MARKETING MIX AND RELATIONSHIP MARKETING The Marketing Mix offers a means by which product, price, promotion and

place variables can be assembled to meet channel needs. The channel members relationship perspective emphasizes each channel members need to be sensitive to the other partys needs and wants. The marketing mix elements represent the manageable components by which the terms, norms, behaviours and outcomes of channel relationships can be developed. As manageable components, the product, price, place and promotion activities must be aligned to match up with the expectations present in various channel relationships. THE PRODUCT INGREDIENT A product is a unique bundle of intangible and tangible attributes offered en masse to customers. Products are the vehicles through which exchanges of value concurrently satisfy both buyers and sellers needs. A continuously evolving blending of intangible and tangible characteristics can enhance exchanges of value between buyers and sellers. Several important characteristics of the interface between product and channel : (i) Fusion of attributes : Products are bundled attributes. Marketing channels provide the conduit that allows these bundles of attributes to be connected between buyers and sellers.
(ii)

Product Evolution : As products evolve to meet marketplace needs, marketing channels must adapt to accommodate the new requirements of emerging products and services. Value Satisfaction : Products are need-satisfying goods and messages, and marketing channels add value to those goods and services.

(iii)

The Total Product Concept Product level Core Product Expected Product Augmented Product Potential Product Buyers View Customers generic need which must be met Customers minimal set of expectations Sellers offering over and above what customer expects or is accustomed to. Everything that potentially can be done with the product that is of utility to the customer Sellers View Connecting to Channel Members Basic benefits which Producer Intermediaries make product of Consumers interest Marketers product Producer Intermediary decisions on tangible and intangible Consumers components Marketers other Producer Intermediaries mix decisions on price, distribution, Consumers and promotion. Marketers actions Producers Wholesalers and to attract and hold Retailers Customers customers regarding changed conditions or new applications.

Fusion of attributes Tangibilty is the extent to which something is capable of being touched. The concept typically refers to the physical characteristics of a product. Tangible attributes possess substance; they actually exist in some physical form. When it comes to satisfying customers, a products intangible aspects those properties that cannot be easily defined or grasped by human hands are often more important than its tangible characteristics. The value of exchange relationships is guaged on the basis of both tangible and intangible attributes. Products have traditionally been portrayed along an attribute-based scale ranging from purely tangible goods to purely intangible services, but it is often difficult to separate intangible and tangible product attributes. The growing complexity of product offerings has been linked to increasingly agile competitive environments. An agile competitive environment is a marketplace in which channel members constantly modify and improve their product offerings to better satisfy changing customer needs. In a traditional production oriented economy, the market environment generally features autonomous manufacturers providing mass quantities of long-lifetime generic products. Naturally, there is a low level of product differentiation. Within these traditional market settings, efficiency is based on the movement of goods. By contrast, todays dynamic market environments are characterised by high levels of product customisation. Because of this customisation, product lifecycles are generally shorter. In agile competitive environments, a combination of physical and non-physical attributes is aimed at meeting distinctive challenges in an exchange relationship. Differences between goods and services become blurred. As a result, there is a greater reliance on the interaction among channel members. Product-in-Process The concept of agile competition requires that products continually evolve. Therefore, each market offering is really a product-in-process. In some instances, this evolution is governed by constraints of the exchange relationship itself. Product evolutions may also result from good relationships gone bad. Clearly, successful products of the future will have to evolve in response to the needs associated with the exchange relationships. Value Satisfaction Value satisfaction is a channel members perception of the benefits derived from owning or consuming the product. Each product should deliver some measure of value satisfaction to both the buyer and seller. Still, different exchange partners will have different assessments of the worth of a product. The concept of products as value satisfiers suggest channel members should transform themselves from functions delivery to value delivery systems. In a functions delivery system, attention is typically focused inward. While nothing is inherently wrong with such an objective, it is limiting. The view of a functions delivery system is that products begin within the organisation. In a value delivery system, attention first focuses on external concerns. Channel partners look outwards to identify customer needs, and products originate from a desire to satisfy these needs. The value delivery sequence involves three stages:

(i) (ii)

(iii)

Assess Customer Value : Channel members identify customers needs and translate tose needs into a value-producing product concept. Provide Customer value : This stage involves converting the value-producing concept into a product offering. Here, product design, service development, pricing, sourcing, and distribution are concerned. Each function is evaluated with respect to how it can be used to maximise customer value. Communicate Customer value : In this stage, the channel member communicates the benefits of the product offering in solving customer problems to the intended market audience.

