumers. A company might have its awn distribution set up but it may prove costly to run such a set up while if the company hires private distribution channels or agency as an intermediary or middleman to distribute its goods or services, it incurs a small expense called distribution discount or commission. Such discount may vary from 5% to 10% or even 15%.

BENEFITS OF DISTRIBUTION CHANNELS

1 Dissemination of market information on current and potential customers,
competitors, other market forces, etc.
2 Financing: The distributors pay the companies against the stock purchased, thus
they finance the companies.
3 Bulk Selling: Normally, the distributors buy in bulk quantities, which help
companies achieve sales targets.
4 Inventory Storage: Distributors store bulk stock in their warehouse to meet
abrupt market demands.
5 After-sales services: Distributors some times hire technical staff to provide
Technical services to their customers provided the company direct them.

PRINCIPAL FUNCTIONS OF DISTRIBUTION CHANNELS

They include booking and supply of goods to customers and recovery of payment of invoices/ bills. In addition, they cover a specific market for sales, supply the goods on their transport vehicles, store the goods in their warehouse under company-specified temperature, and hold inventories equivalent to fulfill one month’s sale or as instructed by the company, such as 7 or 14 days sales inventory, 1.5 or 2 month’s sales stock.

MULTIPLE DISTRIBUTION CHANNELS

A company might have multiple distribution channels, such as distribution
network plus making direct sales to big customers (big wholesale dealers, retailers, or even big consumers), direct marketing staff that serve postal or online
orders, such as mail-order business, and telemarketing staff to find new customers
and fulfill their demands, a company’s own retail chain of stores, etc.

EVALUATING DISTRIBUTORS’ PERFORMANCE

An agreement of trade partnership takes place between the company and its individual distributors, specifying such terms as, contract validity period; discount; inventory keeping requirement (such as keeping inventory equivalent to one month’s sale); storage conditions/ temperature; order cycle; payment terms; dissemination of periodic sales data and market information, etc. A verbal and written formal communication channel is built between the company and its distributors. The distributors or agents that violate the terms of contract are trained and motivated, or replaced if they do not improve their services.

TYPES OF DISTRIBUTORS

1 National distributors / sole distributors supply a company’s products to
other distributors in a country.
2 Zonal / Regional distributors supply a company’s products to specific areas, such as a province or provinces, as South of Pakistan, including Sindh and Baluchistan.
3 Distributors supply a company’s products to a specific area, such as a district.
4 Sub-distributors supply a company’s products to a specific area, such as a district
under an agreement with either the company, called the principle or its local
distributor.
5 Franchise distributors supply a company’s products to a specific area, such as a district.
6 Franchise is an agreement to license the manufacturing, or manufacturing and marketing, or only selling rights of a company’s products called franchiser to the other company, called franchisee. Another development in franchising is forming franchise distributors, franchise wholesalers and franchise retailers. Franchise retailing is very common in mobile phone service industry, fast food, travel agencies, fitness centers, etc.
7 Brokers and agents: They normally do not themselves purchase the goods or services but bring buyers and sellers together and assist in negotiation. Sometimes they sell the products to the buyers without identifying the seller. They earn a commission of 2 to 6% of the selling price. Some typical examples are real estate brokers, insurance agents, security service agents, etc.

For further insight on the chapter, refer the book, Marketing management by Philip Kotler; read type of wholesalers and retailers; franchising; and determining optimal order quantity method (of cost accounting).

Price is a payment to receive a good or service. In broad spectrum, price may be a rent (of a building), a fair, fee or charge, premium of insurance policy, interest of loan, salary, commission, bid, taxes, etc paid to acquire some goods or services. Historically prices are set by negotiations between buyers and sellers. Sellers would ask for a higher price and buyers would offer a low price and finally, the price will be bargained. Price is one of the most important elements in determining a company’s market share and profitability. Price covers both cost and profit; the cost includes production, distribution, and selling cost. The price is set either by the management, or marketing manager, or the product manager, or brand manager.

