Business Studies Test - 14

The correct answer is None of the Above

Key PointsFactors affecting price determination: The important factors that affect the price of a product are:

Product Cost:

• The total cost of a product includes production, selling, and distribution costs. In the long run, the firm strives to cover all its costs. The cost sets the minimum level or floor price for a product. In addition that firm aims to earn a profit margin over and above the costs.
• Costs can be broadly divided into three categories:
• Fixed costs, which do not vary with changes in production.
• Variable costs, which vary at all levels of production.
• Semi-variable costs, which vary with production, but not in direct proportion with it.
• Total cost is the sum total of fixed, variable, and semi-variable costs, at a specific level of activity.
• Price is determined by adding a profit to the average cost of a product.

The Utility and Demand:

• It is necessary to anticipate the utility and demand of a product while fixing the price, as if a product is offering higher utility, one can easily charge high price from the customer.
• Whereas, if the utility is low, one cannot charge a high price for such products.
• On the other hand, if the demand is elastic, a price should be set at a lower level and if the demand is less elastic or inelastic, a price can be set at a higher level.

The extent of competition in the market:

• The price of a product can be set up to a higher limit, if the extent of competition is low in the market, and vice-versa.
• Competitors' price, their reactions, their product, quality, and features must be considered before fixing the price.

Government and legal regulations:

• To protect the interest of the general public, the government has all the rights to control the prices of various products and services by including the products in the category of essential commodities such as drugs, some food items, LPG, etc.
• With government intervention, there can be a check on the activity of monopolists as they cannot charge an unfairly high price for essential commodities.

Pricing Objectives:

• If the objective of the firm is to maximize sales, the price will be set at a lower level, whereas, if the firm's objective is profit maximization, the price will be set at a higher level.
• Apart from this, the firm's other pricing objectives may be:

1. Obtaining market share leadership by setting the price at lower levels:
2. Surviving in a competitive market by setting a price at lower levels, in order to face intense competition efficiently.
3. For attaining product quality leadership higher prices are set to cover high quality and cost of research and development.

Marketing methods:

• Used The price of the product also gets affected by various techniques and methods of marketing used to promote the products. If the company is using intensive advertising to promote the sale of a product, then it will charge a high price.
• Other marketing methods, which affect the price of a product are a type of packaging, distribution system, salesmen employed, customer support services, etc.

The correct answer is Age of an organization

Key Points

• Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors to raise, lower, maintain, or stabilize prices or price levels.
• Generally, the antitrust laws require that each company establish prices and other competitive terms on its own, without agreeing with a competitor.

Factors affecting price determination: The important factors that affect the price of a product are:

Product Cost:

• The total cost of a product includes production, selling, and distribution costs. In the long run, the firm strives to cover all its costs. The cost sets the minimum level or floor price for a product. In addition that firm aims to earn a profit margin over and above the costs.
• Costs can be broadly divided into three categories:
• Fixed costs, which do not vary with changes in production.
• Variable costs, which vary at all levels of production.
• Semi-variable costs, which vary with production, but not in direct proportion with it.
• Total cost is the sum total of fixed, variable, and semi-variable costs, at a specific level of activity.
• Price is determined by adding a profit to the average cost of a product.

The Utility and Demand:

• It is necessary to anticipate the utility and demand of a product while fixing the price, as if a product is offering higher utility, one can easily charge high price from the customer.
• Whereas, if the utility is low, one cannot charge a high price for such products.
• On the other hand, if the demand is elastic, a price should be set at a lower level and if the demand is less elastic or inelastic, a price can be set at a higher level.

The extent of competition in the market:

• The price of a product can be set up to a higher limit, if the extent of competition is low in the market, and vice-versa.
• Competitors' price, their reactions, their product, quality, and features must be considered before fixing the price.

Government and legal regulations:

• To protect the interest of the general public, the government has all the rights to control the prices of various products and services by including the products in the category of essential commodities such as drugs, some food items, LPG, etc.
• With government intervention, there can be a check on the activity of monopolists as they cannot charge an unfairly high price for essential commodities.

Pricing Objectives:

• If the objective of the firm is to maximize sales, the price will be set at a lower level, whereas, if the firm's objective is profit maximization, the price will be set at a higher level.
• Apart from this, the firm's other pricing objectives may be:

1. Obtaining market share leadership by setting the price at lower levels:
2. Surviving in a competitive market by setting a price at lower levels, in order to face intense competition efficiently.
3. For attaining product quality leadership higher prices are set to cover high quality and cost of research and development.

Marketing methods:

• Used The price of the product also gets affected by various techniques and methods of marketing used to promote the products. If the company is using intensive advertising to promote the sale of a product, then it will charge a high price.
• Other marketing methods, which affect the price of a product are a type of packaging, distribution system, salesmen employed, customer support services, etc.

