Business-Studies---Part-2---Class-12

Bombay Stock Exchange FINANCIAL MARKETS debenture etc.) into money and vice 277 versa. Stock exchanges help companies raise finance, provide 1. Providing Liquidity and Market- liquidity and safety of investment to the ability to Existing Securities: The investors and enhance the credit basic function of a stock exchange is the worthiness of individual companies. creation of a continuous market where securities are bought and sold. It gives Meaning of Stock Exchange investors the chance to disinvest and reinvest. This provides both liquidity and According to Securities Contracts easy marketability to already existing (Regulation) Act 1956, stock exchange securities in the market. means any body of individuals, whether incorporated or not, constituted for the 2. Pricing of Securities: Share prices purpose of assisting, regulating or on a stock exchange are determined by controlling the business of buying and the forces of demand and supply. A selling or dealing in securities. stock exchange is a mechanism of constant valuation through which the Functions of a Stock Exchange prices of securities are determined. Such a valuation provides important The efficient functioning of a stock instant information to both buyers and exchange creates a conducive climate sellers in the market. for an active and growing primary market for new issues. An active and 3. Safety of Transaction: The healthy secondary market in existing membership of a stock exchange is well- securities leads to positive environment regulated and its dealings are well among investors. The following are defined according to the existing legal some of the important functions of a framework. This ensures that the stock exchange. investing public gets a safe and fair deal on the market. 4. Contributes to Economic Growth: A stock exchange is a market in which existing securities are resold or traded. Through this process of disinvestment and reinvestment savings get channelised into their most productive investment avenues. This leads to capital formation and economic growth. 5. Spreading of Equity Cult: The stock exchange can play a vital role in ensuring wider share ownership by regulating new issues, better trading practices and taking effective steps in educating the public about investments. 2018-19

BUSINESS STUDIES electronic and trading is done in the 278 broker’s office through a computer terminal. A stock exchange has its main 6. Providing Scope for Speculation: computer system with many terminals The stock exchange provides sufficient spread across the country. Trading in scope within the provisions of law for securities is done through brokers who speculative activity in a restricted and are members of the stock exchange. controlled manner. It is generally Trading has shifted from the stock accepted that a certain degree of healthy market floor to the brokers office. speculation is necessary to ensure liquidity and price continuity in the Every broker has to have access to stock market. a computer terminal that is connected to the main stock exchange. In this TRADING AND SETTLEMENT PROCEDURE screen-based trading, a member logs Trading in securities is now executed on to the site and any information through an on-line, screen-based about the shares (company, member, electronic trading system. Simply put, etc.) he wishes to buy or sell and the all buying and selling of shares and price is fed into the computer. The debentures are done through a software is so designed that the computer terminal. transaction will be executed when a matching order is found from a counter There was a time when in the open party. The whole transaction is carried outcry system, securities were bought on the computer screen with both the and sold on the floor of the stock parties being able to see the prices of exchange. Under this auction system, all shares going up and down at all deals were struck among brokers, times during the time that business is prices were shouted out and the shares transacted and during business hours sold to the highest bidder. However, of the stock exchange. The computer now almost all exchanges have gone in the brokers office is constantly matching the orders at the best bid and Electronic Trading System offer price. Those that are not matched remain on the screen and are open for future matching during the day. Electronic trading systems or screen-based trading has certain advantages: 1. It ensures transparency as it allows participants to see the prices of all securities in the market while business is being transacted. They 2018-19

are able to see the full market FINANCIAL MARKETS during real time. 279 2. It increases efficiency of information being passed on, thus helping in and transferring shares can also be fixing prices efficiently. The adopted. This electronic form is called computer screens display dematerialised form. information on prices and also capital market developments that Steps in the Trading and influence share prices. Settlement Procedure 3. It increases the efficiency of It has been made compulsory to settle operations, since there is reduction all trades within 2 days of the trade in time, cost and risk of error. date, i.e., on a T+2 basis, since 2003. Prior to the reforms, securities were 4. People from all over the country bought and sold, i.e., traded and all and even abroad who wish to positions in the stock exchange were participate in the stock market can settled on a weekly/fortnightly buy or sell securities through settlement cycle whether it was delivery brokers or members without of securities or payment of cash. This knowing each other. That is, they system prevailed for a long time as it can sit in the broker’s office, log on increased the volume of trading on the to the computer at the same time exchange and provided liquidity to the and buy or sell securities. This system. However, since trades were to system has enabled a large number be settled on specified dates, this gave of participants to trade with each rise to speculation and price of shares other, thereby improving the used to rise and fall suddenly due to liquidity of the market. trading and defaults by brokers. A new system, i.e, rolling settlement, was 5. A single trading platform has been introduced in 2000, so that whenever provided as business is transacted a trade took place it would be settled at the same time in all the trading after some days. Since 2003, all shares centres. Thus, all the trading have to be covered under the rolling centres spread all over the country settlement system on a T+2 basis, have been brought onto one meaning thereby that transactions in trading platform, i.e., the stock securities are settled within 2 days after exchange, on the computer. the trade date. Since rolling settlement implies fast movement of shares, it Now, screen-based trading or on-line requires effective implementation of trading is the only way in which you electronic fund transfer and can buy or sell shares. Shares can be dematerialisation of shares. held either in physical form or an electronic book entry form of holding The following steps are involved in the screen-based trading for buying and selling of securities: 2018-19

BUSINESS STUDIES be given about the number of shares and the price at which the 280 shares should be bought or sold. The broker will then go ahead with 1. If an investor wishes to buy or sell the deal at the above mentioned any security he has to first price or the best price available. An approach a registered broker or order confirmation slip is issued to sub-broker and enter into an the investor by the broker. agreement with him. The investor has to sign a broker-client 4. The broker then will go on-line and agreement and a client registration connect to the main stock exchange form before placing an order to buy and match the share and best price or sell securities. He has also to available. provide certain other details and information. These include: 5. When the shares can be bought or sold at the price mentioned, it will • PAN number be communicated to the broker’s terminal and the order will be (This is mandatory) executed electronically. The broker will issue a trade confirmation slip • Date of birth and address. to the investor. • Educational qualification and 6. After the trade has been executed, within 24 hours the broker issues occupation. a Contract Note. This note contains details of the number of shares • Residential status (Indian/NRI). bought or sold, the price, the date and time of deal, and the brokerage • Bank account details. charges. This is an important document as it is legally enforceable • Depository account details. and helps to settle disputes/claims between the investor and the • Name of any other broker with broker. A Unique Order Code number is assigned to each whom registered. transaction by the stock exchange and is printed on the contract note. • Client code number in the client 7. Now, the investor has to deliver the registration form. shares sold or pay cash for the shares bought. This should be done The broker then opens a trading immediately after receiving the account in the name of the investor. 2. The investor has to open a ‘demat’ account or ‘beneficial owner’ (BO) account with a depository participant (DP) for holding and transferring securities in the demat form. He will also have to open a bank account for cash transactions in the securities market. 3. The investor then places an order with the broker to buy or sell shares. Clear instructions have to 2018-19

