Long Answer Questions | Business Studies (BST) Class 12 - Commerce PDF Download

Q1: What is Packaging? Explain the importance and functions of packaging?
Ans: Packaging: One of the most important developments affecting the business world in recent years has been in the area of packaging. Many products, which we thought could never lend themselves to packing because of their nature, have been successfully packed e.g. pulses, ghee, milk, salt, cold drinks, etc. Packaging refers to the act of designing and producing the container or wrapper of a product, packaging plays a very important role in the marketing success or failure of many products, particularly the consumer non-durable products.
In fact, if one makes an analysis of the reasons for the success of some of the successful products in the recent past, it can be noted the packaging has played its due role. For example, it was one of the important factors is the success of products like Maggie Noodles, Uncle Chips, or Crax Wafers.
Importance of Packaging: Packaging has acquired great significance in the marketing of goods and services, because for the following reasons

• Rising standards of Health and Sanitation: Because of the increasing standards of living in the country, more and more people have started purchasing packed goods as the chances of adulteration as such goods are minimized.
• Self-Service Outlets: The self-service retail outlets are becoming very popular, particularly in major cities and towns. Because of this, some of the traditional roles assigned to personal selling in respect be promotion have gone to packaging.
• Innovational Opportunity: Some of the recent development in the area of packaging have completely changed the marketing scene in the country. For example, milk can now be stored for 4-5 days without refrigeration in the recently developed packing materials. Similarly, in the area of pharmaceuticals, soft drinks, etc, lots of new innovations have come in respect of packaging. As a result, the scope for the marketing of such products has increased.
• Product Differentiation: Packaging is one of the very important means of creating product differentiation. The color, size, materials, etc. of the package makes a real difference in the perception of customers about the quality of the product. For example, by looking at the package of a product say paint or hair oil one can make some guess about the quality of the product contained in it.

Functions of Packaging:
As stated above, packaging performs a no. of functions in the marketing of goods. Some of the important functions are as follows

• Product Identification: Packaging greatly helps in the identification of the products. For example, Colgate in red color, or Ponds Cream jar can be easily identified by its package.
• Product Protection: Packaging protects the contents of a product from spoilage, breakage, leakage, pilferage, damage, climatic effect, etc. This kind of protection is required during storing, distribution, and transportation of the product.
• Facilitating the use of the Product: The size and shape of the package should be such that it should be convenient to open, handle and use for the consumers. Cosmetics, medicines, and tubes of toothpaste are good examples of this.
• Product Promotion: Packaging is also used for promotion purposes. A startling color scheme, photograph, or typeface may be used to attract the attention of the people at the point of purchase. Sometimes it may work even better than advertising. In self-service stores, this role of packaging becomes all the more important.

Q2: What is the pricing of a product? Explain the important factors affecting the pricing of a product?
Ans: Pricing: When a product is bought, some money is paid for it. This money represents the sum of values that consumers exchange for the benefit of having or using the product and is referred to as the price of the product. Similarly, money paid for the services such as fare for the transport service, premium for an insurance policy, and fee to a doctor for his medical advice represent the price of these services. Price may therefore be defined as the amount of money paid by a buyer (or received by a seller) in consideration of the purchase of a product or a service.
Factors affecting Price Determination: There is a number of factors that affect the fixation of the price of a product. Some of the important factors in this regard are discussed below:

• Product Cost: One of the most important factors affecting the price of a product or service is cost. This includes the cost of producing, distributing, and selling the product. The cost sets the minimum level or the floor price at which the product may be sold. Generally, all marketing firms strive to cover all their costs, at least in the long run. In addition, they aim at earning a margin of profit over and above the costs.

In certain, circumstances, for example, at the time of introducing a new product or while, entering a new market, the product may be sold at a price, which does not cover all the costs. But in the long run, a firm cannot survive unless at least all its costs are covered.
There, are broadly three types of costs: viz fixed costs, variable costs, and semi-variable costs. Fixed costs are those costs, which do not vary with the level of activity of a firm says the volume of production. or sale. For example, the rent of a building or the salary of a sales manager remains the same whether 1000 units or 10 units are produced in a week.
Those costs which vary in direct proportion with the level of activity are called variable costs, for example, the cost of raw materials, labor, and power is directly related to the quantity of I goods produced. Let us say if the cost of wood for manufacturing one chair comes to Rs. 100/- the cost of wood, for 10 chairs would be Rs 1000/- obviously, there will be no cost of wood if no chair is produced.
Semi variable costs are those costs that vary with the level of activity but not in direct proportion with it change in the volume of sale.
Total costs are the sum total of the fixed variable and semi-variable costs for the specific level of activity say the volume of sales or quantity produced.