THE PRICE SETTING PROCESS

A price is set when a new product is launched or changed at a later stage. The price setting process includes some key steps, such as:

1. Selecting the pricing objective,
2. Determining demand,
3. Estimating cost,
4. Analyzing competitors’ prices,
5. Selecting a pricing method, and
6. Selecting the final price.

( A ) SETTING THE PRICING OBJECTIVE: A couple of pricing objectives are available to set the final price.

1. SURVIVAL: Survival is the object at the outset of the business. It’s the short-run objective or may range few years, but in the long run, companies need higher profits to avoid extinction. At this stage, a firm will lower its prices and profit margins just to keep its inventories turning over, raise sales, and market share.

2. MAXIMUM CURRENT PROFIT: With this objective in mind, managers first estimate the demand and cost associated with alternative prices and then they choose the price that maximizes the current profit, cash flows, and return on investment. For example, a firm might estimate that it can sell 1000 units of a hair brush at a price for Rs100 each, while it can sell 2000 and 4000 units respectively at a price for Rs60 and Rs30 respectively. Each unit costs the firm Rs25 inclusive of production, distribution and selling cost. It will reckon the demand, cost and profit at all three alternate prices to determine the most profitable price, which is Rs100 per unit. Consider the calculation:
a. Rs100*1000 units = Rs100000; profit Rs75*1000 units = 75000
b. Rs60*2000 units = Rs120000; profit Rs35*2000 units = 70000
c. Rs30*4000 units = Rs120000; profit Rs05*4000 units = 20000

3. MAXIMUM SALES GROWTH AND MARKET SHARE: It’s a proven theory that a higher sales volume leads to a lower unit cost and higher long-run profits. Here, the firm sets the lowest price, assuming that the market is price sensitive and the lower price discourages actual and potential competition. This objective has been adopted by Dollar ink and Piano ball point pens. This is also called market penetration price.

4. MAXIMUM MARKET SKIMMING: This object or formula is common in innovative and hifi technological products, such as cell phones and electronic products. When an invented or innovated cell phone of Nokia enters the market, they price it higher or charge a premium price, which also communicates the image of a superior product. But when competitors like Sony and Samsung launch rival brands, Nokia launch even more advanced brand and lower the price of its earlier brand for a lower layer of customer segment.

5. PRICING OBJECTIVES FOR NON-PROFIT ORGANIZATIONS: Non-profit organizations charge a lower price than that of competitors. A hospital may charge a relatively lower price but it may cover its cost plus adds some profit for the development expenditure. A non-profit university may charge a price that covers half of its cost and rely on private gifts and public grants to recover the rest of cost.

(B) DETERMINING DEMAND: Each price a company sets will lead to a different level of demand therefore will have a different impact on profit and marketing objectives. Here, some of the methods are:

1. TOTAL MARKET DEMAND: It will be determined from sales statistics of last years and current retail sales in a given area.

2. DEMAND SCHEDULE: It shows the number of units market will buy at alternate prices in a given time, such as in the above example of hair brush. The law of demand explains that higher the price, lower the demand or conversely. In case of prestige goods, such as perfumes, watches, mobile phones, luxury cars, etc, the situation is vice versa ie the higher the price and advertising or brand image, the higher the sales.
3. THE PRICE ELASTICITY OF DEMAND: If demand slightly changes with a small percentage change in price, we say the demand is inelastic but if demand changes considerably (or at a great extent), we say the demand is elastic. Suppose the demand of a soap fells to 30%, when the price is increased from Rs40 to Rs45 ie 10% price addition, we say the demand is elastic.

The demand tends to be less elastic or buyers are less price-sensitive under the following conditions: 1. there are few or no substitute products or competitors, such as in a monopoly or oligopoly market; 2. buyers do not readily notice the price hike; 3. buyers are slow to change their buying habits and search for low price brands; 4. buyers think that the higher prices are justified by quality improvements, innovations and inflation, etc; 5. buyers find it difficult to compare the associated benefits of similar products, for instance health and life insurance products; 6. when buyers income level is very high and the price is easily affordable; 7. when buyers feel the end benefits of the product are higher than the price, such as renowned personal care brands; 8. when the price is paid by another party or sponsor; 9. when the product is used in conjunction with another product bought previously.