contract note or before the day when FINANCIAL MARKETS the broker shall make payment or delivery of shares to the exchange. 281 This is called the pay-in day. delays and paperwork associated with 8. Cash is paid or securities are share certificates or debentures held in delivered on pay-in day, which is physical form. before the T+2 day as the deal has to be settled and finalised on the This is a process where securities T+2 day. The settlement cycle is on held by the investor in the physical T+2 day on a rolling settlement form are cancelled and the investor is basis, w.e.f. 1 April 2003. given an electronic entry or number so that she/he can hold it as an electronic 9. On the T+2 day, the exchange will balance in an account. This process of deliver the share or make payment holding securities in an electronic form to the other broker. This is called is called dematerialisation. For this, the the pay-out day. The broker then investor has to open a demat account has to make payment to the with an organisation called a investor within 24 hours of the pay- depository. In fact, now all Initial Public out day since he has already Offers (IPOs) are issued in received payment from the dematerialisation form and more than exchange. 99% of the turnover is settled by delivery in the demat form. 10. The broker can make delivery of shares in demat form directly to the The Securities and Exchange Board investor’s demat account. The of India (SEBI) has made it mandatory investor has to give details of his for the settlement procedures to take demat account and instruct his place in demat form in certain select depository participant to take securities. Holding shares in demat delivery of securities directly in his form is very convenient as it is just beneficial owner account. like a bank account. Physical shares can be converted into electronic form Dematerialisation and or electronic holdings can be Depositories reconverted into physical certificates (rematerialisation). Dematerialisation All trading in securities is now done enables shares to be transferred to through computer terminals. Since all some other account just like cash and systems are computerised, buying and ensures settlement of all trades selling of securities are settled through through a single account in shares. an electronic book entry form. This is These demat securities can even be mainly done to eliminate problems like pledged or hypothecated to get loans. theft, fake/forged transfers, transfer There is no danger of loss, theft or forgery of share certificates. It is the broker’s responsibility to credit the investor’s account with the correct number of shares. 2018-19

BUSINESS STUDIES in electronic form on behalf of the investor. In the depository a securities 282 account can be opened, all shares can be deposited, they can be withdrawn/ Working of the Demat System sold at any time and instruction to deliver or receive shares on behalf of the 1. A depository participant (DP), investor can be given. It is a technology either a bank, broker, or financial driven electronic storage system. It has services company, may be no paper work relating to share identified. certificates, transfer, forms, etc. All transactions of the investors are settled 2. An account opening form and with greater speed, efficiency and use documentation (PAN card details, as all securities are entered in a book photograph, power of attorney) entry mode. may be completed. In India, there are two depositories. 3. The physical certificate is to be National Securities Depositories given to the DP along with a Limited (NSDL) is the first and largest dematerialisation request form. depository presently operational in India. It was promoted as a joint 4. If shares are applied in a public venture of the IDBI, UTI, and the offer, simple details of DP and National Stock Exchange. demat account are to be given and the shares on allotment would The Central Depository Services automatically be credited to the Limited (CDSL) is the second depository demat account. to commence operations and was promoted by the Bombay Stock 5. If shares are to be sold through a Exchange and the Bank of India. Both broker, the DP is to be instructed these national level depositories operate to debit the account with the through intermediaries who are number of shares. electronically connected to the depository and serve as contact points 6. The broker then gives instruction with the investors and are called to his DP for delivery of the shares depository participants. to the stock exchange. The depository participant (DP) 7. The broker then receives payment serves as an intermediary between the and pay the person for the shares investor and the Depository (NSDL or sold. CSDL) who is authorised to maintain the accounts of dematerialised shares. 8. All these transactions are to be Financial institutions, banks, clearing completed within 2 days, i.e., corporations, stock brokers and non- delivery of shares and payment banking finance corporations are received from the buyer is on a T+2 basis, settlement period. Depository Just like a bank keeps money in safe custody for customers, a depository also is like a bank and keeps securities 2018-19

permitted to become depository FINANCIAL MARKETS participants. If the investor is buying and selling the securities through the 283 broker or the bank or a non-banking finance corporation, it acts as a DP for NSE has set up a nationwide fully the investor and complete the automated screen based trading system. formalities. The NSE was set up by leading NATIONAL STOCK EXCHANGE OF INDIA financial institutions, banks, insurance (NSE) companies and other financial intermediaries. It is managed by The National Stock Exchange is the professionals, who do not directly or latest, most modern and technology indirectly trade on the exchange. The driven exchange. It was incorporated in trading rights are with the trading 1992 and was recognised as a stock members who offer their services to the exchange in April 1993. It started investors. The Board of NSE comprises operations in 1994, with trading on the senior executives from promoter wholesale debt market segment. institutions and eminent professionals, Subsequently, it launched the capital without having any representation from market segment in November 1994 as a trading members. trading platform for equities and the futures and options segment in June OBJECTIVES OF NSE 2000 for various derivative instruments. NSE was set up with the following objectives: a. Establishing a nationwide trading facility for all types of securities. b. Ensuring equal access to investors all Stock Market Index A stock market index is a barometer of market behaviour. It measures overall market sentiment through a set of stocks that are representative of the market. It reflects market direction and indicates day-to-day fluctuations in stock prices. An ideal index must represent changes in the prices of securities and reflect price movements of typical shares for better market representation. In the Indian markets the BSE, SENSEX and NSE, NIFTY are important indices. Some important global stock market indices are: • Dow Jones Industrial Average is among the oldest quoted stock market index in the US. • NASDAQ Composite Index is the market capitalisation weightages of prices for stocks listed in the NASDAQ stock market. • S and P 500 Index is made up of 500 biggest publicly traded companies in the US. The S and P 500 is often treated as a proxy for the US stock market. • FTSE 100 consists of the largest 100 companies by full market value listed on the London Stock Exchange. The FTSE 100 is the benchmark index of the European market. 2018-19

BUSINESS STUDIES (i) Whole Sale Debt Market Segment: This segment provides a trading 284 platform for a wide range of fixed income securities that include over the country through an central government securities, appropriate communication network. treasury bills, state development c. Providing a fair, efficient and loans, bonds issued by public transparent securities market sector undertakings, floating rate using electronic trading system. bonds, zero coupon bonds, index d. Enabling shorter settlement cycles bonds, commercial paper, certificate and book entry settlements. of deposit, corporate debentures and mutual funds. e. Meeting international benchmarks and standards. (ii) Capital Market Segment: The capital market segment of NSE provides an Within a span of ten years, NSE has efficient and transparent platform for been able to achieve its objectives for trading in equity, preference, which it was set up. It has been playing debentures, exchange traded funds as a leading role as a change agent in well as retail Government securities. transforming the Indian capital market. NSE has been able to take the stock BSE (BOMBAY STOCK EXCHANGE LTD.) market to the door step of the investors. It has ensured that technology has been BSE Ltd (formerly known as Bombay harnessed to deliver the services to the Stock Exchange Ltd) was established investors across the country at the lowest in 1875 and was Asia’s first Stock cost. It has provided a nation wide screen Exchange. It was granted permanent based automated trading system with a recognition under the Securities high degree of transparency and equal Contract (Regulation) Act, 1956. It has access to investors irrespective of contributed to the growth of the geographical location. MARKET SEGMENTS OF NSE The Exchange provides trading in the following two segments. Some Common Stock Market Terms You would have often come across the following terms in magazines or newspapers when you read about the stock market. BOURSES is another word for the stock market BULLS and BEARS – The term does not refer to animals but to market sentiment of the investors. A Bullish phase refers to a period of optimism and a Bearish phase to a period of perssimism on the Bourses. BADLA – This refers to a carry forward system of settlement, particularly at the BSE. It is a facility that allows the postponement of the delivery or payment of a transaction from one settlement period to another. ODD LOT TRADING – Trading in multiples of 100 stocks or less. PENNY STOCKS – These are securities that have no value on the stock exchange but whose trading contributes to speculation. 2018-19