• The Utility and Demand: While the product costs set the lower limits of the price, the utility provided by the product and the intensity of demand of the buyers sets the upper limit of price, which a buyer would be prepared to pay. In fact, the price must reflect the interest of both the parties to the transaction the buyers and the seller. The buyers may be ready to pay up to the point where the utility from the product is at least equal to the sacrifice made in terms of the price paid. The seller would, however, try to at least cover the costs. According to the law of demand, consumers usually purchase more units at a low price than at a high price.
  The price of a product is affected by the elasticity of demand of the product. The demand is said to be elastic if a relatively small change in price results in large changes in the quantity demanded. Here numerically the price elasticity is greater than one. In the case of inelastic demand, the total revenue increases when the price is increased and goes down when the price is reduced. If the demand for a product is inelastic, the firm is in a better position to-fix higher prices.
• Extend of Competition in the market: Between the lower limit and the upper limit where would the price settle down. This is affected by nature and the degree of competition. The price will tend to reach the upper limit in case there is a lesser degree of competition while under conditions of free competitors the price will tend to be set at the lowest level.
  Competitor’s prices and their anticipated reactions must be considered before fixing the price of a product. Not only the price but the quality and the features of the competitive products must be examined carefully, before fixing the price.
• Government and Legal Regulations: In order to protect the interest of the public against unfair practices in the field of price-fixing, the government can intervene and regulate the price of commodities. The government can declare a product as an essential product and regulate its prices. For example, the cost of a drug manufactured by a company having a monopoly in the production of the same was Rs. 20/- per strip of ten and the buyer is prepared to pay any amount for it say Rs. 200/-.
  In the absence of any competitor, the seller may be tempted to export the maximum amt. of Rs. 200/- for the drug and intervene to regulate the price. Usually, in such a case, the govt does not allow the first to charge such a high price and intervene to regulate the price of the drug. This can be done by the govt, by declaring the drug as an essential commodity and regulating its prices.
• Pricing objectives: Pricing objectives are another imp. factor affecting the fixation of the price of a product or a service. Generally, the objective is stated to be to maximize the profits. But there is a difference in maximizing profits in the short run and in the long run. If the firm decides to maximize profits in the short run, it would tend to charge maximum price and its products. But if it is to maximize its total profit in the long run, it would opt for a lower per-unit price so that it can capture a larger share of the market and earn greater profits through increased sales.
  Apart from profit maximization, the pricing objectives of a firm may include:
  (a) Obtaining market share leadership: If a firm objective is to obtain a larger share of the market, it will keep the price of its products at lower levels so that a greater no. of people are attracted to purchase the products.
  (b) Surviving in a competitive market: If a firm is facing difficulties in surviving in the market? because of intense competition or the introduction of a more efficient substitute by a competitor, it may resort to discounting its products or running a promotion campaign to liquidate its shock, and
  (c) Attaining product quantity leadership: In this case, normally higher prices are charged to cover high quality and high cost of Research and Development.

Thus, the price of firm products and services is affected by the pricing objective of the firm.

• Marketing Method Used: The price fixation process is also affected by other elements of marketing such as distribution system quality of salesman employed, quality and amount of advertising, sales promotion efforts the type of packaging product differentiation, credit facility, and customer service provided. For example, if a company provides free home delivery, it has some flexibility in fixing prices. Similarly, the uniqueness of any of the elements mentioned above gives the company competitive freedom in fixing the prices of its products.

Q3: Mention the important features or characteristics of personal selling?
Ans: Characteristics of Personal selling: Following are some imp. characteristics of personal selling

• Personal selling is a method of sales communication.
• Personal selling includes commercial and social behavior.
• Personal selling includes both selling functions and non-selling functions.
• It involves the persuasion of customers.
• It involves winning buyers’ confidence.
• It aims at providing information and services to buyers.
• It is a two-way process and benefits both buyers and sellers.
• It helps in solving the problems of the buyers and satisfying their needs.
• Personal selling is an educative process. It tells consumers the way in which they can satisfy their needs.
• Personal selling is more flexible and adaptable. Because of face communication, the salesman adjusts himself and his sales talks according to the need, desires, and behavior of the consumers.
• Role of Personal Selling: Personal selling plays a very important role in the marketing of goods and services. The importance of personal selling to businessman, customers, and society may be described as below:
• Importance to Businessmen: Personal selling is a powerful tool for creating demand for a firm’s products and increasing their sales. 

The importance of personal selling to a business organization may be described as follows

• Effective Promotional tool: Personal selling is a very effective promotional tool that helps in influencing the prospects about the merits of a product and thereby increasing its sales.
• Flexible tool: Personal selling is more flexible than other tools of promotion such as advertising and sales promotion. It helps business persons in adopting their offer in varying purchase situations.
• Minimise wastage of efforts: Compared with other tools of promotion, the possibility of wastage. of efforts in personal, selling is minimum. This helps the business, persons in bringing economy in their efforts.
• Consumer attention: There is an opportunity to detect the loss of consumer attention and interest in a personal selling situation. This helps a business person, in successfully completing the? sale.
• Lasting relationship: Personal selling helps to develop a lasting relationship between the salespersons it the customers, which is very important for achieving the objectives of a business.
• Personal rapport: The development of personal rapport with customers increases the ‘ competitive strength of a business organization.
• Role in the introduction stage: Personal selling plays a very important role in the introduction stage ( of a new product as it helps in persuading customers about the merits of the product.
• Link with customers: Salespeople play their different roles, namely persuasive role, service role, and informative role, and thereby link a business firm to its customer’s importance to Customers