Value satisfaction is especially important in building channel relationships. Value satisfaction suggests that exchange partners are matching their market offerings to customer needs. By doing this, the relationship evolves along with the evolution of the product itself. THE PRICING INGREDIENT Price is the ultimate measure of a goods or services exchange value as agreed upon by the seller and the buyer. Price is important because it directly affects the channel members profitability. Valuation, or perceived value, is the simultaneous appraisal by buyers and sellers of the economic and psychological worth of a market offering. The valuation of a good or service is implicitly linked to the exchange relationship. In marketing channels, each exchange partner provides some added value to the offering. Channel members expect and must receive some compensation in exchange for their role in enhancing the value of the market offering. Often, intermediaries willingness to carry a product is based on the margins available to them. The price should allocate compensation among channel members proportionate to each members contribution to the exchange relationship. Conflicts often arise in how to make this allocation. Valuation of a product or service is related to the type of buyer. Intangible attributes like brand names or service commitments significantly impact purchasers valuation of product offerings. In some cases, channel members are willing to pay a price premium to a preferred exchange partner. A price premium is a price level in excess of the normal market or industry value. Channel members may justify price premiums for a number of reasons including :
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Building a relationship : A channel member may willingly pay a price premium in order to develop a long-term relationship with a prospective exchange partner. Preserving a relationship : A channel member may willingly pay a price premium because it has a long history of association with an exchange partner. A past shared among true channel partners may contribute to feelings of trust or dependancy that outweigh more traditional market-based valuations of the product offering. Reducing Risk Factors : In risky situations, channel members may willingly pay a premium to secure the intangible attributes associated with the good reputation of another channel member. Similarly, consumers often pay more for an established brand name product in exchange for a reduction in their perceptions of risk. Obtaining Perceived Quality : Channel members can rationalize that the price premium is related to higher quality exchange performance such as on-time delivery. Possessing Limited Information : Channel members may pay a price premium because they do not have sufficient information with regard to market pricing.

Product valuation is, by its nature, unique to each channel partner. Accordingly, it is difficult to formulate a true price for many market offerings because channel members will derive varying benefits from any exchange relationship. Price elasticity of demand refers to the percentage change

in the amount of a good demanded in response to a percentage change in price. Changes in price elasticity of demand can occur at any channel level, and these changes can affect demand at other channel levels. Each level of a marketing channel may also be affected by price sensitivity. Prices have traditionally been established through either algorithmic or market-oriented methods. The algorithmic pricing method may be viewed as an inside-out approach, in which price is derived from the channel members forecast of their own costs and revenues. Market-oriented pricing represent an outside-in approach to valuation, in which pricing cues are generated from an evaluation of threats and opportunities in the marketplace, that is outside the organisation. In addition to these two traditional methods, a third perspective on how to derive proces in marketing channel relationships is now emerging : relationship pricing. Relationship-oriented Pricing requires a broader, more encompassing orientation. Before a price is established, internal and external cues are simultaneously evaluated in an effort to build and maintain exchange relationships. (i) Algorithmic Pricing Methods Algorithmic pricing methods are based on the association between profits, revenues and expenses. The following three techniques are used by sellers as price-setting algorithms : (a) Cost-Plus Pricing In cost-plus pricing, a percentage or fixed mark-up is added to the cost to establish a price. Costplus can lead to poor pricing decisions because of its simplicity : cost reductions lead to price reductions and cost increases lead to price increases. But in either scenario, cost-plus pricing ignores the effects of market factors such as consumer preferences, brand loyalty, the competition and the price elasticity of demand. (b) Break-Even Analysis Break-even analysis is based on the convergence between the costs associated with making a product and the revenues associated from selling it. On the surface, a break-even pricing approach appears perfectly rational. But buyers do not always behave rationally in the marketplace. Furthermore, revenues depend on demand, which has proven difficult to estimate in most industries. (c) Modified Break-Even Pricing Modified break-even pricing attempts to overcome the difficulties of elasticity by extending the break-even analysis across several estimations of quantity and price. Again, this approach provides little predictive value to channel members because of the opportunity costs associated with uncertain demand. By and large, each method listed above ignores the effect of legal or regulatory market conditions as well as the influences of competition and changing market needs. (ii) Market-Oriented Pricing Methods Market-oriented pricing methods allows prices to be sensitive to customer needs. This sensitivity reinforces the presence of agile competition in the marketplace. The most common market oriented pricing method is Competitive Pricing. With competitive pricing, channel members match competitors pricing. The use of competitive pricing strategies often provides a means of market entry for new channel members. Competitive pricing is inherently reactive rather than proactive. Moreover, competitive pricing provides no assurance that meet or beat prices will increase market share or sustain profit objectives. Competitive pricing may also lead to price wars which in turn, hurt the entire channel. Channel members can effectively counter competitive pricing by differentiating their offerings. Price is almost always the worst aspect on which to compete.

