Production concept

Core concepts of Marketing; Impressions

Discounts and allowances.

 

Discounts and allowances. 

Price reductions in the distribution channel either at manufacturer , a retailer or a buyer level for paying the bill promptly is called discount.

1. Level of discounts: 

• Manufacturer level: Manufacturer provides price reduction on the list price printed on the package.

• Retailer level: A retailer offers price reductions on Maximum retail Price(MRP). D-mart, a retail store offers 10% off on selected merchandise in its stores. 

• Buyer level: Discounts offered to customers for paying through credit cards, company loyalty cards, or discount coupons.

2. Objectives of Discounting

Sales executives offer discounts to close sales in a supply chain. Similarly, companies with over capacity discount products for immediate sales. In addition to this, discounting offered to clear the sales in the supply chain. Additionally, discounting is used as a motivational tool for distribution channels members performing excellently. Apart from this, discounting is a reward mechanism for customers who buy large quantities or buy regularly or buy through new payment systems. Lastly, discounting attracts customers to buy more products of a manufacturer.

3. Discount types

1. Payment discounts

i) Trade discounts; Discounts offered by a wholesaler, stockists, distributor or a manufacturer to retailer at the list price

• 2/10 net 30 rule: A company manufactures Ragi malt and sells it to a distributor worth say Rs 1 lakh on 1st january 2021. The distributor is having 30days time to clear the bill of the manufacturer. If the distributor makes payment within 10 days i.1. 10 january 2021, a manufacturer offers 2% discount i.e. Rs 2000 on Rs 1 lakh.

• 3/7 EOM: A distributor sells Jeer Soda to a retailer on 15th February 2021. He raised an invoice on 25th February 2021 and asked the retailer to pay by 7th March 2021. After this, if a retailer pays an amount within 7days from 15th February 2021 3% discounts will be offered.

• 3/7 EOM net 30: Unlike 3/7 EOM, this method has a 30 days time on invoice date for time. If an intermediary pay the bill within 7 days from the invoice date will get a 3% discount.

• 2/15 net 40 ROG: A stockist of cotton sarees sends goods to a retailer on say 1st March 2021 and provides time till 9th April for payments(40 days). If the retailer pays the amount by 15th march( 15 days) the stockist will offer 2% discounts.

ii. Cash discounts: The discount offered by intermediaries to customers for paying bills, through cash, It avoids credit cards due to payment charges. 

iii. Partial payment discount: A wholesaler of lamp oil provides Rs 1 lakh worth of oil and provides 30 days credit time. A wholesaler also offers a 2% discount to  the retailer who  pays within 10 days. However, a retailer pays only 50% of payments within 10 days and the wholesaler offers 1% discount.

iv. Sliding scale: The discount offered to charitable organizations or economically poor customers by supply chain members of the organization.

v. Seasonal discount: Discounts given in a slack period. A Jaljeera manufacturer offers discounts in the winter to increase sales.

2. Supply chain Discounts.

i.  Performance discounts; Discounts offered by a company to its wholesaler for sti-ocking , shipping or shelving. The rule 20/12/5/ says that 20% discount for warehousing, 15% for shipment, and 5% discount on shelving. 

ii. Trade in credit discounts: manufacturer sells 3G mobile handsets to retailers. However, a retailer  could not sell 3G handsets. These retailers return the product to the manufacturer. Here, manufacturers may sell this on ecommerce or at refurbishment market, For these performances a company offers discounts to retailers. 

3. Quantity discounts; Encouraging trade partners to buy  more products such as a company can reduce the price via economies of scale.

i. Cumulative quantity discounts: A manufacturer of kerosene stoves offers 5% discount on purchase of 100 stoves in a month. Now a retailer purchases 60 stoves on 10th of March and another 60 stoves on 25th of march. Both orders do not have required order quantities of 100 to avail discount. However, a retailer;s cumulative purchase is 120 stoves and eligible for discount.

ii. Non cumulative quantity discounts; In this quantity discounts, a manufacturer provides a discount for a single large order in a particular time period.

4. Characteristics discounts

• Disability discounts: People with differently abled get discounts on a product. For example karnataka State road transport corporation(KSRTC) offers bus passes with concession to differently abled people.

• Student discount: Personal computer companies offer extra discounts to students.

• Professional discounts: organizations offering extra discounts teachers, doctors, government servants and lawyers. Indian overseas banks offer special interest for teachers.

• Employee discount: Organizations offering extra discounts to its employees. Bigbazaar offers extra discounts to its employees as an example.