This role of personal selling becomes more imp. for the illiterates and rural customers who do not have many other means of getting product information.
The customers are benefited from personal selling in the following ways

• Help in identifying needs: Personal selling helps the customers in identifying their needs and wants and in knowing how these can best be satisfied.
• Latest market information: Customers get the latest market information regarding price changes product availability and shortage and new product introduction which helps them in taking the purchase decisions in a better way.
• Expert advice: Customers get expert advice and guidance in purchasing various goods and services which help them in making a better purchase. 
• Induces Customers: Personal selling induces customers to purchase new products that satisfy their needs in a better way and thereby helps to improve their standards of living.
• Importance of society: Personal selling plays a very productive role in the economic progress of a society. 

The more specific benefits of personal selling to society are as follows

• Converts latent demand: Personal selling converts latent demand into effective demand. It is through this cycle that the economic activity in the society is fostered, leading to more jobs, more incomes, and more products and services. That is how economic growth is influenced by personal selling.
• Employment opportunities: Personal selling offers greater income and employment opportunities to unemployed youth.
• Career opportunities: Personal selling provides an attractive career with greater opportunities for advancement and job satisfaction as well as security, respect, variety, interest, and independence to young men and women.
• Mobility of Salespeople: There is a greater degree of mobility in salespeople, which promote travels and tourism in the country.
• Product standardization: Personal selling increases product standardization and uniformity in consumption patterns in a diverse society.

Q4: “Money spent on advertising is an investment not waste.” Explain the statement by giving the merits/advantages of advertising?
Ans: Money spent on advertising is an investment
or
Imp. and Advantages of Advertising
It is an era of advertising. No business or industrial enterprise can survive without advertising in the modern business world, because in every business and industrial activity there is cut-throat competition.
To face and win this competition successfully, it becomes imperative for every enterprise that it advertises what it has and what it wants to sell to the consumers. Advertising is useful not only for the business and industrial enterprise but for the whole community as a whole.
Advertising broader the knowledge of the consumers. With the aid of advertising, consumers find and buy necessary products without much waste of time. This speeds up the sales of commodities, increases the efficiency of labor in distribution, and diminishes the cost of selling. It is an accepted fact that without the market stimulus of heavy advertising, consumers might have waited another sixty years for the product evaluation that took place in less than ten years-it took after all over sixty years from the Invention of the Safety razors before the first acceptable stainless steel blades appeared in the market. These words are more than enough to justify the potentialities of advertising in’ the field of the modem marketing system.
Importance and Advantages of Advertisement:

Advantages to Producers:

• Increase in Sales: By creating the demand for new products, increasing the demand for existing products, and maintaining the demand for products in all seasons and at all times, advertising helps in increasing the sales of an enterprise.
• Lower cost: Production cost and marketing cost both can be reduced by manufacturing the product on large scale .because the demand rises through advertising and supply can only be given by manufacturing them on a large scale.
• Reduction in Production and selling expenses: Selling cost per unit is reduced due to increased sale volume, consequently production cost and overheads are also reduced due to mass production and sale.
• Reduction in Distribution expenses: Due to large scale selling distribution cost is also reduced.
• Increase in Demand: Advertising helps in increasing the demand for existing products because it reminds the consumers of a product again and again.
• Creation of Goodwill: Advertising helps in the creation of goodwill. It increases the sales and increases in sales mean the increase in no. of customers which is apparently the result of the increase in goodwill of the concern.
• Steady Demand: Advertising helps in stabilizing the demand for a product in all the seasons and all the time. It is only because of advertising that people like to consume eggs, tea, coffee, etc in summer also.
• Preparation of the ground for New Products: Whenever a producer produces, a new product advertising helps him in creating demand for his product because it is the advertising through which a producer explains the merits of his products to the consumers. It is also the advertisement through which a producer proves the superiority of his products in comparison to the similar products of competitors.
• To employ efficient workers: As the demand for products is increased through advertising, the employer working with the firm is motivated. This helps in the recruitments of efficient workers.
• Increase in Profits: Increase in sales results in increased profits also, and thus the enterprise achieves the object of maximizing profits.

Advantages to Middleman:

• Helpful in selling: Easy sale of the products is possible since consumers are aware of the product and its quality through advertisements.
• Helpful in searching middleman: Able middleman can be appointed through the advertisements.
• Helpful in facing competition: Advertising helps the middleman in facing competition successfully. It introduces the products into the market and creates the demand for the products.
• Earning sources: Advertising stabilizes demand. Customers are thereby available throughout the year which ensures permanent income to the middleman.
• Increase in goodwill: The reputation created is shared by middlemen also because they need not spend anything on the advertising of already a well-advertised product.