corporate sector by providing a FINANCIAL MARKETS platform for raising capital. It is known as BSE Ltd but was established as the 285 Native Share Stock Brokers Association in 1875. Even before the actual (b) To provide a trading platform for legislations were enacted, BSE Ltd equities of small and medium already had a set of Rules and enterprises. Regulations to ensure an orderly growth of the securities market. As (c) To ensure active trading and discussed earlier, a stock exchange can safeguard market integrity through be set up as a corporate entity with an electronically-driven exchange. different individuals (who are not brokers) as members or shareholders. (d) To provide other services to capital BSE is one such exchange set up as a market participants, like risk corporate entity with a broad management, clearing, settlement, shareholder base. It has the following market data, and education. objectives: (e) To conform to international (a) To provide an efficient and standards. transparent market for trading in equity, debt instruments, Besides having a nation-wide derivatives, and mutual funds. presence, BSE has a global reach with customers around the world. It has stimulated innovation and competition across all market segments. It has established a capital market institute, called the BSE Institute Ltd, which provides education on financial SENSEX — The Bombay Stock Exchange Sensitive Index Have you counted the number of times newspaper headlines in the past few weeks have been discussing the SENSEX? It goes up and down all the time and seems to be a very important part of business and economic news. Has that made you wonder what the SENSEX actually is? The SENSEX is the benchmark index of the BSE. Since the BSE has been the leading exchange of the Indian secondary market, the SENSEX has been an important indicator of the Indian stock market. It is the most frequently used indicator while reporting on the state of the market. An index has just one job: to capture the price movement. So a stock index will reflect the price movements of shares while a bond index captures the manner in which bond prices go up or down. If the SENSEX rises, it indicates the market is doing well. Since stocks are supposed to reflect what companies expect to earn in the future, a rising index indicates that investors expect better earnings from companies. It is also a measure of the state of the Indian economy. If Indian companies are expected to do well, obviously the economy should do well too. The SENSEX, launched in 1986 is made up of 30 of the most actively traded stocks in the market. In fact, they account for half the BSE’s market capitalisation. They represent 13 sectors of the economy and are leaders in their respective industries. 2018-19

BUSINESS STUDIES malpractices include existence of self – styled merchant bankers unofficial 286 private placements, rigging of prices, unofficial premium on new issues, non- markets and vocational training to a adherence of provisions of the number of people seeking employment Companies Act, violation of rules and with stock brokers. The exchange has regulations of stock exchanges and about 5000 companies listed from all listing requirements, delay in delivery over the country and outside, and has of shares etc. These malpractices and the largest market capitalisation in unfair trading practices have eroded India. investor confidence and multiplied investor grievances. The Government SECURITIES AND EXCHANGE BOARD OF and the stock exchanges were rather INDIA (SEBI) helpless in redressing the investor’s problems because of lack of proper The Securities and Exchange Board of penal provisions in the existing India was established by the legislation. In view of the above, the Government of India on 12 April 1988 Government of India decided to set-up as an interim administrative body to a separate regulatory body known as promote orderly and healthy growth of Securities and Exchange Board of securities market and for investor India. protection. It was to function under the overall administrative control of the Purpose and Role of SEBI Ministry of Finance of the Government of India. The SEBI was given a statutory The basic purpose of SEBI is to create status on 30 January 1992 through an environment to facilitate efficient an ordinance. The ordinance was later mobilisation and allocation of resources replaced by an Act of Parliament known through the securities markets. It also as the Securities and Exchange Board aims to stimulate competition and of India Act, 1992. encourage innovation. This environment includes rules and regulations, Reasons for the Establishment of institutions and their interrelationships, SEBI instruments, practices, infrastructure and policy framework. The capital market has witnessed a tremendous growth during 1980’s, This environment aims at meeting characterised particularly by the the needs of the three groups which increasing participation of the public. basically constitute the market, viz, This ever expanding investors the issuers of securities (Companies), population and market capitalisation the investors and the market led to a variety of malpractices on the intermediaries. part of companies, brokers, merchant bankers, investment consultants and • To the issuers, it aims to provide a others involved in the securities market. market place in which they can The glaring examples of these 2018-19

confidently look forward to raising FINANCIAL MARKETS finances they need in an easy, fair and efficient manner. 287 • To the investors, it should provide protection of their rights and Functions of SEBI interests through adequate, accurate and authentic information Keeping in mind the emerging nature and disclosure of information on a of the securities market in India, SEBI continuous basis. was entrusted with the twin task of both regulation and development of the • To the intermediaries, it should offer securities market. It also has certain a competitive, professionalised and protective functions. expanding market with adequate and efficient infrastructure so that Regulatory Functions they are able to render better service to the investors and issuers. 1. Registration of brokers and sub- brokers and other players in the Objectives of SEBI market. The overall objective of SEBI is to 2. Registration of collective investment protect the interests of investors and to schemes and Mutual Funds. promote the development of, and regulate the securities market. This 3. Regulation of stock brokers, portfolio may be elaborated as follows: exchanges, underwriters and 1. To regulate stock exchanges and merchant bankers and the business in stock exchanges and any other the securities industry to promote securities market. their orderly functioning. 4. Regulation of takeover bids by 2. To protect the rights and interests companies. of investors, particularly individual investors and to guide and educate 5. Calling for information by under- them. taking inspection, conducting enquiries and audits of stock 3. To prevent trading malpractices and exchanges and intermediaries. achieve a balance between self regulation by the securities industry 6. Levying fee or other charges for and its statutory regulation. carrying out the purposes of the Act. 4. To regulate and develop a code of 7. Performing and exercising such conduct and fair practices by power under Securities Contracts intermediaries like brokers, (Regulation) Act 1956, as may be merchant bankers etc., with a view delegated by the Government of to making them competitive and India. professional. Development Functions 1. Training of intermediaries of the securities market. 2. Conducting research and publishing information useful to all market participants. 2018-19

BUSINESS STUDIES Market Advisory Committee and the Secondary Market Advisory 288 Committee. These committees consist of the market players, the investors 3. Undertaking measures to develop associations recognised by the SEBI the capital markets by adapting a and the eminent persons in the capital flexible approach. market. They provide important inputs to the SEBI’s policies. Protective Functions The objectives of the two 1. Prohibition of fraudulent and unfair Committees are as follows: trade practices like making mis- leading statements, manipulations, a. To advise SEBI on matters relating price rigging etc. to the regulation of intermediaries for ensuring investors protection in 2. Controlling insider trading and the primary market. imposing penalties for such practices. b. To advise SEBI on issues related to the development of primary market 3. Undertaking steps for investor in India. protection. c. To advise SEBI on disclosure 4. Promotion of fair practices and code requirements for companies. of conduct in securities market. d. To advise for changes in legal The Organisation Structure of SEBI framework to introduce simplification and transparency in As SEBI is a statutory body there has the primary market. been a considerable expansion in the range and scope of its activities. Each of e. To advise the board in matters the activities of the SEBI now demands relating to the development and more careful, closer, co-ordinated and regulation of the secondary market intensive attention to enable it to attain in the country. its objectives. Accordingly, SEBI has been restructured and rationalised in The committees are however non- tune with its expanded scope. It has statutory in nature and the SEBI is not decided its activities into five operational bound by the advise of the committee. departments. Each department is These committees are a part of SEBI’s headed by an executive director. Apart constant endeavor to obtain a from its head office at Mumbai, SEBI has feedback from the market players on opened regional offices in Kolkalta, various issues relating to the Chennai, and Delhi to attend to investor regulations and development of complaints and liaise with the issuers, the market. intermediaries and stock exchanges in the concerned region. The SEBI also formed two advisory committees. They are the Primary 2018-19