• Army employee discounts: Defence personnel availing extra discounts at  defence canteen stores.

• Age discounts: A few organizations offer extra discounts to senior citizens, For example Apollo pharmacy offers 5% extra discount to senior citizens.

• Social discounts: A special discount to friends, colleagues, school mates or neighbours of a particular location.

Allowances:

These are usually paid to supply chain members for promoting the company's products and services. Further, allowances are also paid for faulty products. 

• Rebates: company allows price reduction through coupons, receipts or barcodes.

• Coupons; a voucher given by a customer to get discounts while purchasing a product.

• Promotional allowances; A manufacturer provides promotional allowance to a retailer to conduct local promotions. Nagashanti Motors gets allowances for promoting Hero motocorp bikes in Belagavi. 

Marketing environment

Unit 3: Marketing Environment.

3.1. Introduction.

A marketing oriented company always looks its external environment carefully to analyze opportunities and threats. This external environment influences company’s strategies in two levels i.e. external macro environment and external micro environment. The macro environment involves political and legal, economic and natural, social and cultural and technology environment. The micro environment consists of supply chain, customer and competitor. These factors are uncontrollable by the organization. Even the best company faces threat if any of the external environments are adverse to it. A moderate company will be successful if the external environment favors it. Hence marketing companies should monitor the external environment carefully and continuously.

Objectives:

After studying this chapter you will be able to explain

a. The need of environmental scanning.

b. How external micro environment affects the company’s strategies.

c. The influence of external macro environment on company’s plans.

d. The difference between the external macro and micro environment.

e. The role of organization’s internal environment in dealing with opportunities and threats.

3.2. Environmental scanning

This is the process of gathering, analyzing and forecasting of external environments’ information to identify opportunity and threats that company faces.

Need for environmental scanning:

It helps in

1. Identifying the opportunities company has in immediate future.

2. Identifying the threats faced by the company.

3. Demand forecasting

4. Developing appropriate business plans.

5. Adjusting company strategy in changing competitive environment.

3.3. Analyzing the organization’s micro environment

Marketing department let alone can not satisfy all the needs of customer. Therefore it is essential to integrate the functions of suppliers, publics, company departments and intermediaries in creating the value to the customer. These forces are known as organization’s micro environment.

Microenvironment: The forces which are very close to company and have impact on value creation and customer service

Figure 3.1

Forces in the micro environment

Micro Environment

3.3.1. The company:

Remember in the previous unit we discussed about the strategic and marketing planning. Deducing a strategic plan in to specific marketing plan require coordination of other functions like finance, Human resource, production, and research and development. For example, Safe Express, a leader in the supply chain management solution wants to hold its position in the US $ 90 billion Indian logistics market. Company plans to expand its service areas in the coming months. To meet the targets of the marketing plan, other departments of safe express also expanding their horizon. Company is coming out with logistics parks in different cities; plan’s to hold seven million square feet of warehousing capacity in the next three years and investing Rs 10 billion in three years to meet that targets. The above example shows that company’s marketing plan should be supported by the other functional department activities also.

3.3.2. Intermediaries:

Marketing intermediaries: The firms which distribute and sell the goods of the company to the consumer.

Marketing intermediaries plays an important role in the distribution, selling and promoting the goods and services. Stocking and delivering, bulk breaking, and selling the goods and services to customer are some of the major functions carried out by the middlemen.

3.3.3. Publics:

These are microenvironment groups, which helps company in generating the financial resources, creating the image, examining the companies’ policy and developing the attitude towards the product.

We can identify six types of publics

1. Financial publics influence the company’s ability to obtain funds. For example, Banks, investment houses and stockholders are the major financial publics.

2. Media publics carry news and features about the company e.g. Deccan Herald

3. Advertisement regulation agencies, telecom regulation agency( TRAI), and insurance regulation agency(IRDA) of the government

4. Citizen action groups: Formed by the consumer or environmental groups. For example, people for ethical treatment of animals (PETA) or Greenpeace.

5. General publics: a company should be concerned towards general publics’ attitude towards its products and services.

6. Internal publics: Employees who help in creating proper image for the company through word of mouth.

3.3.4. Competitors:

A company should monitor its immediate competitor. It should try to position its product differently and be able to provide better services.

3.3.5. Suppliers

Suppliers are the first link in the entire supply chain of the company. Hence any problems or cost escalation in this stage will have direct effect on the company. Many companies adopted supplier relation management system to manage them well.