The correct answer is Price mix

Key Points

• Price mix is the price or the value that is attached to the product which is fixed by the producer.
• Price mix is another important element of marketing mix. It is considered as very critical element.
• Price can be defined as the economic value of product normally expressed in form of money.

Pricing decisions involve:

1. Determining product development costs
2. Determining manufacturing (variable and fixed) costs of the product
3. Studying pricing policies and strategies of the close competitors
4. Formulating appropriate pricing policies for the products
5. Deciding on level or margin of profits
6. Deciding on variable v/s fixed pricing, price discrimination, discounts, allowances, and seasonal effect
7. Identifying and analyzing of various relevant factors influencing pricing decisions
8. Pricing policies/strategies in different stages of product life cycle
9. Deciding on price-setting methods
10. Pricing decisions for direct and indirect distribution of products

Factors Affecting Price Determination
There are number of factors which affect the fixation of the price of a product. Some of the important factors in this regard are discussed as below: 

Product Cost:

• One of the most important factors affecting the price of a product or service is its 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 

Extent of Competition in the Market:

• Between the lower limit and the upper limit where would the price settle down? This is affected by the nature and the degree of competition.
• The price will tend to reach the upper limit in case there is lesser degree of competition while under conditions of free competition, the price will tend to be set at the lowest level.
• Competitors’ 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 public against unfair practices in the field of price fixing, Government can intervene and regulate the price of commodities. Government can declare a product as essential product and regulate its price. 

Pricing Objectives:

• Pricing objectives are another important factor affecting the fixation of the price of a product or a service.
• Generally, the objective is stated to maximize the profits. But there is a difference in maximizing profit 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 for 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 larger share of the market and earn greater profits through increased sales. 

Marketing Methods Used:

• The price fixation process is also affected by other elements of marketing such as distribution system, quality of salesmen employed, quality and amount of advertising, sales promotion efforts, the type of packaging, product differentiation, credit facility and customer services provided.

The correct answer is Physical distribution

Key Points

• Physical distribution is defined as the process of physical movement of goods from the producer to the consumer.
• It is an important marketing function which describes marketing activities that involves flow of raw materials from the suppliers to the factories for production and also the movement of finished goods from production to the final user.
• The activities that are included in the efficient movement of goods from producer to end user or consumer include transportation, inventory control, warehousing, material handling, forecasting, customer service, plant and warehouse location and order processing.
• According to the eminent marketing guru Philip Kotler “Physical distribution involves planning, implementing and controlling the physical flow of materials and final goods from the point of origin of use to meet consumer needs at a profit.”

Objectives of Physical Distribution

• The following are the objectives of physical distribution

1. Consumer satisfaction
2. Profit Maximisation
3. To ensure the availability of right goods at the right quantity at the right time and the right place with the least cost for the service.
4. To achieve speedier transportation of goods and maintaining minimum inventory level.
5. To establish the correct price of products by effective management of physical activities of distribution.
6. To achieve competitive advantage over the competitors by providing the best customer service.

Components of Physical Distribution
Following are the components of physical distribution

Order Processing:

• Order processing is the first point or in other words, the starting point of the distribution activity.
• The functions involved in order processing are receiving order, handling the received order, granting of credit for the item ordered, generating invoice, dispatching of order and collecting the bills.
• Businesses should be making an effort to reduce the order cycle time which is the time between placing an order by the customer and delivery of the goods at the customer’s place.

Storage and Warehousing:

• Storage deals with the storing of goods in proper condition till the time it is ordered by the customer.
• Goods that cannot be generally made available throughout the year need to be stored.
• Warehouses act as centres of storage and by providing the functionality
• it helps businesses meet the demands of customers.
• Apart from being a source of storage, a warehouse also acts as centres for assembling the goods.

Inventory Control:

• Inventory control refers to the process of efficient control of goods that are stored in the warehouses.
• Businesses need to maintain adequate levels of inventory in order to ensure uninterrupted fulfillment of orders.
• The level of inventory needs to be optimal, it should not be too less or too more, as less inventory results in out of stock goods, lost business and unhappy customers, while a high level of inventory requires huge investment.

Material Handling:

• Material handling refers to the activities that are associated with the movement of goods from the site of manufacturing till it is loaded to the transport.
• Proper material handling results in minimising the wastage of goods during transport, reduces unnecessary movement of goods, facilitates quick order processing and efficient goods movement.

Transportation:

• Transportation is a very essential component of physical distribution which plays a crucial role in movement of the stored goods from warehouse to the customers.
• The process of transporting involves loading and unloading of goods and their movement from one place to another.
• Choosing the right transportation mode is of utmost importance as it determines the retail price of the product.
• Proper choice of transportation results in smooth movement of goods in proper condition.
• The modes of transportation that are adopted by the businesses are road, railways, airways, water transport and pipelines.
• The choice of the mode of transportation depends on the type of goods being transported, their availability, reliability and the level of safety offered by the mode.