(C) ESTIMATING COST: The three types of cost are:

1. FIXED COSTS (also known as overheads): These are costs that do not vary with the amount of production, such as, monthly rent of business place, connection charges for phone and electricity, interest on loan, executives salaries, etc. a company has to incur such expenses whether the sales support the running expenditure or not.

2. VARIABLE COSTS: These are directly linked with the level of production. Because the higher the quantity of goods produced, the higher the variable expenses because of greater input of raw material, utilities consumption like gas and electricity, labor size and salaries, etc.

3. TOTAL COSTS: Total cost consists of fixed cost and variable cost in a specific period.

The two types of costing methods are:

(a) EXPERIENCE CURVE / LEARNING CURVE: The decline in average cost with accumulated production experience is called the experience curve.

(b) TARGET COSTING: The Japanese invented this method, which is to design a product, build its initial model or prototype, estimate its production and marketing cost, and then determine its final price. If the price offers low profit margin or can’t compete with the prices of rivals, then the target cost is reengineered.

4. ANALYZING COMPETITORS’ COSTS: Along with rivals’ costs and prices, their products’ quality, advertising, promotional offers and distribution network is also evaluated. Such an analysis can be done by taking rivals’ price lists and asking dealers and buyers their quality and offers, etc, which will assist in determining a competitive cost structure.

5. SELECTING A PRICING METHOD: Some of the pricing methods are:

I. MARKUP PRICING: The principle is to add a standard markup or profit in the total cost, for example, a grocery shop keeper may add a 20% markup in the cost of unbranded food items. Markups are normally higher on seasonal and slow moving items and lower on fast moving consumer items (FMCG’s). The formula to calculate markup price is:
a. Unit cost = variable cost + fixed cost = 10+ Rs300000 = Rs16
a. units sales quantity 50000
b. Unit cost = price per unit = Rs16 = Price per unit Rs20
c. 1-desired markup 1–0.20

II. TARGET-RETURN PRICING: It’s alike markup pricing but the profit margin is set in relation with the target rate of return on investment (ROI). Suppose, company X wants to earn 20% profit on its investment in a season or a year. The formula to calculate the price is:

Target-return price = unit cost + desired return * invested capital
units sales quantity
= Rs16+0.20*Rs1000000 = Price per unit Rs20
50000

It means, by investing Rs1 million the company X can earn 20% profit or Rs200000 in a period, if it sells 50000 units of the goods.

(III) PERCEIVED-VALUE PRICING: Many companies set the price of a product on the basis of their positioning strategy, such as a premium price for a superior product because they believe buyers will realize the justification of price charged. The formula is:

Suppose the cost of production and marketing of a luxury car is Rs1,000,000, the automobile company can add substantial amounts in the price as to gain full edge of the perceived-value, Rs200000 as the brand family or product line image, Rs200000 as the corporate image, Rs100000 for innovative features, Rs50000 for reliability and durability value, and Rs50000 each for warranty and resale value. Consequently, the final price will be Rs1650000.

(IV) CARTEL PRICING: Here the firm prices its products equivalent to the that of competitors’ prices. It’s common when firms in an industry form a cartel or group and fix one price of a product, for instance, Oil Producing & Exporting Countries (OPEC) organization sets the price of crude oil. In Pakistan, Oil & Gas Regulatory Authority (OGRA) regulates and fixes the prices of refined gasoline/ petroleum products.

(V) Sealed-bid pricing: It is common where firms bid jobs or temporary contracts. The lowest bidder wins the contract but the challenge is to reckon the cost and bid at a price with reasonable margin but not worsening the profit margin.

