Some of the frequently asked exam questions on marketing strategy and its components are as follows:

Q.1. What do you mean by strategic marketing deci­sions?

Ans. Strategic marketing decisions are primarily concerned with exter­nal, rather than internal, marketing problems of the firm and specifically with the selection of:

(a) The product-mix which the firm will produce,


(b) The market segments to which the firm will sell, and

(c) The marketing mix which the firm will adopt for attaining long- term profits and profitability.

In more usual terms, the expression refers to the problem of deciding what business the firm is in and what kinds of businesses it seeks to enter.

Specific questions addressed are:


What are the firm’s marketing objec­tives and goals; should the firm seek to diversify, in what areas of markets and marketing, how vigorously; and how should the firm develop and exploit its present product-market position.

An important feature of the overall business decision process is that a large majority of decisions must be made within the framework of a limited total resource.

Regardless of how large or small the firm, strategic marke­ting decisions deal with a choice of resource commitments among the market­ing alternatives. The object is to produce a resource allocation pattern which will offer the best potential for meeting the firms overall objectives as well as the specific marketing objectives.

Q.2. Explain in brief the concept of marketing administrative decisions.


Ans. Marketing Administrative decisions are concerned with structuring the firm’s internal resources and workings in a way that creates a maximum performance potential in the marketing activities. One part of the administrative problem is concerned with marketing organisation; structuring of authority and responsibility relationships, work flows, information flows, distribution channels, sales promotion, advertising and publicity, and sales outlets. The other part is concerned with acquisition and development of resources like marketing financing, marketing personnel selection, training, and development, and acquisition of facilities like warehousing service offices, transportation equipments etc.

Q.3. Explain in brief the conceptual approaches of ‘market intensification strategy’.

Ans. Market intensification, is the basic approach in safeguarding and expanding the company’s primary market.

There are two main components of intensification’ strategy:


(a) Market penetration and market development through new product developments to replace the old, and

(b) Geographical expansion by extending product/market coverage to the regional or national level.


Market intensification strategy can be pursued along three major cour­ses as under:

(a) Market penetration:

It denotes a growth direction through the increase of market share for the present product-markets. So, it con­sists of aggressive marketing activities to increase sales of present pro­ducts in the company’s existing markets.

(b) Market development:


In a market development activity, new missions are sought for the firm’s products. This activity consists of the planned marketing of present products or the development of new products as a pre-condition of entry into new and related markets.

(c) Geographical expansion:

It denotes a growth direction through the increase of market in other territories for the present produ­cts. This strategy consists of moving a well-established product into new areas for marketing on a regional or national scale.

Q.4. Distinguish between consumer goods and industrial goods.


Ans. The main distinctions are:

(i) Consumer goods are meant for households and individuals for consu­mption; whereas industrial goods are for use in industries.

(ii) Industrial goods require further processing before they can be delivered to the ultimate consumers.

(iii) Buyers of consumer goods are usually different from those of industrial goods.

Q.5. Explain the differences in the marketing of consumer goods and industrial goods.

Ans. There is ‘impulse buying’ on the part of the individual consumers for most consumer goods. But this is not so in the case of industrial consumers. The motive behind the purchase of industrial goods by the manufacturers and traders is rati­onal.


The industrial consumers are especially concerned with the quality and features of industrial products. So, the marketing approaches are diff­erent. Personal selling is important in marketing industrial goods, whereas for marketing of consumer goods advertising plays a great role to reach the ultimate consumers.

The buyers of industrial goods are more well-infor­med. That is why, technically qualified persons are now-a-days being appoin­ted as marketing executives to promote the sales of industrial products.

Q.6. What is ‘consumer adoption process’ in the marketing of a new product? Discuss with reference to the scene in India.

Ans. The consumer adoption process begins where the firm’s innovation process leaves off. It describes how potential consumers learn about new products, try them, and adopt or reject then. The stages in this process are: awareness, interest, evaluation, trial and adoption.