3.3.6. Customers:

A company may sell their products directly to the customer or use marketing intermediaries to reach them. Direct or indirect marketing depends on what type of markets in which company’s customers present. Generally we can divide the markets into five different categories. They are

a. Consumer market.

b. Business market

c. Reseller market

d. Government market and

e. International market

You will come to know about these five different markets from the following example.

MRF a tyre company sells its product directly to consumer (in case of urgency) i.e. operates in consumer market. It operates in business markets by selling tyres to companies like Maruti Udyog limited which in turn uses these tyres in their cars. MRF also sells TYREs to BMTC and KSRTC, transport organizations of Karnataka government. If MRF sells tyre in African or American countries then it is operating in the international market. If MRF buys the old tyres, retreads it and sells it to the consumer at a profit then company is operating in the reseller market.

3.4. Company’s macro environment.

Figure 3.2 Forces in the macro environment.

Macro Environment

3.4.1. Demographic environment.

Demography: 

The study of population characteristics like size, density, location, gender composition, age structure, occupation and religion.

Demography statistics helps companies to develop their products in better way. These statistics are also used in developing proper supply chain, communicating product information and changing the product attributes. Demographic environment is analyzed on the basis of the following factors.

1. Age structure of the population

2. Marital status of the population

3. Geographical distribution of the population

4. Education level

5. Migration

6. Occupation.

Age structure of the population: from the following table you can generalize that India is having 48% population who are aged less than 21 and 28% of the population are in the bracket of 21-25. Most of the companies are focusing on these two segments. For example, Radio Indigo, FM radio station from Jupiter capital venture operates in Bangalore and Goa, plays international music. Radio indigo targets youth segment who like western music.

TABLE 1: POPULATION IN DIFFERENT AGE GROUPS AND THEIR PROPORTIONS TO TOTAL POPULATION

Age group	Population	Percentage
All Ages	1,028,610,328	100.0
0 - 4	110,447,164	10.7
5 - 9	128,316,790	12.5
10 - 14	124,846,858	12.1
15- 19	100,215,890	9.7
20 - 24	89,764,132	8.7
25 - 44	284,008,819	27.6
45 - 64	139,166,661	13.5
65 - 79	41,066,824	4.0
80+	8,038,718	0.8
Less Than 18	422,808,543	41.1
Less than 21	492,193,906	47.9
Age no stated	2,738,472	0.3
Source : C2 and C14 Table, India, Census of India 2001.

Marital status of the population:

TABLE 2: POPULATION BY MARITAL STATUS AND SEX: INDIA – 2001

Marital status	Number of Persons ( in '000)			Percentage (%)
	Persons	Males	Females	Males	Females
Total	1,028,610	532,157	496,454	100	100
Never Married	512,668	289,619	223,048	49.8	54.4
Married	468,593	231,820	236,773	45.6	43.6
Widowed	44,019	9,729	34,290	4.3	1.8
Divorced / Separated	3,331	988	2,343	0.3	0.2
Source : C2 and C14 Table, India, Census of India 2001

Half of the Indian population falls into the never married category. This provides an opportunity for organized wedding industry. Indian wedding industry is worth Rs 1, 25,000 crore today. Vintage group and shaadi.com are few to name in this industry. These companies are offering end to end solution to the customers who are looking for lavish wedding in the exotic locations both in domestic and abroad.

Geographical distribution of the population

TABLE 3: NUMBER OF VILLAGES AND UAs / TOWNS BY SIZE CLASS AND THEIR POPULATION

	Population
Persons@	1,028,737,436
Males	532,223,090
Females	496,514,346
Rural	742,617,747
Urban	286,119,689
% Urban population	27.8%

Rural India with 74 crore population is a biggest market. Companies are trying to get a pie in this untapped market. For example, DCM Shriram limited, opened ‘Hariyali’ bazaars in rural market. These bazaars offer quality agriculture inputs, financial services, and farm output services.

Education level: More than 3 crore people in India either have graduation or post graduation. This has led to the growth of many sunrise sectors. This educated population fueled the growth of information technology (IT), information technology enabled services (ITES), and biotechnology industries.

 TABLE 4: NUMBER OF VILLAGES/TOWNS BY RANGE OF LITERACY RATE & SEX, INDIA, 2001.

Range of Literacy (Percent)	Persons		Males		Females
	No.of Villages	No. of UAs/Towns	No. of Villages	No. of UAs/Towns	No. of Villages	No. of UAs/Towns
Nil	3,077	0	3,546	0	9,899	0
Less than 10	8,664	0	4,516	0	28,412	0
10-25	31,494	0	14,410	0	90,198	17
25-50	162,727	122	72,057	33	244,760	475
50-75	294,596	1,740	237,381	624	186,245	2,638
75 or above	93,055	2,516	261,630	3,721	33,029	1,248
Total*	593,613	4,378	593,540	4,378	592,543	4,378
Source : Primary Census Abstract, Census of India 2001 Note: *Excludes villages/UA/Towns with no Male/Female population.