KEY TERMS Money Market FINANCIAL MARKETS 289 Financial Market Call Money Commercial Paper Money Market Treasury Bills Commercial Bill Primary Market Certificate of Deposit Market SEBI, NSE Mutual Fund Capital Stock Exchange Secondary Market OTCEI SUMMARY Financial Market is a market for creation and exchange of financial assets. It helps in mobilisation and channelising the savings into most productive uses. Financial markets also helps in price discovery and provide liquidity to financial assets. Money Market is a market for short-term funds. It deals in monetory assets whose period of maturity is less than one year. The instruments of money market includes treasury bills, commercial paper, call money, Certificate of deposit, commercial bills, participation certificates and money market mutual funds. Capital Market is a place where long-term funds are mobilised by the corporate undertakings and Government. Capital Market may be devided into primary market and secondary market. Primary market deals with new securities which were not previously tradable to the public. Secondary market is a place where existing securities are bought and sold. Stock Exchanges are the organisations which provide a platform for buying and selling of existing securities. Stock exchanges provide continuous market for securities, helps in price discovery, widening share ownership and provide scope for speculation. Securities and Exchange Board of India was established in 1988 and was given statutory status through an Act in 1992. The SEBI was set-up to protect the interests of investors, development and regulation of securities market. EXERCISES Multiple choice questions 1. Primary and secondary markets: a. Compete with each other b. Complement each other c. Function independently d. Control each other 2018-19

BUSINESS STUDIES 290 2. The total number of Stock Exchanges in India is: a. 20 b. 21 c. 22 d. 23 3. The settlement cycle in NSE is: a. T + 5 b. T + 3 c. T + 2 d. T+1 4. The National Stock Exchange of India was recognized as stock exchange in the year: a. 1992 b. 1993 c. 1994 d. 1995 5. NSE commenced futures trading in the year: a. 1999 b. 2000 c. 2001 d. 2002 6. Clearing and settlement operations of NSE are carried out by: a. NSDL b. NSCCL c. SBI d. CDSL 7. A Treasury Bill is basically: a. An instrument to borrow short-term funds b. An instrument to borrow long-term funds c. An instrument of capital market d. None of the above Short answer questions 1. What are the functions of a financial market? 2. “Money Market is essentially a Market for short term funds.” Discuss. 3. What is a Treasury Bill ? 4. Distinguish between Capital Market and Money Market. 5. What are the functions of a Stock Exchange? 6. What are the objectives of the SEBI? 7. State the objectives of the NSE. Long-answer questions 1. Explain the various Money Market Instruments. 2. What are the methods of floatation in Primary Market? 3. Explain the recent Capital Market reforms in India. 4. Explain the objectives and functions of the SEBI 5. Explain the various segments of the NSE. Projects and Assignments 1. Collect the information about the companies that have recently mobilised resources through primay market. 2. Collect the information on various measures taken by SEBI to protect the interests of investors since its inception. 2018-19

FINANCIAL MARKETS 291 3. Send a group of students to a trading terminal in your city to gain first hand information on securities trading and prepare a report. 4. Collect data about the movements in SENSEX and NIFTY during the last one month. Find out whether the two move in same or opposite direction. 5. Collect information about the SEBI action for Investor Protection taken during last two years. 6. Collect information about e-IPO’s in the Indian Market in the last one year. TRY AND SOLVE THE CROSSWORD Clues to the Crossword Across 1. Commission Agent who transacts in securities on behalf of non members or members (6). 2. Changes in the price of securities in the stock market. (12) 4. Inclusion of securities in the official trade list of securities in stock market (7) 8. Place of trade in securities (6) 9. Result of selling shares at a price lower than the purchase price. (4) 13. An independent dealer in securities (6) 15. Includes shares, scripts, bonds, debentures (10) 16. Speculator who expects the prices to go down (4) 17. Buying and selling of securities to manipulate the market (7) 18. Speculator who deals in new securities only (4) Down 1. Speculator expecting a rise in the prices (4) 3. Means ‘with’ (3) 5. Means a part or fraction of capital (6) 6. Fraction of profit paid to government (3) 7. Illegal, game based on chance (8) 9. Official statement of securities in the stock market (5) 10. Those who buy and sell securities with objective of profit (10) 11. Money invested in business (7) 12. Return on shares out of profits (8) 14. Instrument acknowledging a debt (9) 16. Govt. document acknowledging a debt (5) 19. Profit or yield (4) 2018-19

BUSINESS STUDIES 292 Case Problem I ‘R’ Limited is a real estate company which was formed in 1950. In about 56 years of its existence the company has managed to carve out a niche for itself in this sector. Lately, this sector is witnessing a boom due to the fact that the Indian economy is on the rise. The incomes of middle class are rising. More people can afford to buy homes for themselves due to easy availability of loans and accompanying tax concessions. To expand its business in India and abroad the company is weighing various options to raise money through equity offerings in India. Whether to tap equity or debt. market whether to raise money from domestic market or international market or Combination of both? Whe their to raise the necessary financé from money market or capital market. It is also planning to list itself in New York Stock Exchange to raise money through ADR’s. To make its offerings attractive it is planning to offer host of financial plans products to its stakeholders and investors and also expand it’s listing at NSE after complying with the regulations of SEBI. (i) What benefits will the company derive from listing at NSE? (ii) What are the regulations of SEBI that the company must comply with? (iii) How does the SEBI exercise control over ‘R’ Limited in the interest of investors? 2018-19

FINANCIAL MARKETS 293 Case Problem II NSE Indices Current Prev. %CHG World Markets Current Prev. % Change Index 3641.1 3770.55 -3.43% Index 8926.88 9120.93 -2.13% S&P CNX Nifty 6458.55 6634.85 -2.66% NYSE Composite 2350.57 2402.29 -2.15% CNX Nifty Junior 5100.5 5314.05 -4.02% NASDAQ Composite 12076 12318.6 -1.97% CNX IT 5039.05 5251.55 -4.05% DOW Jones I. A. 1377.95 1406.6 -2.04% Bank Nifty 3519.35 3640.35 -3.32% S&P 500 16676.9 17178.8 -2.92% CNX 100 Nikkei 225 More Source: www.nseindia.com The above figures are taken from the website of national stock exchange of India. They illustrate the movement of NSE stock indices as well as world stock indices on the date indicated. Questions 1. What do you mean by a stock index? How is it calculated? 2. What conclusions can you draw from the various movements of NSE stock indices? 3. What factors affect the movement of stock indices? Elaborate on the nature of these factors. 4. What relationship do you see between the movement of indices in world markets and NSE indices? 5. Give details of all the indices mentioned above. You can find information on the web or business magazines. (The teacher should help the students in answering these questions. They can look at the website mentioned above and also website of SEBI, i.e., www.sebi.gov.in for educational material. This exercise will help the students in understanding the stock markets clearly and also create interest therein.) Project Work 1. Study the wwebsite of Mumbai Stock Exchange, i.e., www.bseindia.com and compile information which you find useful. Discuss it in your class and find out how it can help you should you decide to invest in the stock market. Prepare a report on your findings with the help of your teacher. 2. Prepare a report on the role of SEBI in regulating the Indian stock market. You can get this information on its website namely www.sebi.gov.in. Do you think something else should be done to increase the number of investors in the stock market? 2018-19

BUSINESS STUDIES 9. Loss 18. Stag 294 Answers to the Crossword Across 1. Broker 2. Fluctuations 4. Listing 8. Market 13. Jobber 15. Securities 16. Bear 17. Rigging Down 1. Bull 3. Cum 5. Stocks 6. Tax 7. Gambling 9. Lists 10. Speculator 11. Capital 12. Dividend 14. Debenture 16. Bonds 19. Gain 2018-19