Market-entry Pricing offers two strategies for pricing goods and services that are new to the marketplace. The first strategy is called Market Penetration Pricing. Penetration pricing features a low entry price aimed at capturing market share. Priced below the existing competition, penetration pricing can be particularly effective as an entry strategy in markets where demand is highly elastic. Pricing at penetration levels can also be used as a preemptive strike against potential market entrants by firms already operating in the market. New firm entry is usually blocked because its costs are generally higher. Also, because firms usually hope to avoid price wars, existing competitors often are disinclined to match penetration strategies. The other market-entry pricing strategy is known as Skimming the cream Pricing or Price Skimming. Here, high initial prices are established to attract those willing to pay. Naturally, profit margins for each unit sold are high. Accordingly, price skimming is often employed in an attempt to actively generate positive cash flows to recoup research and development costs. However, the practice has also exposed the industry to widespread accusations of price gouging, that is, price levels that are deemed unfairly high and exploitative to consumers. A price skimming strategy is more likely to prove successful in relatively inelastic markets. The problem with price skimming is that the high entry price frequently attracts new market entrants, who see opportunities for profits. (iii) Relationship-oriented Pricing Methods The relationship-oriented pricing approach is grounded in a cooperative and collaborative orientation. It may assume many forms, however, the practice generally involves volume, functional, and promotional allowances. (a) Volume Pricing : Volume pricing provides discounts to channel members based on purchasing economies and rewards buyers for large lot size purchases. It is commonly used in industries with little product customisation, such as the paper industry. It simultaneously helps several exchange partners : Producers gain the opportunity to more fully utilise their production capacity because longer and more cost-efficient production runs are possible; resellers gain better cash flow; and buyers gain the opportunity to establish consistent and routine procurement procedures. However, volume pricing can damage buyer-seller relationships when the smaller volumes demanded by smaller customers effectively preclude their opportunity to receive such discounts. This problem can be overcome when cumulative volume discounts are made available to exchange partners for ongoing, consistent orders. Volume pricing may also be made available to smaller channel members through negative option contracts. Negative option contracts are agreements in which buyers accept an on-going flow of goods from the vendors. Buyers continue to receive these goods until they tell the vendor to halt supply. Negative option contracts are established based on a sense of confidence regarding the continuity of the exchange relationship. (b) Functional allowances : Functional allowances involve reductions in the list price in exchange for the buyers agreement to perform specific functions. These allowances involve the performance of logistic functions, such as transportation, warehousing or order processing. Or, they may involve the performance of customer service or personal selling functions. Functional allowances account for the value one channel member receives by shifting various functions to another channel member.