The advantage to consumers:

• Increase in knowledges: Advertising helps the customers to know about the existence of various products and their prices. They can choose from the various brands to satisfy their wants. Thus, they cannot be exploited by the sellers. Advertising educates people about new products and diverse – uses.
• Easy purchase: Advertising makes it very convenient for the consumers to make their purchases because they take the decision well in advance about the commodity to purchase.
• Cheap and quality goods: The goods advertised are cheap and of standard quality. Advertising induces the manufacture to improves quality because otherwise, the customers will switch to competitor’s products.
• Increase in standard of living: Advertising stimulates the consumption of varied and new products. More the consumption more will be the standard of living of the consumers. Advertising induces the manufactures he improves the quality of their products through research and development. This ensures a supply of products of better quality to the consumers.

Advantages to Society and Nation:

• Rapid Economic development: Due to advertising sales of products increase in the market, it helps in increasing the scale of production. Large scale production brings industrial progress and prosperity. Advertising also encourages art and design in the country. Due to advertising employment opportunities, research and development also help in the rapid economic development of a country.
• Increase in standard of living: Advertising promotes the standard of living of the people by increasing the variety and quality in consumption as a result of sustained research and development activities by the manufactures.
• Increase in employment opportunities: Advertising provides employment to persons engaged in writing, designing, and issuing advertisements. Increased employment brings additional income to the people, which stimulates more demand. Employment is further generated to meet the increased demand.
• Increase in knowledge: Advertising is very educative. It provides complete information about, the products of their uses to the society. In the words of the late President Roosevelt of the U.S.A. “Advertising brings to the greatest no. of people-actual knowledge consuming useful things.” It is essentially a form of education and the progress of civilization depends on education.
• Good quality products: Confidence of the public towards the product gets stability through advertisement. This is the reason, the manufacturer is not inclined to end such confidence of the public and enters only goods quality of products or the market. It increases productivity.
• Development of Civilisation: In the Age of globalization advertising plays a vital role in foreign trade. Exports and imports are possible only due to advertising.
• Helpful in the development of newspaper: Advertising provides an imp. source of revenue to the publishers of newspapers and magazines. It enables them to increase the circulation of their publication by selling them at lower rates. People are also benefitted because they get publications at cheaper rates.
• Reduced cost: As already stated cost of production is reduced due to large-scale production. Society also benefits from sour rates of products.

From the above discussion, it is clear that there are a number of advantages of advertising. It is beneficial to all the concerned – Producers, middlemen, customers, and consumers. In this time of throat competition, it is not enough to produce quality products at low costs, it is also necessary that it should be made known to the customer for whose it is produced.

Q5: Explain in detail the various pricing policies of a product?
Ans: Pricing Policies Policies are guidelines for achieving the objectives. Therefore, different policies are framed and adopted for achieving the different objectives. Thus price policy is framed and adopted ‘policies provide the framework and consistency needed by the company to make reasonable, practicable, and effective pricing decisions. It helps the company to attain its pricing objectives.
Any good pricing policy must be aimed at offering a reasonable price to the consumer, ensuring a fair return on investment, and provide, price stability. While adopting the price policy trade traditions, customer preferences, their buying motives, purchase frequency, level of competition, nature of the product, amount of discount and allowances to be given, etc. must be considered.-There are a number of pricing Policies, a brief explanation of them is as follows:
A. On the basis of Cost and Demand. There are two price policies

• Cost-oriented pricing policy: This policy assures that no product is sold at a loss since the I price covers the full, coat incurred. Pricing under this policy is based on simple arithmetic i.e.; adding a fixed percentage to the Unit Cost.
• Demand-oriented pricing policy: Under the policy of a product is based upon its demand in the market. For instance, a high price is charged when and where the demand is high and a low price is charged when and where the demand is low. This policy is more suited to small business units and mostly in the case of non-standardized products.

B. On the basis of Price-Level. There are three price policies:

• Meeting Competition Policy: If the price is the main basis of competition, then companies adopt this policy and adjust their prices 1 according to that of competitions. If the competitors change their price, the company will do the same. Such a policy is adopted in the case of highly competitive goods. One important feature of the policy is that it may not have any relationship to its cost and demand of the
• Under the Market policy: It is a policy in which a company keeps its prices less than those prevailing in the market. Under the market, the policy is adopted when a company wants to enter the market on wants to expand it. Sometimes, a company has low costs because TtSsProducts is of lower quality and therefore, the price of products is usually kept low than those of competitors. At other times, lower prices may be substituted for promotional efforts used by its competitors.
• Above the Market policy: Under this policy, the company ‘ eeps? its prices more than those prevailing in the market. This policy is adopted by companies who either enjoy a good reputation in the market or offer a unique product.

The customers get attracted to the company because of its high prestige. Such a company spends highly on advertising. Sometimes, manufacturers keep more than above price to give some more margin to profit to a middleman in return for their aggressive marketing efforts.