Generally, early adopters are limited (13½% only). Innovators are only 2½%. At later period, the majority adopters are 34%.It shows that the consumers hesitate to buy a new product especially if it is expensive such as T.V. or Computer.

The management must understand this, consumer adoption process in order to develop an effective strategy-for early market penetration. The consumer adoption process is later followed by the consumer loyalty process which is the concern of an innovative firm. An innovative firm should search demographic and media characteristics of innovators and early adopters.


This is not an easy task since a majority of consumers hesitate to buy a new product. The role of personal influence, the opinion leaders and the study of the characteristics in the case of industrial goods are all very important. In the case of durable consumer goods, personal influence indicates a tremendous interaction among the consumers.

Few years ago, the new product marketers used a mass market approach in launching their product. They would distribute the product everywhere and advertise it to everyone on the notion that most people are potential buyers.

The mass market approach, however, has two drawbacks. It calls for heavy marketing expenditure, and it involves many wasted exposures to people who are not potential consumers.

These drawbacks led to the second approach, ‘heavy user target marketing’ where the product is aimed at ini­tially at the heavy users. This approach makes sense provided heavy users are identifiable and among the first to try the new product. But even within the heavy users group consumers differ in their interest in new products and brands.

Certain heavy users are early adopters than others. New product marketers then decide to aim at those consumers who are likely to be earlier adopters. Early adopters are opinion leaders and act as advertising. They are accessible to advertising media and have certain traits different from others. Therefore, according to Philip Kotler, product adoption by the consumer is closely related to successful new products.

Coming to the typical scene in India, we find that many companies have not adopted the stages involved in the consumer adoption process. This is one of the main reasons for product failure and even collapse of business itself.


Basically, top management is traditionally lacking in professional education and management skills and long term orientation. It wants to maximise profits in the short period and as such product deve­lopment is a failure. It is only when it is replaced by professional manage­ment we can expect better performance and results.

Q.7. What is the role of the ‘product-market matrix’ in identifying marketing strategies? Illustrate.

Ans. Product-market matrix is a kind of decision-making tool consisting of alternative strategies relevant to the product lire and/or the markets that every company must choose in consi­deration of certain risks associated with the strategies (that is, the considerations being given to the probability of occurrence of such risks and probable outcomes).

Marketing Strategy and Its Components

According to the above matrix, the strategic alternatives for a firm are:

1. To retain with the present products in the present markets, or


2. To expand the present product line into other markets, or

3. To expand the present business into either related or unrelated products, or

4. To seek new markets for the new products.

For the first alternative, the firm’s strategic decision is con­cerned with how much, how fast, and what quantity of resources should be committed to these actions.

Actions in this area might be increasing the brand share by changing any of the elements of marketing strategy-for example, sales effort, advertising, distribution channels, or the relative weights in the marketing mix. The researches show that an action in the area of present products and present markets is often less risky than ven­tures into the unknown.

The second alternative is a method of expansion of business which often brings economies of scale in production and general management. An action for this alternative helps in extending the product life cycle. Plastic manufacturers have a history of creating new markets for their products, often by attacking the position of traditional materials.


The third alternative refers to the development of related or unrelated products and is often a logical way to exploit particular market­ing knowledge and capability possessed by a firm.

An action for this alter­native is frequently accompanied by an economy of scale in marketing, dis­tribution and sales operations. It is quite likely that these products, related or unrelated, can be handled by the same sales force and purchased by the same customers.

The fourth alternative is a clear case of diversification and often the most risky and dangerous path open to any firm. The pitfalls are many since the products and markets are completely unknown.

Q.8. Suggest alternative strategic choices open to a firm for increasing penetration of existing markets with existing products.

Ans. In order to increase penetration of existing markets with existing products, a firm may choose alternative strategies as suggested below:

1. Expanding the product’s rate of purchase by present buyers by means of:

(a) Making existing designs obsolete:

When the consumers became increasingly dissatisfied with the old style’ of the product they own beca­use new ones are much more efficient, the total market is expanded, and the best innovator captures the best share. This requires product improve­ment, and is a strategy suitable for durable goods manufacturers.