LEARNING OBJECTIVES 11CHAPTER After studying this chapter, you MARKETING should be able to: WHERE DO COMPANIES DO THEIR explain the meaning of BUSINESS? ‘marketing’; In the Markets or in the Society? distinguish between ‘marketing’ and ‘selling’; It is an undisputed fact that a company’s survival does not depend upon its list out important functions of consumers alone, but a diverse set of marketing; stakeholders like the government, religious leaders, social activists, NGOs, examine the role of marketing in media, etc. Hence, earning the the development of an economy satisfaction of these segments is also as in a firm, to the society and to imperative as they add to the power of consumers; the brand by word of mouth. explain the elements of The social concern adds to the marketing-mix; strength of the brand. Corporates that embraced the deepest social values, classify products into different have been successful in building categories; powerful brand, and, eventually, robust customer relationship. The area of analyse the factors affecting corporate social justice fall under two price of a product; broad categories. The issues such as the nutrition of children, child care, old-age list out the types of channels of homes, amelioration of hunger, offering distribution; and aid to those affected by natural calamities, etc. needing instant attention explain the major tools of with humanitarian perspective, comes promotion, viz. advertising, under the first category. personal selling, sales promotion and publicity. The issues that contribute to making society a pleasant place to live in the long run, may be grouped under the second category. The issues which come under this category are health awareness and aid, education, environmental protection, women’s employment and empowerment, preventing unjust discriminations (on the basis of caste, community, religion, ethnicity, race, and sex), eradication of poverty through employment, preservation of culture, values, and ethics, contribution to research, etc. 2018-19

BUSINESS STUDIES 296 Infosys Technologies, the leading software consulting service provider, has been certified ISO 14001, compliant by Det Norske Veritas for its development centers in Pune, Chennai, Bangalore, Bhubaneshwar, Hyderabad, Mangalore, Mohali, and Mysore, for its ‘Ozone Initiative’. Through this initiative, Infosys has committed for continual improvement. Procter and Gamble’s (P&G) philosophy is that it should lead the industry in implementing a global environmental programme. P&G is one of the first companies in the world to actively study the influence of consumer products on the environment and introduce concentrated products, recycled plastic bottles, and refill packages to the industry. The overall packaging per case has been reduced by an average of 27% and a reduction of 37% in air, waste, and water emissions has been achieved consistently since 1990. P&G contributes to sustainable development and addresses environmental and social issues connected with its products and services. Source: Adapted from ‘Effective Executive’, Feb. 2006 Let us consider a typical day in our life. Nestle, Atlas Cycles by Atlas cycle Right from the time we get up in the company, Kwality Ice-creams by morning to the time we go to bed, we Kwality Walls, LG Televisions by LG use number of products to satisfy our Electronics and so on. These firms are different needs. Beginning with the called marketers. These firms breakfast, we take such items as bread, undertake various activities to butter, milk, and rice, to satisfy our stimulate the demand for their hunger; use the services of a bus or an products and earn profit by satisfying auto or a cycle to reach to our school customer’s needs and wants. People or place of work; read books, magazines purchase products because these and newspapers, to keep ourselves satisfy some of their needs. informed and acquire knowledge; use computers, cell phone, television and Number of activities are performed other gadgets for communication/ by the marketers to facilitate exchange entertainment; and purchase many of goods and services between other products like gifts, shoes, producers and the users of such clothing, furniture, etc., from market products. These activities are referred to satisfy our different needs. to as marketing activities. Who makes these products and For a proper understanding of why? These products are manufactured marketing, number of questions need and marketed by different firms. For to be answered. These include: What example, Lifebouy soap, Closeup do we mean by a market? What can be toothpaste, Surf detergent powder are marketed? Is it products or services or manufactured by Hindustan Lever; something more? Who is a marketer? Ariel detergent powder by Procter and What is marketing management? Gamble, Dairy Milk Chocolate by These points have been taken up for discussion in the following sections. 2018-19

MARKETING 297 “Business is not financial science, it’s about trading, buying and selling. It’s about creating a product or service so good that people will pay for it.” — Anta Roddick “Marketing takes a day to learn. Unfortunately it takes time to master.” — Philip Kotler WHAT IS A MARKET WHAT IS MARKETING In the traditional sense, the term The term marketing has been described ‘market’ refers to the place where by different people in different ways. buyers and sellers gather to enter into Some people believe that marketing is transactions involving the exchange of same as ‘shopping’. Whenever they go goods and services. It is in this sense out for shopping of certain products or that this term is being used in day to services, they describe it as marketing. day language, even today. The other There are some other people who ways in which this term is being used confuse marketing with ‘selling’ and is in the context of a product market feel that marketing activity starts after (cotton market, gold or share market), a product or service has been geographic market (national and produced. Some people describe it to international market), type of buyers mean ‘merchandising’ or designing a (consumer market and industrial product. All these descriptions may be market) and the quantity of goods partly correct but marketing is a much transacted (retail market and broader concept, which is discussed as wholesale market). follows: But in modern marketing sense, Traditionally, marketing has been the term market has a broader described in terms of its functions or meaning. It refers to a set of actual and activities. In this respect, marketing potential buyers of a product or service. has been referred to as performance For example, when a fashion designer of business activities that direct the designs a new dress and offers it for flow of goods and services from exchange, all the people who are willing producers to consumers. to buy and offer some value for it can be stated to be the market for that As we know, most of the dress. Similarly, market for fans or manufacturing firms do not produce bicycles or electric bulbs or shampoos goods for their own consumption but refers to all the actual and potential for the consumption or use by others. buyers for these products. Therefore, to move the goods and services from the producer to consumers, 2018-19

BUSINESS STUDIES particular way, say to purchase a product or a service, rather than forcing 298 them to do so. A careful analysis of the definition shows the following a number of activities, such as product important features of marketing: designing or merchandising, packaging, warehousing, transportation, branding, 1. Needs and Wants: The process of selling, advertising and pricing are marketing helps individuals and required. All these activities are groups in obtaining what they need and referred to as marketing activities. want. Thus, the primary reason or motivation for people to engage in the Thus, ‘merchandising’, ‘selling’ and process of marketing is to satisfy some distribution are all parts of a large of their needs or wants. In other words, number of activities undertaken by a firm, the focus of the marketing process is which are collectively called marketing. on satisfaction of the needs and wants of individuals and organisations. It may be noted here that marketing is not merely a post-production activity. A need is a state of felt deprivation It includes many activities that are or feeling of being deprived of performed even before goods are something. If unsatisfied, it leaves a actually produced, and continue even person unhappy and uncomfortable. after the goods have been sold. For For example, on getting hungry, we example, activities such as become uncomfortable and start identification of customer needs, looking for objects that are capable of collection of information for developing satisfying our hunger. the product, designing suitable product package and giving it a brand name Needs are basic to human beings are performed before commencement and do not pertain to a particular of the actual production. Similarly, product. Wants, on the other hand, many follow up activities are required are culturally defined objects that are for maintaining good customer potential satisfiers of needs. In other relations for procuring repeat sale. words, human needs shaped by such factors as culture, personality and In modern times, emphasis is religion are called wants. A basic need placed on describing marketing as a for food, for example, may take social process. It is a process whereby various forms such as want for dosa people exchange goods and services for and rice for a South Indian and money or for something of value to chapatti and vegetables for a North them. Taking the social perspective, Indian person. Phillip Kolter has defined marketing as, “a social process by which individual A marketer’s job in an organisation groups obtain what they need and want is to identify needs of the target through creating offerings and freely customers and develop products and exchanging products and services of services that satisfy such needs. value with others”. Thus, marketing is a social process where in people interact with others, in order to persuade them to act in a 2018-19