C. On the basis of Flexibility.
There are two pricing policies

• One price Policy: Under this policy, one price is charged from all types of customers irrespective of volume or conditions of purchase. Price is fixed in this policy. It is a fair trade practice. Such a policy helps in clearly estimating the sales and profits. This policy helps in bargaining as such saves time and selling expenses. These companies, who follow this policy lays emphasis on the product’s quality and customs service.
• Flexible pricing policy: Under this policy, different buyers are charged different prices for the same product. The difference in price depends upon the bargaining power of buyer and seller, place on delivery market conditions, and many other such factors. It is generally adopted in the case of sub-standard products. This policy makes the seller free to adjust the price according to the prevailing market circumstances. In certain cases, the product may be prepared on the basis of specification or design given by the buyer. In such a case, the price has to be negotiated and then fixed.

D. On the basis of Geographical Conditions.
There are six pricing policies

• Uniform delivery pricing policy is also known as’F.O.R.’ (Free on the rail) or ‘Destination price’ or ‘Postage stamp’ pricing policy. Under this same price is charged from all the buyers irrespective of their location. In other words, the buyers do not bear directly the freight and other charges because the price includes such charges. They actually add in full or average of total freight charges for all the nation to the price quoted. Such a pricing system is used where transport costs are a major change on the seller’s total cost structure as a case of medicines.
• Production point pricing policy It is that type of pricing policy in which the firm quotes ‘Ex-factory’ or Free on rail’ price. It does not bear the transportation cost, in the case of ex-factory price, the buyer bears all the transportation costs both freight and cartage from the factory point, whereas in the case of F.O.R. price, the firm bears the freight charges up to the railway station as the transport agency.
  After that, the buyer has to meet, freight and cartage. It is also called as ‘Free on, Board’ (F.O.B) pricing policy. In simple words, under this policy, the price of the product includes only the price of the product. All the expenses of transportation from the price of the product. All the expenses of transportation from the place of the seller to the place of buyers are paid by the buyer himself.
• Zonal delivery pricing policy Under this policy, the company divides the country into different zones and quotes uniform prices for each zone. The prices are uniform within a zone. But these prices differ from zone to zone, because of differences in transportation costs, local taxes, etc. The company adds average transportation cost to the basic price to arrive at the zonal price. Such a price benefits the buyer living at a distant place within a zone.
• Basepoint pricing policy: It implies partial absorption of the transport cost by the company. One or more geographical locations are selected as base points from which the transport costs are, calculated. The buyers pay the er-factory price plus freight calculated from. the nearest base point. This price policy is normally the collective decision of all the firms.
• Freight absorption pricing policy: To penetrate distant marked a seller may be willing to absorb part of the freight cost. Thus, under the freight absorption policy, the price of a product includes its actual price and a part of transportation cost. Therefore, the total expenses to be incurred on transportation of goods are divided into \ two parts – a part of these expenses is paid by the seller and the remaining part is paid by the buyer. A freight absorption strategy is adopted to offset the competitive disadvantages of F.O.B. or er-factory pricing.
• Home delivery pricing policy: This policy is gaining popularity in cities. Under this policy, dealers quote the price of a product and delivered the goods at the door-step of the customer. Dealers of television, fridge, air-condition, washing machines, steel furniture, and Haryana merchants usually adopt a home delivery pricing policy.

E. On the basis of Speciality:
On the basis of the specialty of the product, market conditions, trade -conditions, different sellers use the following pricing policies:

• Skimming pricing policy: It involves setting a very high, price for a new product initially and to reduced the price gradually as competitors enter the market. The initial high price serves to skim the cream of the market. This is a policy of recovering the product^ generally adopted in the case of an innovative product.
• Penetration pricing policy: This policy aims at capturing the market as soon as possible, therefore, the prices are kept at a low level. It helps in the initial stage or till the product is accepted by the majority of the population.
• Price lining policy: Under this policy, various products are v priced according to their quality standards. The products may be classified as good, better and best – Different prices are charged for different qualities. The price lining has attraction both for the consumers and the retailers. The consumer’s buying decisions are simplified since the no. of prices from which he must make a selection is limited. The retailers also find this policy attractive because it helps them to plan their buying decisions.
• Full-line pricing policy: When a manufacturer produces a product in different sizes or models and is unable to calculate the fixed expenses incurred on each type of product separately, he priced his product according to sizes or their demand.
• Unit pricing policy: Under this policy price of the package and price per unit are mentioned on the package. For example, a toothpaste of 100 grams bears the price of a 100 grams package and also the price of 1 gm. This policy facilitates the consumers to make their buying decision and there is no scope of any bargaining.
• Bait pricing policy to kinds of products are manufactured under this policy i.e. low price products. The marketer attracts the consumer by showing low price products. Thus, low prices act as bait for attracting customers.
• Psychological Pricing policy: Under this policy prices are forced in such a manner that they have some psychological effect on buyers. Certain consumers have a feeling that high period products are indicated of high quality. As such, they demand high priced products. For example, diamonds, electronic products, cosmetics, etc. The pricing of products according to their quality standards as superior, fine, or economical also puts psychological pressure on consumers.
• Old Pricing policy: It is another form of psychological pricing policy. Under this policy price is ending in an odd no. or a price just under a round number i.e. setting the price at an off amount such as Rs. 199.95 instead of Rs. 200 or Rs.5.990 instead of 6,000. The rationale for this policy is that consumers perceive off prices as a better buy. Even extensive products appear less expensive when the period in this way. This policy gives the feeling that the company is true to the last paisa, and results in an increase in sales.
• Customary pricing: The policy is one that is based on the customs prevailing in the market. The prices are fixed to suit local conditions. Such products are typically standard ones. The price of sweets, soft drinks, bread, and other eatables are based on customary pricing policy.
• Prestige pricing policy: Generally, the prestige pricing policy is adopted in the case of luxury products where the salesman is successful in creating a prestige of his product in the consumer’s mind. In this case, prices so fixed are generally higher than the prevailing market price. Sometimes, to show that our product is a quality product, market fix higher price for his product in comparison to competitors. Because customers judge the quality of a product by its price. If the price is high, they assume that quality is good. This policy is only useful when actually the quality of the product is genuine and high.
• Captive pricing policy: In a captive pricing policy, the basic product is priced low, often below cost, but the high markup on supplies required to operate the basic product compensates for that low price. The loss on the basic product is recovered in profits from the sale of the required supplies. This policy is adopted by the newspaper. A newspaper costs, more to produce and distribute than the price charged from the subscribers, but increased circulation encouraged by the low price leads to more advertising revenue and greater overall profit.
• Loss leader pricing policy Under this policy, few popular products are temporarily offered at low prices with a view to attracting customers. Such products are termed as loss leaders.
• Leader pricing policy The business firm who wants to present itself pioneer in the industry take the initiative in fixing the price and other firms follow it. This is generally adopted in oligopolistic market conditions where there are few sellers and these products are identical.
• Monopoly pricing policy: Monopoly pricing policy is adopted when one company has single-handed control over the entire supply, there are a large number of buyers blit only one seller. The product is unique with no close substitutes. The competition is totally is absent and the seller has a free hand in fixing the price. Monopoly prices are generally considered as high prices.
• Discriminating pricing policy: Under this policy, the marketer sells the same product at different prices to different buyers. This discrimination may be on basis of the use of product type of customer, the difference in a geographical area, etc.
• Dual pricing policy Under dual pricing policy, a producer is required to sell a part of his production, under compulsion, to the govt, or its authorized agency at a substantially low price.
• Administrated pricing policy Prices fixed by the govt, of goods sold through fair price shops are administered prices. This policy favors the welfare of low-income group people.
• Sealed bid pricing policy Big firms or the govt, calls for competitive bids when they want to purchase certain products or specialized terms. The lowest bidder gets the work.
• Break-even pricing policy The level of output of which the total revenue will be equal to the total cost is known as the break-even point. Sales over this point will yield profit. The sale must be above the break-even point quantity.
• Promotion pricing policy This policy is based on its sales promotion method. For instance, take the case of ‘Grand Reduction Sale’ which is intended to revive the memory of the customs who might have stopped buying the products they used to buy in past. In this case, the seller tries to get rid of old and outdated stock.

Q6: Explain the various methods of determining the price of a product?
Ans: Methods of Determining Prices: There are many methods for the determination of the price of products. For the convenience of study, these methods can be divided into two parts:
Methods of determining the price on the basis of cost.
Methods of determining the price on the basis of market conditions.

• Methods of determining the price on the basis of cost: The cost of production of a product is the most important variable and most, an important determinant of its price. There may be many types of costs such as Fixed cost, the variable cost, total cost, avg. cost, and marginal cost, etc.

An analytical study of these costs must be made for t determining the price of a product. Methods of determining the price on the basis of cost are as under

• Cost-plus pricing method This is the simplest and easiest method of price determination. Under this system of pricing the average, I total cost of each unit of production is calculated, and to it is added the desired margin of profit, and selling is done at this ultimate price.
• Cost-plus, pricing involves making a cost estimate and adding a margin to cover making expenses and profit. For example, a manufacturer may set the price for a new product by estimating the producer’s per unit total costs and then adding a certain percentage to provide a gross margin (i.e. expenses of net profit).,
• Thus, under this method, the price per unit of product is calculated by adding desired profit to the total cost per unit. Under this policy, the price per unit can be calculated as under:
  