(b) Obtaining sharper brand differentiation:

This may expand the total market little, if any, but increase the share sold by the seller making his product conspicuously different in appeal and acceptance. New designs or packages that provide truly greater satisfaction in use are obviously safer and more effective strategies than those that seek purely psychological, differentiation.

(c) Making the product conveniently available:

Displays or packaging suitable for outlets are the important means. Packages or forms of product with longer shelf life and less perishability, institution of mail-order delivery etc. play a great role.

(d) Increasing the unit of purchase:

The multiple-unit packaging as well as variety packs are good examples that bring more usage by existing buyers who tend to consume more because they have more on hand.

2. Inducing new uses of the product through:

(a) Addition of features or qualities serving additional uses;

(b) Education of the buyers regarding additional uses;

(c) Proliferation, i.e. putting out the product in new models or forms, involving just moderate changes in the existing product may enable the buyers to use it in more ways or more often; and

(d) Providing services to encourage or enable new applications (This is an appropriate strategy for the sellers of industrial and office equip­ment).

Q.9. “In ‘maturity’ stage of product life cycle the market becomes saturated, price competition intensifies, and the rate of sales growth slows down.” Suggest marketing and distribution strategic choices in such situations.

Ans. The following is the list of alternative marketing and distribution strategies available before the marketing management to face the situations characterised by the maturity stage of the Product Life Cycle:

1. Intensification of brand promotion by means of:

(a) More intensive and brand-stressing advertising;

(b) Heavier point-of-sale effort;

(c) More attractive design and functional packaging;

(d) Advertising messages and media for different market segments;

(e) More after-sales service for the product; and

(f) Increase in sales promotion expenditure rather than advertising to hold customer loyalty rather than seek out new buyers.

2. Trading down through:

(a) Entering a ‘fighting brand’ on the market at a lower price to avoid jeopardising an established premium brand;

(b) Introduction of low-priced models of an established brand;

(c) Lowering of prices of the entire product line and keeping prices close to private levels; and

(d) Production for private levels.

3. Proliferation, exclusive or radical, by:

(a) Offering more variety in features and designs, etc.;

(b) Seeking more exclusive and innovative features;

(c) Creating more radical and distinct package designs; and

(d) Making more options available in accessories, and designs, etc.

4. Trading up (strategy opposite to item 2) through:

(a) Improvement of quality, appearances, etc. to offer better product;

(b) Use of prestige packages, brand names, etc.; and

(c) Increase of prices to cream market labels (in order to increase penetration of markets willing to pay higher prices, earn more margin on possibly lever sales, and keep greater differentiation over competitive products).

5. Increase of product availability and point-of-sale service through:

(a) Longer channels to make the product more available at wholesale level;

(b) More distribution centres closer to the point of use or sale;

(c) More outlets and different channels; and

(d) Improvement of services offered by dealers (where applicable), or establishment of own service centres.

Q.10. Under what circumstances, price discrimination is possible and profitable? State them.

Ans. Price discri­mination is possible and also profitable under the following circumstances:

1. When the elasticities of demand are different in different mar­kets. It is possible and profitable to charge a higher price in a market having low elasticity of demand and a lower price in a market having high elasticity of demand.

2. When the products are sold against special orders. In view of the specialities involved in the orders or contracts, the purchaser is unaware of the changes that are being made from others.

3. When services of professional nature are rendered direct to the clients or users. For example, the professional doctors, lawyers, accoun­tants, or consultants may charge differently for different parties. The Railways also charge different rates for passenger traffic and goods traffic and in many cases, discriminate their fares and freights according to the distance (a longer distance travel costs more).

Q.11. State the arguments for and against the policy of price discrimination.

Ans. From the point of view of society as a whole, it is impossible to say whether price discrimination is desirable or not. From one point of view, therefore, price discrimination must be held to be superior to simple monopoly in all such cases in which it leads to an increase of output, and these cases are likely to be common mostly.