(c) Promotional Allowances : Promotional allowances are considerations given to channel partners in exchange for their agreement to provide promotions to current and prospective customers. These considerations may take the form of free goods, cash payments or support services. They may also assume the form of service provisions. Promotional allowances may be provided at any channel level. Each of these relationship pricing forms involves volume or functional discounts, as well as an adjustment to the list price. Also, each relationship pricing form can either be company policy or negotiated. The spirit in which the negotiation unfolds is actually more critical to the relationshipbuilding process. An underlying factor influencing any channel pricing decision, but in particular relationshiporiented pricing decisions, is the notion of price legitimacy. Price legitimacy exists whenever a buyer or sellers perceptions of a market offerings value converge or come together. Consumers are increasingly aware of presumed pricequality relationships for goods and services. Increases in consumer knowledge have lead to increases in their demand for value. Resellers now use several techniques as follows to justify their pricing levels : (a) (b) (c) Price Guarantees : With price guarantees, channel members communicate assurances to buyers or prospects that their posted prices are the lowest available in a given market. If a buyer finds a lower price, a refund or reimbursement for the price difference will be paid. Price Posting : Prices are prominently displayed by retailers. This technique reflects the fact that increased information is now generally available to those customers who seek it. Cost of Service Pricing : Customers need only pay for the level of service they need.

One of the most popular price legitimising techniques is an everyday low-price policy. This policy offers buyers consistently low prices than competitors. The EDLP movement provides the best examples of how pricing is linked to channel relationships. The use of EDLP requires cost reductions at every channel level. EDLP is a relationship-oriented principle that necessitates a passing on of cost-savings from channel member to channel member all the way to the ultimate consumer. In the CRM, cooperative pricing strategies foster positive internal channel environments. Moreover, the prospect of illegal price discrimination generally prevents channel members from offering their better customers many discounts or allowances they might otherwise provide. So price alone is unlikely to inspire long-term buyer-seller exchanges in channel settings. THE PROMOTIONS INGREDIENT Promotion involves any form of purposeful communications employed by channel members with the intent of informing, reminding, and/or persuading prospects and customers regarding some aspect of their market offering. Promotional Mix The promotional mix can be divided into personal and nonpersonal selling. Personal selling is especially important in marketing channels because the act of selling is a major function of virtually all exchange partners. Invariably, some channel member must assume responsibility for the personal selling function. Personal selling is defined as an interpersonal communication process by which a seller uncovers and satisfies the needs of a buyer, to the mutual long-term benefits of both parties.

Nonpersonal selling involves all other types of promotions. These include advertising, public relations/publicity, and sales promotions. Advertising is paid, nonpersonal communications delivered by an identified organisation targeted toward some particular audience. It is generally intended to either inform or persuade the audience. Public relations and publicity include all forms of nonpaid communication of information about a channel member or market offering, generally in some media form. Sales promotions include all those marketing activities, other than personal selling, advertising and publicity, that stimulate customer demand and channel member effectiveness. These include displays, trade shows, exhibitions, demonstrations, and other selling efforts not in the ordinary sales routine. Sales promotion is enormously important within the marketing channels. Traditional versus Relational Communication Marketers have traditionally viewed promotions from a tactical standpoint. As such, promotion has been seen as a portfolio of persuasive tactics used with the intention of informing, changing preferences and attitudes, positioning and/or repositioning products, and ultimately stimulating sales. But the contemporary view of promotions suggests they represent yet another way to build relationships. Relational Promotion involves a communication process between channel members. The purpose of this communication is to encourage new or to strengthen existing exchange relationships. Since the foundation of relational promotions is communication, several fundamental concepts associated with communication, several fundamental concepts associated with communication should be reviewed. The message is the central idea one party is attempting to deliver to its counterpart. The source of the message is the sender. The receiver is the recipient of the message. Feedback is the means by which receivers acknowledge receipt and understanding of the message.