  The amount of desired profit varies from enterprise to enterprise, product to product, and time to time. Some business enterprises determine a certain percentage of profit and calculate the price per unit of their product by adding this much percentage of profit to the cost of production, such as Price per unit = Total Cost + 10% Profit.
  This method assumes that no product is sold at a loss. This method is used when there is no competition in the market or when the cost of production of a product of all the manufacturers is almost equal. This method is used by retail traders also. This method of pricing is based on simple arithmetic of adding a fixed percentage of profit to the unit cost. Thus, the retail price of a product can be the cost of the manufacturer plus the margin of profit of the wholesaler plus s the margin of profit to the retailer. Therefore, this method is also known as “The sum of margin method”.
• Marginal or Incremental Cost pricing Method Linder this method, price is so set that it covers only the marginal costs and not the total costs. When a new product is introduced, such a method is usually adopted. By this method, labor may be kept employed even during slack seasons. However, this method cannot be followed for long as the fixed cost has also to be taken into consideration. If certain products are period on this basis and others on a cost-plus basis, then some customers would be required to pay higher, prices while others would get the product at the cost of the last unit.
• Break-Even Analysis: Break-even points is the volume of sales at which the total sales revenue of the product is equal to its total cost. In other words, it can also be said that the break-even point is the volume of sales at which there is no profit and no loss. Therefore, this method is also known as the’ profit No loss Pricing Method’.
  Under this method, break-even price (B.E.P.) can be calculated as under
  
• Rate of Return of Target pricing method: Under this method, first of all, an arbitrary desired rate of profit on the capital employed/invested is determined by the enterprise. The total desired profit is then calculated on the basis of this rate of return. The total desired profit is then added to the total cost of production and thus, the price per unit of the product is determined. In short, this method is good only when there is no competition in the market. The rate of investment is decided arbitrarily.
• Methods of determining the price on the basis of market conditions: The price of a product must be determined keeping in view the conditions prevailing in the market. If market conditions are not duly considered before determining the price of products, the marketing objectives of the enterprise can’t be achieved.

Following are the methods of price determination based on market conditions:

• Pricing to meet Competitions: Under this method, the price of a product is determined on the basis of the price of a competitor’s products. This method is used when the firm is new in the market. ; This method is used when there is tough competition in the market.
  The method is based on assumption that a new product will create: demand only when its price is competitive. In such a case, the film follows the market trader.
• Price below Competitive level: Under this method, the pricing firm determines the price of its. products below the competitive level i.e. below the price of the same products of the competitors. This policy pays where customers are price conscious and the method is used by new firms entering the market.
• Pricing above Competitive level: Under his policy, the seller may set higher than avg. prices for his product to convey an impression that his products are above avg. equality. The buyer may pay this price in the belief that it is of higher quality.
  Manufacturers sometimes keep more than average price to give some margin of profit to a middleman in return for the latter’s aggressive sales promotion. For a consumer product to compete successfully at a price above the market, it must either be so strongly differentiated that consumers believe it is superior to a competitive brand, or middleman must enthusiastically and heavily promote.
• Purchasing power pricing method: Some commercial undertakings determine the product price by keeping in mind the purchasing power of their consumers. This method is generally used for the determination of the price for fashionable products.

Q7: Explain the various methods/Tools of Sales Promotion?
Ans: Types, Methods/Tools of Sales Promotion: For a marketer resorting to sales promotion, a variety of tools and techniques are available. Sales promotion letters, catalogs, point of purchase displays, customer service programs, demonstrations, free samples discounts, contests, sweepstakes, premiums, and coupons are the Commonly employed methods of sales promotion.
Sales promotion can be divided into the following kinds:
Consumer/Customer Promotion Methods.
Dealer Sales Promotion
Sales Force.

• Consumer/Customer Promotion Methods: Consumer promotion methods of sales promotion are the methods that directly encourage consumers to buy the product in more and more quantity. These methods may be as follows
• Distribution of free samples: Under this method, the producer distributes free samples of the product to the consumer. They are also given to introduce a new product and expand the market. It increases the sales volume when the product is a new one to the customers. It is an effective device in which the product is purchased often, i.e. soaps, detergents, tea or coffee, etc. It is a method of demand creation, sampling gives a chance to the consumers to compare the products with other substitutes. Samples are given to doctors by medical representatives.
  The samples may be delivered door to door, sent by mail, picked up in a store, attached to another product, etc. It is the most effective way to introduce a new product.

However, sampling is not always a good marketing strategy. It is not justified in the case of
(a) Well established product.
(b) a product that is not the superior in-store way to competing products or whose points of superiority would not easily be recognized by the consumers.
(c) a product with a slow turnover.
(d) a product with a narrow margin of profit.
(e) a highly fragile, perishable, or bulky product.