But against this advantage must be set the fact that price discrimination leads to a mal-distribution of resources as between different uses. Before it is possible to say whether discrimina­tion is desirable or not, it is therefore necessary to weigh up the benefit from the increase in output against this disadvantage. In those cases in which price discrimination will decrease output, it is undesirable on both counts.

Arguments in favour:

Price discrimination is advantageous to a community when the products and services are of prime necessity to the community. If discriminatory prices are charged the total receipts are likely to be sufficient to cover total costs with reasonable profit margins. Everyone, irrespective of rich or poor classes, stands to gain from the production of products being sold at discriminatory prices.

A reasonable low price for the masses will broaden the market segments and promote economic wel­fare. If a high price is set accompanied by special features of a product to cater to the exclusive needs of the richer communities, this would undou­btedly increase the firm’s sales revenues and profits with no consequential loss to the masses and the society.

Arguments against:

Price discrimination between the hone market and export market may sometimes lead to a loss, to the home market country. If the home market is less elastic in demand and the price for it is high as compared to a foreign market having more demand and lower export price, then price discrimination is certainly detrimental to the home market consu­mers.

If however, a firm exports its products to a foreign market at a lower price according to the law of increasing returns and diminishing marginal costs, then even the less elastic home market will gain from higher volume of output at reduced costs. But when price discrimination takes the form of ‘dumping’ in a foreign market, then it has the effect of such goods being re-exported unless tariff protection is there.

Q.12. What are the economic justification for the existence of middlemen in the channels of distribution.

Ans. “Middle­men are those merchants who act as intermediaries between the producers and consumers in the distribution of goods among the consumers at large.” They are wholesalers, retailers, brokers, agents, and manufacturers’ repre­sentatives. In relation to the distribution system and its functions, they occupy an important position.

The role and importance of these intermedia­ries can be better understood by referring to enormous tasks, difficulties and problems of direct selling. If a drug manufacturing company desires to sell all the drugs directly to the consumers, it has to set up thousands of retail shops in the country, appoint salesmen and supervisors, manage them, and in the process, it must incur huge expenditure.

Yet, it may not be profitable because the resources of the company are dissipated. The middlemen undertake to sell products efficiently and make the products available to the consumers and give feedback information to the manufac­turer.

The channels of distribution may take, two forms: middlemen, and direct selling by the manufacturers.

The economies achieved by using intermediaries/middlemen can be understood by considering the number of transactions involved in direct selling versus indirect selling, as shown below:

Manufacturer, Consumer and Distributor

The greater the number of contacts between the manufacturer and consumer the greater is the frequency of handling, transporting and assorting and other jobs. This leads to high cost of marketing.

The jobs performed by the markers of marketing channels are:

(1) Contacts,

(2) Research necessary for searching for information about customers,

(3) Promotion,

(4) Matching demand and supply,

(5) Negotia­tion with customers,

(6) Physical distribution through handling and packing,

(7) Financing, and

(8) Risk-bearing in carrying put the channel functions.

The middlemen have specialisation, experience, and resources required, for channel functions. They know/how to do all these jobs. If the manufacturer wants to assume these functions himself, then his costs will go up. There is no guarantee that he will be able to do it more gently than middleman because he is mostly concerned with production and allied technology affairs.

Q.13. ‘Middlemen are a waste’ in the channel of distribution. Discuss.

Ans. In some coun­tries and especially in India, the people argue that since there are too many middlemen and they make monopoly profits, ‘it is necessary to eliminate than.

To support this view they advance the following arguments:

(1) The interposition of middlemen between the producers and consumers increases the marketing costs and therefore the selling price also.

(2) The middlemen constitute a heavy burden as they earn unduly high profits.

(3) The middlemen in most cases take the role of mere transfer agents. Their places of business are more or less of the nature of superfluous road- side stations where goods are unnecessarily halted on their journey from the manufacturers to the consumers. The free flow of goods to the consumers is thereby restricted to a considerable extent.

(4) The middlemen do not shoulder any industrial risks or problems like strikes and disturbances, depressions and losses, etc. They are totally unaffected from these adverse situations. In other words, they earn their profits without assuming any risks or uncertainties.