In the conventional model of the messaging process, messages are essentially bilateral. The sender initiates a message, conveys this central idea through some sort of medium and, in turn, the receiver respoinds to his or her receipt of this message. This two way communication exchange is greatly influenced by the process of encoding and decoding. The sender of the message must package this central idea in such a way that it can be understood by the receiver in the manner intended. This is known as Encoding a message. Concurrent with his or her receipt of the message, the receiver then decodes it. Decoding is the process through which the receiver interprets and assigns meaning to the message. The acts of encoding and decoding often lead to distorted communications. In some cases, the message is responsible for the decoding error. Also, some unanticipated external factor may also interfere with the message. This interference is known as Noise any physical or psychological barrier impeding the proper receipt or decoding of a message. More often than not, noise is unintentional and has a detrimental effect on the message. Noise can occur at any stage in the communication process. In the traditional model, communication involves a succession of discrete communicative processes. But in the relational model, communication is represented as a continuous, perpetual process in which the sender and the receiver are essentially indistinguishable. The message and the feedback are nearly simultaneous. The outcome of relational communication is shared meaning. Shared meaning refers to the interwoven communications that occur in a marketing channel. Shared

meaning encourages the traditional view of channel communications processes. Shared meaning encourages the alignment of promotional objectives among exchange partners within marketing channels. When exchange partners achieve high degrees of shared meaning, they are likely to realise similar channel goals. Shared meaning is vital to building effective and efficient marketing channel relationships. By making customers part of their promotion, firms can strengthen their exchange relationships. Promotional Objectives For relational promotion to flourish, suppliers and retailers must jointly pursue a promotional strategy. Channel members often form trade marketing departments as a means of achieving promotional cooperation. These departments are designed to learn as much about exchange partners objectives as possible. Consistent objectives are a prerequisite to relational promotions. In fact, some alliances between previously independent marketers have developed solely as a result of promotional cooperation. Five objectives are generally associated with relational promotions in marketing channels : (i) Stimulating Sales (ii) Differentiating Offerings : particularly important in highly competitive markets. (iii) Sharing Information (iv) Accentuating a Marketing offerings Value (v) Stabilising Seasonal Demand Pull versus Push Strategies When there are several situation-specific promotional objectives, relational promotion tactics as a whole can be classified into two strategic categories, pull and push promotions. A Pull Strategy describes persuasive communications aimed directly at the ultimate consumer. The goal of pull promotions is to stimulate the final users desire for the offering. It is assumed that this demand will subsequently pull the market offering through the channel. Pulling strategies presume that the ultimate consumer will take the initiative to create product flows. Pull strategies are often used with new product introductions to entice the consumer into creating early demand for an offering. Pull strategies can also be used to create loyalty in the face of price competition. Pull strategies have occasionally been known to resurrect marketing dinosaurs products from another time that have since lost market share and customer interest. By contrast, push strategies target their persuasive communications at intermediaries pushing against the next link in the distribution chain. Push promotions hopefully create a domino effect through the channel on the way to its ultimate consumer. The typical push promotion is launched by manufacturers and aimed at resellers. The success of push strategies rests with the intermediaries receptiveness to the promotion. Push promotional strategies allow the channel participants to exercise greater control over the promotional message. Several elements that exercise a critical influence on the acceptability of push promotion strategies : (i) Allowances : Price discounts and promotional allowances are important factors influencing the willingness of distributors to participate in manufacturer-sponsored push strategies. (ii) Advance Notice : The provision of long lead times for distributors enhance their interest in participating in manufacturer-sponsored promotions. (iii) Training and Support : When manufacturers provide ample training and support materials, distributors are more likely to embrace the programme.