Coupons: 
A coupon certificate that reduces the price. When a buyer gives a coupon to the dealer, he gets the products at a lower price. Coupons are accepted as cash by retailers coupons normally perform two specific functions for the manufacturer. Firstly, they enthuse the consumers to exploit the bargain. Secondly, they serve as an inducement to the channel for stocking the items. The manufacturer thus succeeds in attracting consumers as well as in promoting the channel to stock the merchandise by introducing coupons. They are useful for introducing a new product as well as for strengthening the sale of an existing product.
According to John F. Luick and Zieglar, “A coupon is a certificate that when presented for redemption at a retail store, entitles the bearer to a stated saving in the purchase of a specific product.”
Price Reduction or price off promotion: It stimulates sales during a slump season. It gives a temporary, discount to the consumers, i.e. goods are offered at a rate less than the labeled rate. Fans are sold at a reduced rate in the rainy season.
For example, Hawkins pressure cookers have come up with several sales promotion schemes during the last few years. In one of these schemes, Hawkins announced.
Upto Rs. 150/- off on a new Hawkins in exchange for any old pressure cooker.
Contests: 
These may be conducted to attract new customers or to introduce a new product by asking the prospects to state in a few words why they prefer a particular product. For entering into the contest, the prospect is first required to purchase a product and submit the evidence (e.g. a label or package or card wanted to the product) with an entry form for a contest. Through such contests, even the persons who are not inclined to purchase otherwise, also get interested in using the product.
According to John. F. Lick and W.L. Zieglar, “A contest is sales promotion device in which the participants compete for a prize or prizes on the basis of their skill in fulfilling a certain requirement, usually analytical or creative.”
Sponsor companies on the T.V. are adopting the quiz and contest route as a profitable means of establishing brand equality over a period of time. lit programs like Philips Top ten, four with, Close-up brand equity has been used as a format. These programs have gained considerable popularity and they will be remembered for along time. T.V. has gained a substantial audience in India.
Demonstration: 
It is the introduction to educate the consumers in the manner of using the product. It is a promotional tool that attracts the attention of consumers. When products are complex and of a technical nature, the demonstration is necessary, e.g. computers field machinery, electrical pumping set, etc. The demonstration is done in front of consumers for mixy, wet grinder in retail shops, etc.
Premium: 
It is a temporary price reduction wealth increases the instinct of the buyers. Products are offered free or at a reduced cost as an inducement for purchasing. It is offered to consumers for consumer goods like soap, brush, paste, washing powder, glucose, etc. For instance, when the customer buys two soaps, a soapbox is given free along with the soaps. The soapbox is a premium, It certain cases, the price is reduced. The reduced amount is a premium.
According to George Wuistopto is “A Premium is an item of Merchandise that is offered at cost or at relatively low cost as a bonus to purchases of a particular product.”
According to Alfred Gross, “A premium is an article of merchandise or another thing of value offered as an inducement to purchase a product or service.”
Money Refund Offers: 
If the purchaser is not satisfied with the product, a part or all of the purchaser’s money will be refunded. It is stated on the package. It will create new users and will strengthen brand loyalty. Some times, the money will be refunded, if 10 top covers or 10 empty bottles or 10 packages are sent a book to the manufacturers.
Trade fairs and Exhibitions: 
India is a country in which various fairs and exhibitions are organized at different levels in different parts. Some producers take part in these fairs and exhibitions and display their products.
Special Prizes: 
Under this method, every purchase of the product is given a prize coupon during a certain period. All the coupons distributed during this period are put into a box and a lottery is drawn therefrom. The winners are given some attractive prizes. There, this scheme also compels the consumers to purchase and use the product.
Bonus Stamps: 
Such bonus stamps are issued to the consumers by the retailers or manufacturer in proportion to their purchases. The consumer goes on collecting stamps until he has sufficient quantity to obtain the desired merchandise in exchange for the stamps.
Buy-Back Allowance: 
Allowance is given following a previous trade deal. That is, a trader deal offers a certain amount of money for a new purchase based on the purchased quantity. It prevents a decline in the post-trade deal. Buyer’s Motivation is increased because of their co-operation on the first trade deal, for example when Cinthol and Mav soaps are purchased, the salesman gives one mug and two coupons free.
After-Sale Service 
Under this method, the producer gives a guarantee to the consumers to maintain the product for a certain specified period.
Dealer Sales Promotion: 
Dealer promotion methods include all the methods which are adopted with a view to encouraging the dealers and distributors to purchase and resell the product in more and more quantity. Dealer promotion methods include the following methods
Contest
This is an indirect way of hosting the sales. This is in the form of the window display, store display, etc. The prize is awarded for outstanding achievements.
Buying Allowance Discount 
The buying allowance or discount is offered to the dealer to induce him to buy the manufacturer’s product.
Premium 
Premium is a product usually offered free at less than its price to encourage consumers to buy other products.
Incentive 
By using this method, producers announce some incentives to their salesman so that they may take maximum interest in the sale of the product.
Loan Facility 
The producer allows credit to their dealers, based on the quantity purchased by them. This enables them to purchase bulk quantities.
Advertising Allowance 
The allowance is offered to the dealer to display the manufacturer’s product.
GiftRalli Fan Co. arranges for a free holiday.
Point of purchase 
The point of purchase display is the silent salesman that calls the attention to the product in the hope of buying action.
Dealers listed promotion 
This method induces dealers to stock the products and consumers are encouraged to buy the products from the listed dealers.
Training
Through this method, producers train their selling force.