6. SELECTING THE FINAL PRICE: After applying any of the preceding methods, companies consider some additional pricing factors:

i. PSYCHOLOGICAL PRICING: It includes three methods: 1. Image pricing, such as high quality, high price or high quality, low price, and so on to influence the buyers. 2. Reference price, which abruptly appears in the buyer’s mind when buying a particular product. For instance, when we leave for dinning in a classic restaurant, we have a fair idea of the food prices at similar restaurants. Many companies use this simplest method of price setting by referring the competitors’ prices and position their product against a particular set of competitors. 3. Odd number price ends in an odd number, such as a DVD for Rs4999, which creates an image in consumers’ mind that the DVD is in the price range of Rs4000. The companies aiming to establish superior products at high prices should avoid odd number pricing because the consumers associate high quality with premium price.

ii. GEOGRAPHICAL PRICING: Many times companies set a specific price for one location or region and a high price for a distant region to cover its shipping and freight costs. The same procedure is complied in export pricing.

iii. PRICE DISCOUNTS AND ALLOWANCES: Most companies offer discounts, allowances, bonuses, schemes, and rebates to their customers on such acts as early payment, quantity or volume purchases, and off season buying. The typical examples of allowances include trade-in-allowance that is given on turning an old item and promotional allowance that is given to reward dealers in participating in advertising and sales-support programs.

iv. SPECIAL EVENT PRICING: Sellers will establish special prices in certain seasons to draw in more customers, such as specially discounted prices of Bata shoes in Ramdan or high fairs of transporters just before and after eid.

v. LOW-INTEREST FINANCING: Instead of lowering the price, a company can offer its customers a low-interest financing or can lease its products to the customers. For example, some auto makers charge 3% or even 0% interest rate from their customers.

vi. WARRANTEES AND SERVICE CONTRACTS: Instead of lowering its price, a company can offer warranty and free or discounted service.

vii. PSYCHOLOGICAL DISCOUNTING: Some companies artificially raise their prices, then decrease them and offer substantial savings on purchases, for example, Was Rs500, Now Rs300. In USA, such illegitimate discount tactics are protested and discouraged by Federal Trade Commission.

viii. CUSTOMER-SEGMENT PRICING: All the customer segments are charged differently. A five star hotel will charge premium prices for its luxury services, while a three star and one star hotel will charge lower prices for the similar services, because the customer class in all three types of hotels are upper, middle, and lower class respectively.

ix. PRODUCT’S ADVANCED VERSION PRICING: The previous example of Nokia cell phones fits here, where the advanced and latest cell sets are priced higher than its previous most expensive brands.

x. PRODUCT-PROMOTION PRICING: A company can increase or decrease its products’ prices as a consequence of its promotional policies. For instance, at the product introduction stage, a company may offer a discounted price but later on, it can increase its price due to increase in advertising or promotional tools like bonuses, coupons, gifts, free samples, schemes, etc.

INITIATING PRICE CUTS:

It’s done for many reasons, such as, to sell surplus or block inventory, increase market share, combat declining market share, dominate the market through lower prices, and combat economic recession.

INITIATING PRICE RAISES:

It’s done for many reasons, such as, to cover inflation, meet over-demand profitably, and rather than price raises reducing or withdrawing sales discounts and other promotional offers.

CUSTOMERS’ AND STAKEHOLDERS’ REACTIONS TO PRICE CHANGES:

The question for managers is whether or not the stakeholders including employees, distributors, suppliers, shareholders, financers or creditors will accept the price change justification or will react negatively.

COMPETITORS’ REACTIONS TO PRICE CHANGES:

The competitors and especially the market leaders and other major players may counter with various defensive strategies, such as, they might increase their advertising budget and promotional offers, improve their product quality and features, reduce price, launch low-price fighter line, and so forth.

New products development is an essential and primary function of marketing. Existing and new companies, both launch products to create and enhance sales revenue, profits, and meet company objectives. A company can either develop a new product or acquire an existing product in three ways; 1, to acquire another company and its products, for instance, Walls Pakistan acquired Polka Pakistan; 2, to acquire a manufacturing and marketing license; and 3, franchising another company’s products. A company can build its products in its own laboratories or can hire an external research laboratory. A company can also launch a product by copying competitors’ products or a product whose patented period has been ended, for instance, many new drugs on diabetes and cancer are launched with patent right, which can not be copied or produced by any one until the patented period of five years or more ends.