(5) It has been the experience in many cases that the middlemen, during industrial disturbances, exploit the consumers by charging unduly high prices over the producers  listed prices. At times, they hoard huge stocks, corner them and manipulate prices; even they resort to black-marketing. This is not only unethical but tells upon the economy as a whole.

(6) The ‘middlemen functions’ are indispensable for the distribution of goods from the producers’ to the consumers but the engagement of too many middlemen is likely to weaken the distribution system.

(7) The development of chain stores, departmental stores, mail-order system and cooperative stores encompasses the activities of the distribu­tion system and thereby renders middlemen’s activities superfluous.

(8) Now-a-days, many business enterprises have developed an integrated system of marketing functions including’ the distribution function within their sales net-work to meet the consumers’ interests which ,are not usually taken care of by the middlemen like wholesalers, etc.

Q.14. Indicate the essential points to be looked into for the evaluation of distribution function in a large manufacturing organisaton.

Ans. For the evaluation of distribution function in a large manufacturing organisation, the follow­ing key points or elements should be looked into:

1. Customer service goals and objectives— drawing inventories thro­ugh procurement, production, and distribution processes.

2. Materials management the integrated planning and control of materials flowing through the distribution network; and inventory goals and deployment characteristics.

3. Physical distribution network and operating plan the sequential group of activities (such as warehousing, transportation, order processing, etc.) that receive, store, order, lift, transport, and deliver goods to customers; transportation equipment and facilities, and transportation mode-mix (public-private), rail-road-ship, etc.).

4. Management reporting plan -systems and procedures for communication of information throughout the business; and timeliness and accuracy.

5. Organisation the roles and responsibilities of the various levels of management concerning distribution process; the allocation of work acti­vities and effectiveness in discharging the function.

Q.15. Why should wholesalers be removed?

Ans. Some critics are of the view that the wholesalers are parasites and therefore, should be eliminated altogether.

Their opinion is based on the following grounds such as:

1. The price of a product includes the commission paid to or the profit margin earned by the wholesalers. In other words, the final consumers have to bear these extras. So, the wholesalers are responsible for the increase in the cost of distribution. The wholesalers thrive at the cost of the consumers.

2. The wholesalers create an artificial barrier between the manufac­turers and the consumers. Because of the existence of the wholesalers, the manufacturers are ignorant of the consumers’ grievances and the consu­mers also cannot approach the manufacturers to seek redress of their grie­vances.

3. The wholesalers in most cases are concerned with profits only and suppress the market realities to suit their interests. They keep the manufacturers in the dark as regards the actual demand potentials. This often leads the producers either to over-production or under-production.

4. The wholesalers resort to ‘black marketing’ by covering all the available supply of goods and thereby indulge in price-hikes. This affects the consumers most.

5. The wholesalers develop their, own brand and earn goodwill for themselves at the cost of the manufacturers.

In view of tine above genuine arguments, tine critics are quite reason­able in remarking that the wholesalers are unnecessary in the channels of distribution and that they should be eliminated.

The modern trend towards direct marketing of merchandise from the producers to the consumers is no doubt developing in recent years. The growth of departmental stores, multiple shops, super markets, etc., is a step in the direction of elimination of wholesalers.

The firms like Bata Shoe Company, D.C.M., etc. have started multiple retail stores. Their succ­ess has prompted other industries to replace the role of the wholesalers, large-scale retailing and co-operative movement have, to a large extent, minimised the necessity of the wholesalers.

No doubt, the wholesalers create many problems and do disservices to both the manufacturers and consumers, but their services to the manufacturers and the retailers cannot be ignored. The elimination of wholesalers from the chain of distribution system will brood hardships.

That is why it is recommended that the manufacturers should shoulder the marketing functions themselves wherever possible and should take steps to control the undesirable and unethical services of the wholesalers.

Q.16.  Who are itinerant retail dealers?

Ans. Itinerant retail dealers are those people who do not have any fixed places of business. They trove from place to place and sell goods in small lots to the consumers. They deal in low-priced items and thus, require small capital investment. In most cases, they deal in seasonal products. They are also called mobile retail traders.