Migration:

 Geographical shift in the population is becoming an interesting area in the demographic studies. The Table 6, list out the various reasons for migration.

TABLE 5: NUMBER OF MIGRANTS BY PLACE OF BIRTH – INDIA 2001

	Category	Migrations by Place of birth	Percentage
A.	Total Population	1,028,610,328
B.	Total Migrations	307,149,736	29.9
B.1	Migrants within the state of enumeration	258,641,103	84.2
B.11	Migrants from within the districts	181,799,637	70.3
B.12	Migrants from other districts of the state	76,841,466	29.7
B.2	Migrants from other states in India	42,341,703	13.8
B.3	Migrants from other countries	6,166,930	2.0
Source : Table D1 India, Census of India 2001.

TABLE 6: REASONS FOR MIGRATION OF MIGRANTS BY LAST RESIDENCE WITH DURATION (0-9 YEARS) INDIA 2001

Reason for migrations	Number of Migrants			Percentage to Migrants
	Persons	Males	Females	Persons	Males	Females
Total migrants	98,301,342	32,896,986	65,404,356	100.0	100.0	100.0
Reason for migration : Work / Employment	14,446,224	12,373,333	2,072,891	14.7	37.6	3.2
Business	1,136,372	950,245	186,127	1.2	2.9	0.3
Education	2,915,189	2,038,675	876,514	3.0	6.2	1.3
Marriage	43,100,911	679,852	42,421,059	43.8	2.1	64.9
Moved after birth	6,577,380	3,428,673	3,148,707	6.7	10.4	4.8
Moved with households	20,608,105	8,262,143	12,345,962	21.0	25.1	18.9
Other	9,517,161	5,164,065	4,353,096	9.7	15.7	6.7
Source: Table D3, Census of India 2001

Marketers started identifying the niches in the migrated communities and offered their goods and services. For example, Nandhini, an Andhra restaurant in Bangalore catering to the food needs of the Andhra community. Patrika, a Rajasthan based daily now available through out the country.

Occupation:

TABLE 7: DISTRIBUTION OF MAIN WORKED BY DIFFERENT INDUSTRIAL CATEGORIES, INDIA 2001

Industrial category	Main Workers ('000s)	Percentage (%)
Total main workers *	312,972	100.0
Agricultural & allied activities	176,979	56.6
Mining & quarrying	1,908	0.6
Manufacturing	41,848	13.4
Electricity, gas and water supply	1,546	0.5
Construction	11,583	3.7
Wholesale, retail trade & repair work, Hotel and resturants	29,333	9.4
Transport, storage & communications	12,535	4.0
Financial intermediation, Real estate, business activities	6,109	2.0
Other services	31,131	10.0
Source : Industrial classification data based on sample.

Agriculture is the main occupation of the people in India but the share of other services is growing rapidly. The other service category includes IT and ITES. Employees of these categories have high disposable income. This has led to the opening of specialty stores and manufacturing of the luxury items in the country.

3.4.2. Political and legal environment.

Government policies, legislation, regulations, and stability will directly affect the business. Therefore it is inevitable for the firm to closely monitor this environment. The political and legal forces are grouped into the following four categories.

1. Monetary and fiscal policies: These policies regulate government spending, money supply and tax legislation.

2. Social legislation and regulations. Environmental protection act which specifies the emission level.

3. Government relationships with industries: Government subsidies and change in tariff rate will have direct impact on the particular company.

4. Legislation related to marketing:

Following are the list of legislation which affect marketing activities of the company.

• · Companies act 1956.
• · Industrial dispute act 1957
• · Consumer protection act
• · Minimum wages act
• · Payment of bonus act.
• · Environmental protection act
• · Industries development and regulation act.
• · Trade union act
• · Contract law
• · Factories act 1948
• · The contract labor (regulation and abolition) act1970.
• · Sales promotion employees’ act1976
• · Shops and establishment act 1953
• · Copyright act 1957
• · Trade marks act 1999
• · Patents act 1970
• · Designs act 2000
• · Foreign exchange management act 1999

3.4.3. Economic and Natural environment:

Consumer spending pattern

According to National sample survey 2005-06,

1. Monthly per capita consumption in rural area: Rs625.

2. Monthly per capita consumption in urban area: Rs1, 171.

3. Food expenditure in monthly per capita consumption: 53%

4. Food expenditure in monthly per capita consumption: 40%

The above data shows that most of the expenditure in monthly per capita income goes to the food expenditure only. Marketers in the non food category should promote heavily to change this spending pattern. Companies in the food category should note that food expenditure in monthly per capita expenditure is coming down. Hence extra effort is required by these companies to sell their products.