NEW PRODUCTS FAILURE

The companies that fail to develop new product are exposed to a great risk because their existing products are vulnerable to changing consumers’ tastes and preferences, changing trends, government regulations, etc. The reasons for new products failure include: launching a product with negative market research findings; over or under priced; ineffective advertising and promotional efforts; weak distribution channels; incorrect positioning strategy; and under–estimate of competitors’ reactions; etc.

A new product is developed by research and development department(RND), or new product development team / committee and is managed by the marketing manager, but in larger organizations, product managers assisted by brand managers develop and manage new products.


NEW PRODUCT DEVELOPMENT PROCESS

It includes a series of step, as following:

1. Idea generation
2. Idea screening
3. Concept developing and testing
4. Marketing strategy development
5. Business analysis
6. Product development
7. Test marketing
8. Commercialization


IDEA GENERATION:
Companies executives generate new product ideas that meet their objects of profit, sale growth, market share, high cash flows, etc. Companies pile up new products ideas through various techniques for new product development.

NEED / PROBLEM IDENTIFICATION:
A precise need/ problem and its causes are identified, for example, the need for credit cards, and the relevant benefits unmet by competitors.

ATTRIBUTE LISTING:
One may note down the attributes of a car, for example, and add new attributes/features in the product list, like fuel efficient, luxury, speed, medium price, and safe.

BRAINSTORMING:
A group is made and is directed to express their ideas on a matter, such as a new product; the group members are encouraged to freely provide numerous ideas or a heap of ideas, no criticism is done, and the ideas are combined and improved. This most famous technique is developed by Alex Osborn. The sources of new products ideas include customers, sales reps, employees, top management, competitors, distributors, suppliers, scientists, engineers, product designers, patent attorneys, university and commercial laboratories, industrial consultants, business and marketing research companies, commercial and industrial publications, etc.

CUSTOMER SURVEYS
Are done to identify customer needs and wants.

FOCUSED GROUP INTERVIEWS/ DISCUSSIONS:
A group of 8-12 people of expertise, or customers discuss an issue.

PROJECTIVE TECHNIQUES
Are specialized techniques of research to know customers’ point of view.

CUSTOMER COMPLAINT & SUGGESTION SYSTEM:
It’s also helpful in developing and modifying products.

IDEA SCREENING:
From heap of ideas, some ideas will be selected that seem more profitable/ lucrative products and the rest will be rejected.

CONCEPT DEVELOPMENTS AND TESTING:
Some of the selected ideas will be enlarged, mixed, and improved and the product will be tested by presenting it symbolically or physically to a group of potential customers to get a feedback. The new product prints, or packages, or physical prototypes are developed. Some companies like Toyota apply the superior techniques of 3D printing or stereo-lithography and virtual reality.

MARKETING STRATEGY DEVELOPMENT:
It includes both short and long run marketing plans on the key success factors about 4 Ps, product including packing, price, promotion and place/ distribution of the finally selected product. In addition, it includes marketing budgets, marketing and sales goals and plans.

BUSINESS ANALYSES:
Management prepares sales estimates, cost, and profit projections to determine whether they satisfy company’s objectives. The management seeks the advice of field force and technical experts to assume sales in target territories. The experts assume first-time sales, repeat sale, costs, and profits. Finally, the estimates are summarized and tabulated. Some financial management techniques are also deployed like cumulative discounted cash flow, payback period, break even analysis, and risk analysis to calculate a rate of return on probability distribution method, showing a range of possible rates of return in uncertain conditions.

PRODUCT DEVELOPMENT:
If the product successfully passes the business analysis stage then it moves to R N D (research and development department) or engineering department. First, one or more prototypes of the product are developed and the functional tests are conducted in the laboratory or field, or samples are given to consumers to try at home, and it’s made sure that the product performs safely and effectively.

MARKET TESTING/ TEST MARKETING:
A marketing programmer is designed to test the product in one or few selected target markets or cities and consumer’s response is noted.

COMMERCIALIZATION:
The results of test marketing help determine whether to launch the product at large scale or reject it at the initial stage. If the product is commercialized, the marketing strategy helps deciding about the entry timing, target markets, target customers, the introductory promotional offers, and the distribution channels.