2. Creating a Market Offering: On the MARKETING part of the marketers, the effort involves creation of a ‘market offering. 299 Market offering refers to a complete offer for a product or service, having what they need and want through the given features like size, quality, taste, process of exchange. In other words, etc; at a certain price; available at a the process of marketing involves given outlet or location and so on. Let exchange of products and services for us say the offer is for a cell phone, money or something considered available in four different versions, on valuable by the people. the basis of certain features such as size of memory, television viewing, Exchange refers to the process internet, camera, etc., for a given price, through which two or more parties say between Rs. 5,000 and Rs. 20,000 come together to obtain the desired (depending on the model selected), product or service from someone, available for sale at say firm’s exclusive offering the same by giving something shops in and around all metropolitan in return. For example, a person cities in the country. A good ‘market feeling hungry may get food by offering offer’ is the one which is developed after to give money or some other product analysing the needs and preferences or service in return to someone who of the potential buyers. is willing to accept the same for food. 3. Customer Value: The process of In the modern world, goods are marketing facilitates exchange of produced at different places and are products and services between the distributed over a wide geographical buyers and the sellers. The buyers, area through various middlemen, however, make buying decisions on involving exchanges at different levels their perceptions of the value of the of distribution. Exchange is, therefore, product or service in satisfying their referred to as the essence of need, in relation to its cost. A product marketing. For any exchange to take will be purchased only if it is perceived place, it is important that the following to be giving greatest benefit or value conditions are satisfied: for the money. The job of a marketer, therefore, is to add to the value of the (i) involvement of at least two parties product so that the customers prefer viz., the buyer and the seller. it in relation to the competing products and decide to purchase it. (ii) each party should be capable of offering something of value to the 4. Exchange Mechanism: The other. For example, the seller offers process of marketing works through a product and the buyer, money. the exchange mechanism. The individuals (buyers and sellers) obtain (iii) each party should have the ability to communicate and deliver the product or service. No exchange can take place if the buyers and sellers are not able to communicate with each other or if they can not deliver something of value to the other. 2018-19

BUSINESS STUDIES to take place. Whether the exchange actually takes place or not depends 300 on the suitability of the act of exchange to both the parties, whether it makes (iv) each party should have freedom to the parties better off or at least not accept or reject other party’s offer. worse off. (v) the parties should be willing to Another important point to be enter into transaction with each noted is that Marketing is not merely a other. Thus, the acceptance or business phenomena or confined only rejection of the offer takes place on to business organisations. Marketing voluntary basis rather than on the activities are equally relevant to non- bases of any compulsion. The points listed above are the necessary conditions for an exchange What can be Marketed? Physical Products : DVD player, Motor cycle, ipods, Cell phone, Footwear, Television, Refrigerator. Services : Insurance, Health Care, Business Process Outsourcing, Ideas Security, Easy Bill service, Financial Services (Investment),Computer Education, Online Trading. : Polio Vaccination, Helpage, Family Planning, Donation of Blood (Red cross), Donation of money on Flag Day (National Foundation for Communal Harmony). Persons : For Election of Candidates for Certain Posts. Place : ‘Visit Agra – ‘City of Love’, ‘Udaipur – ‘The City of Lakes’, Experience ‘Mysore – The City of Gardens’, ‘When Orisa celebrates, Eleven the God Join In’. : Customised Experiences as Dinner with a cricketer (say Dhoni); Lunch with a celebrity (say Bill Gates or Aishwarya Roy) or experience of Baloon Riding, mountaineering, etc. Properties : Intangible rights of ownership of real estate in financial Events property (Shares, Debentures). : Sports events (say Olympics, Cricket series), diwali mela, fashion show, music concert, film festival, elephant race (Kerala Tourism). Information : Production packaging and distribution of information by organisations such as by universities, research organisation, providing information as market information (marketing research agencies), technology information. Organisations : For boosting their public image organisations such as Hindustan Lever, Ranbaxy, Dabur, Proctor and Gamble, communicate with people. Example, Phillips says, Let’s make Things Better’. 2018-19

profit organisations such as hospitals, MARKETING schools, sports clubs and social and religious organisations. It helps these 301 organisations in achieving their goals such as spreading the message of idea (say Red Cross persuading to family planning, improving the literacy donate blood) or a place (say Kerala standards of people and providing Tourism persuading people to visit medication to the sick. Kerala for health tourism). Thus, anything that is of value to the other WHAT CAN BE MARKETED? can be marketed. It can be a product or a service or a person or a place or The question commonly coming to the an idea or an event or an organisation mind is what can be marketed. Is it a or experience or properties. (see box) product or service or something else. Let us first understand what is a product? Who is a marketer? Marketer refers to any person who takes more active A product is a ‘bundle of utilities’ part in the process of exchange. or ‘source of satisfaction’, that can be Normally it is the seller who is more used to satisfy human needs and active in the exchange process as he/ wants. It is not confined to physical she analyses the needs of the potential objects, such as motor cycle, biscuit, buyers, develops a market offering and bulb and pencil but also refers to other persuades the buyers to buy the things of value such as services, ideas, product. However, there may be places, etc., that can be offered to the certain situations where the buyer potential buyers for their use. In the may be taking more active role in the marketing literature, anything that can exchange process. Let us say in be of value to the buyer can be termed situations of rare supply, the buyer as a ‘product’. It can be tangible, i.e., may be taking extra efforts in which can be felt, seen and touched persuading the seller to sell the physically such as a pencil, a cycle or product to him/her. This may be an intangible such as services rendered happening in defence deals or take a by a doctor, hairdresser or a lawyer. situation where a country having installed a nuclear plant needs the Apart from the product, what can supply of nuclear fuel or ‘Heavy Water’. be marketed is a service or a person It may need to convince the supplier (say political parties persuading to of the products to supply the same to vote for a particular candidate) or an it, by promising that it will be used for peaceful purposes only. In this case, the buyer will be treated as the marketer. Thus, any body, who takes Do it yourself Collect five advertisements each for the marketing of (a) ideas and (b) places from a newspaper or a magazine. Write in your notebook, the messages conveyed through these and discuss in the class indicating which of these messages are more appealing to you. Give reasons in support of your answer. 2018-19

BUSINESS STUDIES management is on getting, keeping as well as growing the customers. 302 That means the marketer has to create demand for his products so more active role in the exchange that the target customers process will be taken as the marketer. purchase the product, keep them satisfied with the firm’s products MARKETING MANAGEMENT and also attract more customers to the firm’s products so that the Marketing management means firm can grow; and management of the marketing function. In other words, marketing (iii) The mechanism for achieving the management refers to planning, objective is through creating, organising, directing and control of the developing and communicating activities which facilitate exchange of superior values for the customers. goods and services between producers That means, the primary job of a and consumers or users of products marketing manager is to create and services. Thus the focus of superior values so that the marketing management is on achieving customers are attracted to the desired exchange outcomes with the products and services and target markets. Taking a management communicate these values to the perspective, the term marketing has prospective buyers and persuade been defined as “the process of them to buy these products. planning and executing the conception, pricing, promotion and distribution of Marketing management involves ideas, goods and services to create performance of various functions such exchanges that satisfy individual and as analysing and planning the organisational goals” by American marketing activities, implementing Management Association, similarly marketing plans and setting control Philip Kotler has defined Marketing mechanism. These functions are to be management as the art and science of performed in such a way that choosing target markets and getting, organisation’s objectives are achieved keeping and growing customers at the minimum cost. through creating, delivering and communicating superior customer Marketing management generally values of management. is related to creation of demand. However, in certain situations, the A careful analysis of the definition manager has to restrict the demand. reveals that the process of For example, if there is a situation of management of marketing involves: ‘overfull demand’, i.e., the demand being more than what the company (i) Choosing a target market, say a can or want to handle, (like what the manufacturer may choose to make situation in our country was before the readymade garments for children adoption of policies of liberalisation up to the age of 5 years; (ii) In respect of the target market chosen, the focus of the process of 2018-19