Several issues should be considered by exchange partners when deliberating whether exchange partners when deliberating whether a push or pull promotional strategy should be pursued. The nature of these issues reinforces the interrelatedness of the marketing mix variables. These issues include : (i) Budgetary Constraints : All firms face limits on the amount of money they can spend on promotions. In channel relationships, it is particularly important to determin the amount of promotion expenditures expected at each level. Ideally, this amount should be jointly determined and agreed upon in advance. (ii) Nature of Product Offering : Exchange partners should consider which promotional strategy is most appropriate given the tangible and intangible characteristics of the amrket offering. Moreover, there should be a high level of agreement among exchange partners regarding the nature of the product offering before either strategy is selected. (iii) Product Lifecycle : Whether the product is in the introductory, growth, maturity or decline stage should impact the promotional stratgey employed. Different objectives informing customers, blocking competitive entry, differentiating products through repositioning are appropriate as a market offering passes from one lifecycle stage to another. The challenge, of course, is to determine where a product offering is in its product lifecycle at a given point in time a task far easier to describe than it is to achieve. (iv) Product Valuation : The promotional efforts of channel members are constrained by the ceiling on the selling price of a product offering. To preserve the profit objectives at each channel level, promotional budgets must be reasonable. If promotional expenditures are too high, operational costs will have to decrease or the selling price will have to increase. (v) Market Conditions : The prevailing conditions within a target market will invariably affect the magnitude and effectiveness of promotional strategies. Any firm that is weighing which promotional strategy to use should concurrently consider the characteristics, needs, attitudes, preferences, likes and dislikes, and strengths and weaknesses of its customers and competition. Most channel members will not opt solely for either a pull or a push strategy. Instead, exchange partners operating in todays marketplace are much more likely to employ a combination of push and pull promotions in their attempts to build long-term relationships with other channel members. THE PLACE INGREDIENT Place is often described as distribution. However, the term place is more inclusive of the relationship functions in marketing channels. Place may be defined as all those distribution, logistics, and behavioural functions that regulate the flow of market offerings between exchange partners. The goal of place is to minimise the costs of these functions while maximising customer satisfaction and market coverage. Minimising distribution costs can damage long-time channel relationships as well. The place ingredient provides the means to tie together marketing management and relationship marketing. The marketing channel provides the place where exchanges occur. There, manufacturers and intermediaries such as wholesalers and retailers work together to add value to the exchange process. Decisions relating to product, promotional, and pricing variables are all made within the context of a marketing channel. Manufacturers often include intermediaries in product development or line extension decisions because retailers have limited shelf space. Likewise, a retailers private labelling decision usually involves at least one another channel partner. Product positioning decisions impact channel member choices.

Outsourcing decisions are made and administered there. In effect, a decision to outsource advertising agency should be used are made and administered there. In effect, a decision to outsource advertising differs little from a manufacturers decision to use an independent retailer or own the store. Manufacturers often use intermediaries to perform most, if not all, of their sales effprt. The definition of place indicates that there is a trade-off between channel costs and the benefits afforded to exchange partners. The relationship perspective advances the point that these trade-offs are linked to other ingredients in the marketing mix. STRATEGY FORMULATION The marketing mix is a set of marketing programmes relating to product (development, positioning), promotion (personal selling, sales promotion, and advertising), procing (skimming the cream, discounting), and distribution (logistics, channel structure, efforts at relationship management decisions). These programmes jointly support a marketing strategy. In turn, the marketing strategy is guided by corporate level objectives. Ultimately, the marketing mix becaomes the channel members market offering. Any marketing strategy can be defined along three basic dimensions as follows : A channel members markets : Channel members strategies are defined by the products they offer, the markets they serve, their competitors, and their degree of vertical integration. A channel members functional area strategies : Channel members strategies can be defined by the functional area strategies emphasized in their chosen markets. These strategies might include a promotion-oriented positioning strategy, pricing strategy, distribution strategy, or product-line strategy. A channel members strategic assets or skills : Strategic assets or skills are critical to strategy in that they enable each channel member to create sustainable competitive advantages in selected markets. Strategic assets are earned resources, such as a favourable brand image or customer loyalty, that are strong relative to competitors. Strategic skills represent something a channel member does particularly well, such as on-time service delivery, that has strategic relevance to the marketers success. Marketing strategies must evaluate the feasibility of creating the assets or skills that lead to sustainable competitive advantages. The marketing concept asserts that customer satisfaction is the basis for all marketing mix decisions. The marketing concept suggests that a channel memberss marketing mix strategy flows from the customer. The relationship marketing concept delivers exchange value by addressing simultaneously the needs of each link in the marketing channel.