Sate of the important species falling under this category are discussed below:

1. Haulers and pedlars:

They are of very old origin. They move from door to door in the residential localities for the prospects of business. While the hawkers carry the goods for sale in a hand cart or trolley, the pedlars carry their goods on their persons. They sell their goods at prices comparatively lower than the market prices. They carry on their business in the busy streets of cities and towns.

2. Pavement shops or street traders:

These petty retailers carry on their business at busy street corners or pavements of cities and towns. They are often found near the railway stations, bus stops, or taxi stands where there is huge floating population.

In Connaught Place of New Delhi or in Esplanade area of Calcutta, for instance, it is the canton sight to see fountain pen dealers, readymade garment dealers, dealers in handbags/ small electrical goods and household articles doing flourishing business in the corridors in front of the big shops. Generally, they handle light goods which are in great demand and deal in one kind of goods at a time.

3. Cheap jacks:

A cheap jack has an independent shop in a business centre. Such shops are not of permanent nature and are generally capable of being shifted to another business locality. The cheap jacks shift their shops when they find another business locality more profitable and prosperous. Sometimes, these traders hire small shops centrally located in resi­dential localities and display their goods there.

4. Market traders:

These retail traders sell their goods at periodical markets—weekly, monthly, or en festival days. They operate their shops at different places such as Mangla Hat at Howrah town on Tuesdays, Sunday Bazar, etc.

Q.17. Write short notes on:- (a) Installment selling and (b) One-price shops.

Ans. (a) Instalment selling:

The system is also known as ‘Deferred Payment System’. The seller delivers the articles to the instalment buyer only after few instalments have been paid by the latter. If the instalment buyer fails to pay the instalments in accordance with the agreement, the seller can claim for price and in the event of non-realisation, can sue the buyer for the balance but cannot recover the goods.

(b) One-Price shops:

One-price shops, also known as Fixed Price Chain Stores are a kind of retail type multiple shops.

The main characteris­tics of such shops are:

(i) The prices are fixed without any scope for bargaining;

(ii) These are in most cases located near the big departmental stores and in busy market areas;

(iii) The goods earmarked for sale are usually low-priced and of every-day use to the common public;

(iv) The shops of this kind are also usually found in fairs and exhibitions; etc.

Although these shops are of temporary nature, they have become almost permanent in their respective locations due to wide popularity. The goods traded in these shops are of great demand by the common masses.

One-price shops offer the following advantages:

(i) The customers can buy their requirements confidently as they knew that the goods are priced not beyond a known ceiling;

(ii) Being a part of retail outlets, these shops buy goods in bulk to take advantage of economies of large- scale buying and sell goods at fixed prices which will create demand for mass selling;

(iii) The interior decoration is simple and other overheads are so minimum that these shops stand comparatively profitable; and

(iv) The low prices and shocks of popular products can increase the sales turnover of one-price shops.

The limitations of one-price shops are:

(i) The consumers do not get much variety of choice;

(ii) Affluent consumers are less interested for cheap varieties; and

(iii) Large-scale sales are almost limited.

Q.18. What do the following terms signify ?

(a) Product identification 

(b) Product simplification.

Ans. (a) Product identification 

Product identification refers to the situation whereby a product’s position in the market is contrasted with the competing products as well as other products sold by the same company, either by the brand image creation or by the customers’ acceptance of the real worth of the product.

(b) Product simplification

Product simplification-is a part of product line policy and plan­ning and usually refers to the contraction or reduction of the product range or product mix. There are various reasons to simplify the product line.

Of them, the main reasons are:-

(i) deliberate suspension of the production of unprofitable products,

(ii) withdrawal of certain items from the market on account of marketing problems,

(iii) changes in the environment of the market compel to discontinue a product, and

(iv) abandonment of a product even if still profitable when the management decides to utilise the resources on other products that will yield-much more profits.