and globalisation, in early 90’s, in most MARKETING consumer products be it automobiles or electronics goods or other durable 303 products. The job of marketing mangers, in these situations would be of goods and services through to find ways to reduce the demand salesmanship, advertising, publicity temporarily by say reducing the and short-term incentives so that title expenditure on promotion or of the product is transferred from seller increasing the prices. Similarly, if the to buyer or in other words product is demand is ‘irregular’, such as in case converted into cash. of seasonal products, (say fans, woollen clothes) the marketer’s job is to change The major differences between the time pattern of demand through selling and marketing are listed as such methods as providing short-term below: incentives, to the buyers. Thus, the marketing management in not only (i) Part of the Process vs Wider Term: concerned with creating demand but Selling is only a part of the process with managing the demand effectively, of marketing and is concerned with as per the situation in the market. promoting and transferring possession and ownership of goods MARKETING AND SELLING from the seller to the buyer. Marketing is a much wider term Many people confuse ‘selling’ for consisting of number of activities ‘marketing’. They consider these two such as identification of the terms as one and the same. Marketing customer’s needs, developing the refers to a large set of activities of which products to satisfy these needs, selling is just one part. For example, a fixing prices and persuading the marketer of televisions, before making potential buyers to buy the same. the sale, does a lot of other activities such Thus, selling is merely a part of as planning the type and model of marketing. televisions to be produced, the price at which it would be sold and selecting the (ii) T ransfer of T itle vs Satisfying distribution outlets at which the same Customer Needs: The main focus would be available, etc. In short, of selling is on affecting transfer marketing involves whole range of of title and possession of goods activities relating to planning, pricing, from sellers to consumers or users. promoting and distributing the In contrast, marketing activities products that satisfy customer’s needs. put greater thrust on achieving maximum satisfaction of the The function of selling, on the other customer’s needs and wants. hand, is restricted to promotion (iii) Profit through Maximising Sales vs Customer Satisfaction: All selling activities are directed at maximising sales and, thereby, the profits of the firm. In other words, the emphasis is on profit maximisation through maximisation of sales. Marketing, 2018-19

BUSINESS STUDIES objectives. For example, whether the marketing efforts of an organisation will 304 focus on the product—say designing its features etc or on selling techniques or on the other hand, is concerned with on customer’s needs or the social customer satisfaction and thereby concerns. increasing profit in the long run. A marketing organisation, thus, The concept or philosophy of attaches highest importance to marketing has evolved over a period customer satisfaction as a route to of time, and is discussed as follows. profit maximisation. The Production Concept (iv) Start and End of the Activities: Selling activities start after the During the earlier days of industrial product has been developed while, revolution, the demand for industrial marketing activities start much goods started picking up but the before the product is produced and number of producers were limited. As continue even after the product a result, the demand exceeded the has been sold. supply. Selling was no problem. Anybody who could produce the goods (v) Difference in the Emphasis: In was able to sell. The focus of business selling, the emphasis is on bending activities was, therefore, on production the customer according to the of goods. It was believed that profits product while in marketing, the could be maximised by producing at attempt is to develop the product large scale, thereby reducing the and other strategies as per the average cost of production. It was also customer needs. assumed that consumers would favour those products which were vi. Difference in the Strategies: Selling widely available at an affordable price. involves efforts like promotion and Thus, availability and affordability of persuasion while marketing uses the product were considered to be the integrated marketing efforts key to the success of a firm. Therefore, involving strategies in respect of greater emphasis was placed on product, promotion, pricing and improving the production and physical distribution. distribution efficiency of the firms. MARKETING MANAGEMENT PHILOSOPHIES The Product Concept In order to achieve desired exchange As a result of emphasis on production outcomes with target markets, it is capacity during the earlier days, the important to decide what philosophy position of supply increased over period or thinking should guide the marketing of time. Mere availability and low price efforts of an organisation. An of the product could not ensure understanding of the philosophy or the concept to be adopted is important as it determines the emphasis or the weightage to be put on different factors, in achieving the organisational 2018-19

increased sale and as such the survival MARKETING and growth of the firm. Thus, with the increase in the supply of the products, 305 customers started looking for products which were superior in quality, were considered essential for selling of performance and features. Therefore, products. Thus, the focus of business the emphasis of the firms shifted from firms shifted to pushing the sale of quantity of production to quality of products through aggressive selling products. The focus of business activity techniques with a view to persuade, changed to bringing continuous lure or coax the buyers to buy the improvement in the quality, products. Making sale through any incorporating new features etc. Thus, means became important. It was product improvement became the key assumed that buyers can be to profit maximisation of a firm, under manipulated but what was forgotten the concept of product orientation. was that in the long run what matters most is the customer satisfaction, The Selling Concept rather than anything else. With the passage of time, the The Marketing Concept marketing environment underwent further change. The increase in the Marketing orientation implies that scale of business further improved the focus on satisfaction of customer’s position with respect to supply of needs is the key to the success of any goods, resulting in increased organisation in the market. It assumes competition among sellers. The that in the long run an organisation product quality and availability did not can achieve its objective of ensure the survival and growth of maximisation of profit by identifying firms because of the large number of the needs of its present and sellers selling quality products. This prospective buyers and satisfying led to greater importance to attracting them in an effective way. All the and persuading customers to buy the decisions in a firm are taken from the product. The business philosophy point of view of the customers. In other changed. It was assumed that the words, customer’s satisfaction become customers would not buy, or not buy the focal point of all decision making enough, unless they are adequately in the organisation. For example, what convinced and motivated to do so. product will be produced, with what Therefore, firms must undertake features and at what price shall it be aggressive selling and promotional sold, or where shall it be made efforts to make customers buy their available for sale will depend on what products. The use of promotional do the customers want. If the techniques such as advertising, customers want features like double personal selling and sales promotion door in a refrigerator or a separate provision for water cooler in it, the organisation would produce a refrigerator with these features, would price it at a level which the customers 2018-19

BUSINESS STUDIES 306 Differences in the Marketing Management Philosophies Philosophies/ Production Product Selling Marketing Societal Concept Concept Concept Concept Bases Concept 1. Starting Factory Factory Factory Market Market, Point Society 2. Main Quantity of Quality, Existing Customer Customer Focus product performance, product needs needs and features of society’s product well being 3. Means Availability Product Selling Integrated Integrated and improve- and marketing marketing affordability ments promoting of product 4. Ends Profit through Profit through Profit Profit Profit through volume of product through through sales production quality volume customer customer satisfaction satisfaction and social welfare are willing to pay and so on. If all bought not merely because of their marketing decisions are taken with this quality, packing or brand name, but prospective, selling will not be any because they satisfy a specific need of problem. It will automatically follow. a customer. A pre-requisite for the The basic role of a firm then is to success of any organisation, therefore, ‘identify a need and fill it’. The concept is to understand and respond to implies that products ad-services are customer needs. Test Your Understanding I State whether the following statements are true or false: (i) focus of marketing activities is on facilitating exchange of goods from producers to consumers or users; (ii) in modern marketing, the term market refers to the place where buyers and sellers meet for the exchange of goods and services; (iii) marketing is same thing as shopping for goods and services; (iv) marketing is a post production activity only; (v) marketing is equally relevant to non-profit organisations; (vi) The terms ‘need’ and ‘want’ are used interchangeably in the marketing literature; (vii) marketing management means management of the marketing function; and (viii) Product designing does not come under the purview of marketing activities. 2018-19

To sum up, the marketing concept MARKETING is based on the following pillars: 307 (i) Identification of market or customer who are chosen as the The societal marketing concept target of marketing effort. holds that the task of any organisation is to identify the needs and wants of (ii) Understanding needs and wants the target market and deliver the of customers in the target market. desired satisfaction in an effective and efficient manner so that the long-term (iii) Development of products or well-being of the consumers and the services for satisfying needs of the society is taken care of. Thus, the target market. societal marketing concept is the extension of the marketing concept as (iv) Satisfying needs of target market supplemented by the concern for the better than the competitors. long-term welfare of the society. Apart from the customer satisfaction, it pays (v) Doing all this at a profit. attention to the social, ethical and ecological aspects of marketing. There Thus, the focus of the marketing are large number of such issues that concept is on customer needs and the need to be attended. customer satisfaction becomes the means to achieving the firms’ objective FUNCTIONS OF MARKETING of maximising profit. The purpose of marketing is to generate customer Marketing is concerned with exchange value at a profit. of goods and services from producers to consumers or users in such a way The Societal Marketing Concept that maximises the satisfaction of customers’ needs. From the view point The marketing concept, as described of management function, number of in the preceeding section cannot be activities are involved, which have considered as adequate if we look at been described as below: the challenges posed by social problems like environmental 1. Gathering and Analysing Market pollution, deforestation, shortage of Information: One of the important resources, population explosion and functions of a marketer is to gather inflation. It is so because any activity and analyse market information. This which satisfies human needs but is is necessary to identify the needs of detrimental to the interests of the the customers and take various society at large cannot be justified. The decisions for the successful marketing business orientation should, of the products and services. This is therefore, not be short-sighted to serve important for making an analysis of only consumers’ needs. It should also the available opportunities and threats consider large issues of long-term as well as strengths and weaknesses social welfare, as illustrated above. of the organisation and help in 2018-19