The correct answer is Physical distribution

Key Points

• Physical distribution is defined as the process of the physical movement of goods from the producer to the consumer.
• It is an important marketing function that describes marketing activities that involve the flow of raw materials from the suppliers to the factories for production and also the movement of finished goods from production to the final user.
• The activities that are included in the efficient movement of goods from producer to end-user or consumer include transportation, inventory control, warehousing, material handling, forecasting, customer service, plant and warehouse location and order processing.
• According to the eminent marketing guru Philip Kotler “Physical distribution involves planning, implementing and controlling the physical flow of materials and final goods from the point of origin of use to meet consumer needs at a profit.”

Objectives of Physical Distribution

• The following are the objectives of physical distribution

1. Consumer satisfaction
2. Profit Maximisation
3. To ensure the availability of right goods at the right quantity at the right time and the right place with the least cost for the service.
4. To achieve speedier transportation of goods and maintaining minimum inventory level.
5. To establish the correct price of products by effective management of physical activities of distribution.
6. To achieve competitive advantage over the competitors by providing the best customer service.

The correct answer is Branding

Key Points

• Branding is a process that involves creating a specific name, logo, and image of a particular product, service, or company. This is done to attract customers. It is usually done through advertising with a consistent theme.
• Branding aims to establish a significant and differentiated presence in the market that attracts and retains loyal customers.
• A brand is a name, term, symbol,  or other feature that distinguishes an organization or product from its rivals in the eyes of the customer. Brands are used in business, marketing, and advertising

Features of Branding
Targetability

• Branding should be planned according to the targeted audience. No business firm can target the entire population.
• Business owners should identify the type of people who are buying their products and services.
• Research should be done on the basis of age, gender, income, the lifestyle of their customers, etc.

Awareness

• The percentage of people who are aware of a brand is known as brand awareness.
• Well-established companies have the benefit of a high level of brand awareness.
• Brand awareness can be increased with the help of advertisements on TV, radio, newspaper, or social media marketing and advertising.
• Logos also help companies build brand awareness, as people often recognize brands by these symbols or diagrams.

Loyalty

• Brand loyalty is the highest achievement or apex of any company.
• A customer who buys the product of a particular company extensively is known as a brand loyalist.
• Many consumers prefer using certain brands of clothing, deodorants, or tubes of toothpaste.
• For example. They like how these brands benefit them. Brand loyalty can be built by staying in touch with the customers, and asking them for their reviews.

Consistency

• Consistency is necessary for a brand.
• A brand must remain consistent. Small businesses make numerous promises in commercials and ads about their brands, and consumers expect companies to continue living up to these promises.
• Their products should also be effective. 

The correct answer is None of the Above

Key Points

• Promotion is an important part of marketing.
• Marketing promotion is defined as a way of communication between buyer and seller in which a buyer persuades his audience to buy his/her products.
• The main aim of Promotion is to create awareness of products/services, create interest, and sales, and increase brand loyalty.
• Promotion is an element of 7 p of marketing which is considered the most important part of marketing strategy.
• Promotion is also an element of the promotional mix.
• The main purpose of promotion is to educate your audience regarding your products or service
• Promotion plays different roles in Your Company’s marketing Plan i.e, Recall your brand value in the Target audience, increase brand awareness or introduce your brand to a new audience.
• The Promotion mix is a blend of different promotional tools used by businesses to create brand awareness and sales.

Types of Marketing Promotion
There are the following types of promotion in the marketing mix.

1. Personal Selling

• The first type of Promotion is Personal selling in which an individual is involved in an interaction with customers with objective sales. It is an effective way to manage personal customer relationships.
• In Personal selling, an individual called a salesman acts on behalf of the organization. A salesman is a trained person in approaches and techniques of direct selling. These salespersons are very expansive and only used where the product margin is so high. 

2. Sales Promotion

• Sales promotions tend to be thought of as being all promotions apart from advertising, personal selling, and public relations. It includes free coupons, limited time off, free accessories.

3. Marketing promotion

• The main objective of sales promotion is to attract customers whether it's new customers or existing customers. It is a very effective promotional tool that is used by several big companies to increase their sales. 

4. Public Relations 

• Public Relations is a mutual understanding between the organization and its customers, investors there, and other stakeholders.
• Public relations is a very important tool for an organization that aims to maintain a particular image in the minds of customers, investors, and stakeholders.  