SEGMENTING is dividing the customers with similar characteristics, like similar habits, income, buying deport or behaviors, social class, etc. Many companies make customers segments to divide customers groups that offer handsome sales, market share, and profit, etc. A niche is a small or narrow segment of customers, for example, a niche market of diet chocolate users, a niche of ice tea. A niche is attractive when it offers high profit margins. The customers segments of Nike are walking and jogging shoes, while its niche segments are tennis shoes, basket ball shoes, and foot ball shoes. Segmenting is done in many ways.

DEMOGRAPHIC SEGMENTATION is segmenting of customer groups according to 1 age; 2 income; 3 education; 4 gender; 5 race; 6 ethnicity; 7 religion; 8 occupation or employment; 9 household ownership; 10 family size; etc.

GEOGRAPHIC SEGMENTATION is done according to geographic locations of customers.

PSYCHOGRAPHIC SEGMENTATION is done by matching audience / target market with similar attitudes, values, beliefs, behaviors, motivation, etc. Or customers can also be divided on the basis of social classes, personality, and lifestyles.


TARGETING is focusing on particular customers segments that may be more profitable or easy to penetrate and potential growth oriented.

DIFFERENTIATION is about making a product different than its competitors. A product can be differentiated by its features, quality, performance, innovativeness, durability, reliability, reparability, design, packaging, fast delivery, installation, customer training, and consulting service in terms of equipments, warranty to repair, money back guarantee if unsatisfied with the product’s quality or performance, etc.

POSITIONING is moving into customers mind and making an image, like an image of quality, benefits or features, packing, price, etc. The commercials of Mobilink focuses on all such features, especially quality and widest network, while the ads of Warid positions on quality, fun and economy or low price.

SOME OF THE POSITIONING OPTIONS ARE AS UNDER:

- Positioning by product differences or different features;
- Positioning by overall product attributes or benefits;
- Positioning by product users, or choosing a separate segment of users;
- Positioning by product usage i.e. a different and new usage;
- Positioning by against a particular competitor (like the brand leader or the lowest price brand);
- Positioning against and entire product category (extra pack milk ad against open milk ad);
- Positioning by association with some other product category (eg. Ads of shell fuel with Toyota cars and KFC chicken and Pepsi);
- Positioning by solving a problem (ex. Cancer treatment solution with a new drug, dandruff removal with Pantene or Head & Shoulders shampoos);
- Positioning by copy-cat product. It’s a very common strategy used in textile fashion designs, footwear, electronics field, etc.
- Positioning by quality and price image, such as high quality, high price position, or high quality, low or reasonable price image position.

WARRANTY is a promise or assurance usually in writing by a seller to a buyer about the quality and durability of a product and the facility to get replaced some defective parts and get repair services for free or at a discount, for example warranty on buying personal computers.

GUARANTY is a promise or assurance usually in writing by a seller to a buyer about the quality and durability of a product and the facility to get replaced the product or receive full price refund if the product does not perform satisfactorily, for example warranty on buying personal computers along with a money back guaranty to get replaced the brand or buy another product of the same company.

MEASURING DEMAND Is central for the success of a product, marketing program, and an organization. Companies must measure the demand of a product in terms of quantity, value, territorial location, and period. Measuring demand helps in estimating future sales revenue and making budgets accordingly. A total demand of a product category, for instance, a tooth paste, powder, and mouth wash in a region or country and analysis of a company’s past sales and its competitors sales contribute in setting sales targets for the future.

The most common techniques for measuring demand are Estimating the demand, Multiple factor analysis method, and Estimating industry sales and market shares.

ESTIMATING THE DEMAND:
It is determined by estimating total market potential. The formula is:
Q = nqp

Where
Q = total market potential
n = number of buyers of a specific product in a market
q = quantity purchased by an average buyer
p = price of an average unit

Suppose, 80 million people in Pakistan buy average two ball pens in a month, the average price of a ball pen is Rs8, then, the total market potential is: (80 m * 2 * 8) = Rs960 m. similarly, area or city wise market potential is also reckoned.