Interest rate: when interest rates are high, consumer tend not to make long term purchase like housing. If the interest rate is low people put their money in alternative financial options where they get better return.

Inflation: If the inflation is high, consumer buying power will go down. Hence government always tries to control the inflation within the limit.

Changes in income: The rise in the salaries of the employees, improved performance of stock market and better industrial growth led to the change in the income pattern in India. Many Indians became millionaires and billionaires. Percentage of below poverty line is decreasing, but the concern is rich and poor divide is growing.

NATURAL Environment:

Environmental concerns are growing over the years. Governments increased regulations to manage the natural resources. Marketers should aware of such trends in the natural environment. Some of the factors which organizations should keep a vigil are

a. Inadequate raw materials

b. Global warming and pollution levels and

c. Regulatory world.

a. Inadequate raw materials: We are over depending on Middle East countries for petroleum products. Automobile companies are improving their technologies and also planning to come out with hybrid cars which use alternative fuels.

b. Global warming is a big issue today.

c. Regulatory world; The Indian government through environmental protection act, making stringent rules on emission and environment standards. Companies, particularly in automobiles should adhere to those norms, which are expensive and time consuming.

3.4.4. Social and cultural environment:

1. Working women and rise of metro sexual man.: 

Number of women who are working in India is increasing. This segment is looking towards products which help them to bring better work life balance. MTR a fast food giant in south India started offering ready to eat products to this segment. The products are instant in nature where a woman dips a product in the hot water for 2-3 minutes and serves. Metro sexuality is another new phenomenon, wherein a man also assumes the role of women like purchasing household items and helping in kids’ education etc. It made marketers’ task more difficult on positioning their products.

2. Time short people: 

 This segment involves people who work long hours and have less personal time. These people are looking for products which satisfy them quickly and conveniently. For example, Easy bill, from Hero group offers one stop solution to consumer to pay their utility bills and do other financial transactions.

3.4.5. Technology environment

1. Growth of information and technology and biotechnology industries: 

Manufacturing organization adopted many technology solutions in the recent years. This has boosted the performance of IT companies. For example, companies adopted ERP solutions, CRM packages and other software to reduce the cost, retain the customer and increase the efficiency. Biotech firms came out with innovative health solutions to the consumer. This has resulted in companies like wockhard and Nicolas Piramil to invest heavily in this sector.

2. Nano technology: 

The technology in waiting, which is expected to reduce the size and cost of the materials.

3. TATA nano car, a technology breakthrough: This has been described as a giant leap by an Indian manufacturer. TATA Company used different metal compositions, engine configurations and accessories to bring path breaking entry level car which just cost Rs 1 Lakh to the consumer.

3.5. Difference between Micro environment and Macro environment.

Macro EnvironmentV/S Micro Environment
Parameter	Macro environment	Micro environment
Size	Large	small
Uncertainty	Very high	low
complexity	High	low
control	Cannot be controlled	Can be controlled to some extent
Example	PEST	Customer, Supplier

               

PEST (Political and legal, economic and natural, social and cultural, and technology environment) Analysis:
Factors	Weightage	Opportunity	Threats	Score
1. Political and legal environment
a. Monetary policy
b. Fiscal policy
c. Environmental policy
d. Lobby groups
2. Social and cultural environment
a. Gender
b. demographics
c. work culture
3. Economic and natural environment
a. Income
b. Spending power
c. Inflation
d. Interest rate
e. Raw materials
f. Taxation
4. Technology environment
a. Entry barriers
b. Growth of technology
c. Transfer of technology
Total	1

3.6. Summary

· Environmental scanning is necessary to understand opportunities and threats faced by the company.

· Micro environment factors like marketing intermediaries, suppliers, competitors, publics and customers influences company’s strategies. These are controllable to some extent.

· Population variables like age, gender, marital status and occupation helps the company to assess the market and change or develop their offerings

· Shortage of raw material and increase in the income disparity are immediate concerns of the organizations.

· Working women and time short people changing the socio- cultural environment of the country.

· Technology is helping company to reduce cost, increase the efficiency and save time.

· Micro and macro environment are differentiated on the basis of size, complexity, and uncertainty.