5. Direct Marketing

• Direct Marketing is a form of communication between an organization and its customers in which the company directly communicates with its customers.
• Direct Marketing, Direct Marketing - Explore views
• For Example, Harpic which is sold on almost every shop but if a salesman from a company directly goes to their pre-defined customers to sell their products its called Direct Marketing. We can also say that direct marketing is any marketing undertaken without an intermediator. 

6. Advertising

• Advertising is a paid way to communicate with the audience. Advertising is an effective tool for promotion which also helps in increasing brand awareness and increase sales.
• There are a lot of paid ways i.e, Newspapers, Television, cinema and outdoor advertising. Nowadays Digital Advertising is also trending which one we will cover later. 

7. Sponsorship

• Sponsorship is a way whereas an organization pays to feature in a particular event and cause. Nowadays companies sponsor Events, movies, and crickets.
• Sponsorship is also an effective tool for Promotion in marketing. For Example, you have sponsors A IPL league, a lot of People watch IPL every Now Your Brand name will be shown to this person which indirectly markets your brand to this audience. 

8. Trade Fair & Exhibition

• Trade Fair & Exhibition is another effective tool that is mostly used by B2b business for making new business Contacts.
• Trade Fair Provides a great opportunity to both buyers and customers. 

9. Online Promotion

• Online Promotion is a Digital way to promote your products and service. All the tools we have discussed yet are offline.
• Online Promotion is now in trend and saves a lot of marketing costs.
• In Online promotion, we use Social Media Advertising and Pay Per Click advertising to promote products or services.

The correct answer is Product concept

Key Points

• Product Concept states that customers or consumers prefer product which is of the highest quality, performance and features.
• Product concept is a mandatory concept in order to give the best possible product to the customer as per the demand and expectation. A product is not complete in itself and requires other factors of business like marketing, distribution, sales, service etc. to be successful.
• Using Product concept, a company can give identity to the product and can add functional value and usability so that the intended customers can derive this benefit and eventually buy the product in the market.
• Product concept is one of the orientation strategies & marketing strategies toward the market which a company can follow. Other being Selling Concept, Production Concept, Marketing Concept etc.
• Marketing Pull is generated because of superior products which help in the success of the brand.
• Innovation helps to get new products with features that customers would like.

Example of Product Concept

• Apple is one company that works highly on product concepts to get the best products to their consumers. Apple's products are perceived to be very high quality with innovative features and great performance. Customers go after the products of Apple and that creates a marketing pull.

The merits of Product concept are :

• Innovation is more using Product Concept as the companies vouch to make better products leading to innovations and inventions which is good for everyone
• Quality is the central focus of this concept which fulfills the needs and wants of the customer at the same time
• It raises the overall bench mark of the offerings in the market as competitors also try to come to the same level as the innovator which tries to give the best product

The drawbacks are:

• Leads to expensive products for basic needs as all manufacturers try to give best possible product to the customer even though the demand can be fulfilled
• Customers need supports, service along with a product, so just focusing only on product features can lead to not providing the holistic customer experience.

The correct answer is Product mix

Key Points

• Product Mix, another name as Product Assortment, refers to several products that a company offers to its customers.
• For example, a company might sell multiple lines of products, with the product lines being fairly similar, such as toothpaste, toothbrush, or mouthwash, and also other such toiletries. All these are under the same brand umbrella.  Whereas, a company may have varied and distinct other product lines that may be in good contrast to each other, such as medicines and clothing apparel.   
• Product mix can also be understood as the complete set of products and services that are offered by a firm.
• A product mix consists of the product lines, which are associated items that a consumer purchases.
• A marketing mix includes various areas of focus as a comprehensive part of the market plan.
• The marketing mix is best defined as a common classification that begins with the four Ps:

1. Product
2. Price
3. Placement
4. Promotion 

The correct answer is Product concept

Key Points

• Product Concept states that customers or consumers prefer a product which is of the highest quality, performance, and features.
• Product concept is a mandatory concept in order to give the best possible product to the customer as per the demand and expectation.
• A product is not complete in itself and requires other factors of business like marketing, distribution, sales, service, etc. to be successful.

Example of Product Concept
Apple is one company works highly on product concepts to get the best products to their consumers. Apple's products are perceived to be very high quality with innovative features and great performance. Customers go after the products of Apple and that creates a marketing pull.

Advantages & Disadvantages of Product Concept
The merits of the Product concept are :

1. Innovation is more about using Product Concept as the companies vouch to make better products leading to innovations and inventions which is good for everyone
2. Quality is the central focus of this concept which fulfills the needs and wants of the customer at the same time
3. It raises the overall benchmark of the offerings in the market as competitors also try to come to the same level as the innovator which tries to give the best product

The drawbacks are:

1. Leads to expensive products for basic needs as all manufacturers try to give best possible product to the customer even though the demand can be fulfilled
2. Customers need supports, service along with a product, so just focusing only on product features can lead to not providing the holistic customer experience.