MULTIPLE FACTOR ANALYSIS METHOD:
The technique provides the following formula to measure the total demand:
Bi = 0.5yi + 0.3ri + 0.2pi

Where
Bi = percentage of national buying power in area i
yi = percentage of national disposable personal income in area i
ri = percentage of national retail sales in area i
pi = percentage of national population in area i

Suppose, Karachi has 30% of national disposable personal income, with 30% retail sales, and 10% of the country’s population, then the buying power index for Karachi would be:

0.5 (30) + 0.30 (30) + 0.20 (10) = 26

It means 26% of total sales of this product category is expected to take place in Karachi.

ESTIMATING INDUSTRY SALES AND MARKET SHARES: The sales of the total industry selling this specific kind of product will be tabulated or obtained from market researchers or statisticians.










SALES FORECASTING is the prediction or estimate of sales of a product or business of a future period. Sale forecast is central is sales management and marketing research because companies want to know their future sales revenue and incur their expenditures accordingly. Generally sales forecast is made through an analysis of past sales. Seasonal fluctuations in sales are also taken into account. Even the new companies predict their sales of new products on the grounds of marketing tools, for instance the product’s innovated features, attractive packaging, affordable pricing, promotional tools such as introductory price offers, advertising, distribution channels effectiveness, etc. Sales forecasting is done by experts including the sales force, marketing team, marketing researchers, consultants, franchisers, distributors, dealers, suppliers and even some government agencies sometimes.

Often, companies’ sales keep growing every year because the population keeps growing. Sometimes a products usage and acceptance increases its demand to an enormous level. For example, the awareness on environment friendly fuel and economy raised CNG sales to a remarkable level. That’s why companies regularly enhance their sales target and keep an eye on sales forecast.

In Pakistan, some research companies like International Marketing Services (IMS) provide regular sales data of all pharmaceutical products in entire Pakistan to their clients on subscription basis. For example, the sale of Zanax tablet, Augmentin tablet, Panadol tablet, etc can be known in quantity wise, value wise, territory wise (ie sales from Karachi to Khyber, in every city, town, street, village, etc), which helps companies formulate marketing strategies and plans.








SALES FORCE COMPOSITE: Sales force is asked to forecast the sales for a future period.
EXPERT CONSENSUS: The experts are asked to forecast the sales for a future period and a consensus is reached through discussions. In point forecast, the experts give a specific amount of sales in a given period, for instance, US$ 100,000. In interval forecast, the experts give a specific range of amount of sales in a given period, for instance, US$100,000 to 120,000. In Probability distribution forecast, experts give two or more specific ranges of amount of sales in a given period, for instance, US$100,000 to 120,000, 120,000 to 140,000 & 140,000 to 170,000.


DELPHI METHOD The forecasters get a questionnaire filled by the sales force / field force to finalize their forecast.

TIME SERIES ANALYSIS AND SALES PROJECTIONS
It’s a very famous technique used in business and marketing research and statistics. It analyzes some variables, such as sales in relation with time. It includes four important factors or components including trend, cycle, season and random variation or erratic events. The forecasters notice the sales trends of their products and competitors products in various periods. The sales flow or cycle is directly linked up with the economic activity, if the economy is at recession stage or slow pace, the sales will suffer. In the seasonal fluctuation periods, high sales or low sales will occur. Almost every business face some periods of fast and slow sales periods, called peak and slack or slump season. For example, in the periods of marriages in Muslim countries, the sales of garments, clothes, footwear, jewelry, furniture, decoration, catering, marriage halls, etc will increase substantially. Finally random variations include non-routine disturbing events like strikes, sabotages, riots, natural disasters, earthquakes, wars, etc, which can also suffer both production and sales, so the sales forecasters also take into this factor to reach at a final sales figure estimate.


OTHER STATISTICAL METHODS AND INTENTIONS-TO-BUY SURVEYS are also used in forecasting. A formal or informal survey from existing or potential customers helps in predicting the future sales. Product sales are forecasted in units or quantity wise, value wise, territory wise, and period wise like days, week’s fortnights, months, quarters, and years i.e. yearly sales.