Thus, product simplification involves the process of. avoiding or .stopping or discontinuing the production of a particular product with a view to securing manifold objectives like product line standardisation for quality, increase in efficiency, specialisation, higher sales and profits, and controls over marketing programmes and activities.

Q.19. Identify the determining factors to be looked into by a firm for pro­duct differentiation.

Ans. The major determining factors for product differentiation policy are:

(i) the characteristics of the product that are considered important by the customers,

(ii) the extent of appreciation by the customers as to the differences or distinguishing features of the product,

(iii) the extent of money consideration that the customers are ready to pay for the extra quality of the product, and

(iv) whether the additi­onal cost towards extra qualities or features is higher or lower than the customers are willing to pay for them.

Q.20. The determination of ‘optimum product mix’ raises economic and techni­cal problems. Identify them.

Ans. In the determination of ‘optimum product mix’: –

(i) the economic prob­lem is concerned with assessing the elasticity of demand and supply for the products in question, and

(ii) the technical problem is that it Is sometimes necessary to produce two or more products in more or less fixed proportions.

These can create marketing problems where the demand for one product is very high and for the others very low. The greater the range of products manufactured the greater the complexity in calculating the optimum combination, and the result is usually a compromise between the marketing and production economies. Linear programming method is usually adopted to deal with this problem.

Q.21. What you understand by price elasticity of demand?

Ans. Price elasticity is a measure of the sensitivity of demand to changes in price. When proportionate change in quantity demanded is same as that in price, elasticity is called unit-elasticity. When change is greater, demand is elastic. Demand is said to be inelastic, if the change is less than unity. Thus, if 30% price rise results in 30% reduction in demand, it is a case of unit elasticity; if the reduction in demand is more than 30% the demand is elastic. If the reduction in demand is less than 30% the demand is said to be inelastic. It is important to note that when proportion is calculated, it is always ‘negative’, as either the numerator or the denominator is negative. This ‘negative’ sign, by convention, is ignored.

Price elasticity of demand is measured by the following formula:


Note : From the relevant data of sales at different prices demand function may be expressed in terms of mathematical model and the price elasticity of demand can be worked out therefrom.

Q.22. What is understood by ‘combined approach to pricing?

Ans. The combined approach to pricing is an approach to pricing combining some elements of conversion and marginal costing, and in turn keying the return on investment and market conditions.

The requisites of this pricing practice are (as listed by Prof. Ruston):

1. Master profit plan.

2. Specifically developed ‘future’ product costs.

3. Target prices for planned return on investment.

4. Competitive and companion product prices.

5. Market estimates, market attainments and promotions.

6. Elasticity of demand, sales, costs, and price trends.

7. Customers’ and competitors’ reactions.

8. Price proposal.

This outline attempts to catalogue all the factors dealing with price which can be evaluated in an effective and expeditious way. The mark­up in this approach is derived by relating capital employed to the desired rate of return.

Q.23. In the marketing programme, there are stages of the channels of distri­bution. State them.

Ans. The stages of the channels of distribution can be stated as under:

(i) Zero-stage channel—The producer directly markets the goods.

(ii) One-stage channel—The producer markets the goods through agents who have direct contacts with the buyers or customers. In the marketing of industrial products, this channel is used.

(iii) Two-stage channel — It involves the existence of two intermedia­ries – wholesaler and retailer – between the producer and the consumers.

(iv) Three-stage channel — It involves the existence of brokers between a producer and wholesaler or between a wholesaler and a retailer.

Q.24. Distinguish between retailer and retailing.

Ans. Retailer (also called “Retail ‘Store) is a business enterprise engaged in sales to the ultimate consumers generally in small lots or quanti­ties.

Retailing, on the other hand, includes all activities directly related to the sale of goods or services to the ultimate consumers irrespective of who sells.

The basic distinction between the two is :

If the buyer in the transaction is an ultimate consumer, the seller in the same transaction is engaged in retailing; whereas any one sell­ing to the ultimate consumers is performing the functions of a retailer.

It is important to note that the direct selling activity of a manufac­turer or a wholesaler to a consumer is also retailing but these indivi­duals are not retailers.

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