BUSINESS STUDIES 308 The Future of Global Brands Role of Digital connection and consumer cooperation In China and India, booming middle classes and fast-rising disposable incomes have created a still-under-tapped consumer culture. Let’s not forget the lessons being learned about the brand-building, power of digital connections and consumer co-creation. Since the advent of the internet, sites that offer social interaction and connectivity have been at the forefront of our digital revolution, reshaping the way consumers expect to interact with each other and, ultimately, with brands. Online tag-sale site e-Bay, for example was one of the first sites to teach us that you can trust people online as well as you might trust a friendly neighbour. That social interaction paved the way for Friendster and MySpace and You Tube, a social networking tool that, in the past year, has empowered consumers to create their own content and post it to a global audience. Anyone who doubts the real market potential of such a platform only needs to check out October’s biggest business headlines: Google purchased the site for $ 1.65 billion. HSBC effort attempted a similar goal, to give consumers a forum for conversation. At your pointofview.com, consumers in 76 countries can weigh in and give their opinions on subjects including cloning, fashion, wind farms and video games. Teenagers in Chinese cities surf the web for 5.1 hours a week, and the online ad-market is booming—by more than 75% annually for the past three years, according to Business Week, Mobile phones are among the most coveted pieces of technology. And 17.5 million bloggers (and their 75 million readers), many of whom fall within the coveted 18–25 age groups, are shaping consumer opinions in China with more intensity than they do in the US. The internet age has put advertisers and branding experts face-to-face with an empowered consumer. And those consumers are happy to listen to our messages, as long as we are willing to listen to them. Source: Adopted from Brand Equity, Nov. 1, 2006 deciding what opportunities can best With the growth of computers, a be pursued by it. For example, rapid new trend has emerged in the growth is predicted in several areas in collection of market information. More the Indian economy, say in the use of and more companies are using the Internet, market for cell phones and interactive sites on the internet, to several other areas. Which of these gather customer views and opinions, areas a particular organisation should before taking important business enter, or in which area should it expand, decisions. (see the box on Global requires a careful scanning of the Brands) One of the popular TV News strengths and weaknesses of the Channel (in Hindi) seeks viewers organisation, which is done with the choice (through SMS) on which of the help of careful market analysis. given four or five main news stories of 2018-19

the day would be broadcasted as MARKETING detailed story at the prime time, to ensure that the viewers get to listen to 309 the story of their own choice. consistency in the output. Standardisation 2. Marketing Planning: Another ensures the buyers that goods conform important activity or area of work of a to the predetermined standards of quality, marketer is to develop appropriate price and packaging and reduces the need marketing plans so that the marketing for inspection, testing and evaluation of objectives of the organisation can be the products. achieved. For example a marketer of colour TV, having 10 per cent of the Grading is the process of current market share in the country, classification of products into different aims at enhancing his market share to groups, on the basis of some of its 20 per cent, in the next three years. He important characteristics such as will have to develop a complete quality, size, etc. Grading is particularly marketing plan covering various necessary for products which are not important aspects including the plan for produced according to predetermined increasing the level of production, specifications, such as in the case of promotion of the products, etc. and agricultural products, say wheat, specify the action programmes to oranges, etc. Grading ensures that achieve these objectives. goods belong to a particular quality and helps in realising higher prices for high 3. Product Designing and quality output. Development: Another important marketing activity or decision area 5. Packaging and Labelling: relates to product designing and Packaging refers to designing and development. The design of the developing the package for the product contributes to making the products. Labelling refers to designing product attractive to the target and developing the label to be put on customers. A good design can improve the package. The label may vary from performance of a product and also give a simple tag to complex graphics. it a competitive advantage in the market. For example, when we plan Packaging and labelling have to buy any product say a motorbike, become so important in modern day we not only see its features like cost, marketing that these are considered mileage, etc. but also the design as the pillars of marketing. Packaging aspects like its shape, style, etc. is important not only for protection of the products but also serves as a 4. Standardisation and Grading: promotional tool. Sometimes, the Standardisation refers to producing quality of the product is assessed by goods of predetermined specifications, the buyers form packaging. We have which helps in achieving uniformity and seen that in the success of many of the consumer brands in recent times such as Lays or Uncle Chips potato wafers Clinic Plus shampoos, and Colgate Toothpaste, etc., packaging has played an important role. 2018-19

BUSINESS STUDIES 8. Pricing of Product: Price of product refers to the amount of money 310 customers have to pay to obtain a product. Price is an important factor 6. Branding: A very important decision affecting the success or failure of a area for marketing of most consumer product in the market. The demand for products is whether to sell the product a product or service is related to its in its generic name (name of the category price. Generally lower the price, higher of the product, say Fan, Pen, etc.) or to would be the demand for the product sell them in a brand name (such as and vice-versa. The marketers have Pollar Fan or Rottomac Pen). Brand to properly analyse the factors name helps in creating product determining the price of a product and differentiation, i.e., providing basis for take several crucial decisions in this distinguishing the product of a firm respect, including setting the pricing with that of the competitor, which in objectives, determining the pricing turn, helps in building customer’s strategies, determining the price and loyality and in promoting its sale. The changing the prices. important decision areas in respect of branding include deciding the branding 9. Promotion: Promotion of products strategy, say whether each product will and services involves informing the be given a separate brand name or the customers about the firm’s product, same brand name will be extended to its features, etc. and persuading them all products of the company, say to purchase these products. The four Phillips bulbs, tubes and television or important methods of promotion Videocon washing machine, television, include advertising, Personal Selling, and refrigerator. Selection of the brand Publicity and Sales Promotion. A name plays an important role in the marketer has to take several crucial, success of a product. decisions in respect of promotion of the products and services such as 7. Customer Support Services: A very deciding the promotion budget, the important function of the marketing promotion mix, i.e., the combination management relates to developing of the promotional tools that will be customer support services such as after use, the promotion budget, etc. sales services, handling customer complaints and adjustments, 10. Physical Distribution: Managing procuring credit services, maintenance physical distribution is another very services, technical services and important function in the marketing consumer information. All these of goods and services. The two major services aim at providing maximum decision areas under this function satisfaction to the customers, which is include (a) decision regarding the key to marketing success in channels of distribution or the modern days. Customer support marketing intermediaries (like whole services are very effective in bringing repeat sales from the customers and developing brand loyality for a product. 2018-19

salers, retailers) to be used and (b) MARKETING physical movement of the product from where it is produced to a place where it 311 is required by the customers for their consumption or use. The important products such as in the case of woollen decision areas under physical garments or Raincoats or there may distribution include managing be irregular supply because of inventory (levels of stock of goods), seasonal production such as in the storage and warehousing and case of agricultural products transportation of goods from one place (sugarcane, rice, wheat, cotton, etc.). In to the other. order to maintain smooth flow of products in the market, there is a need 11. Transportation: Transportation for proper storage of the products. involves physical movement of goods Further, there is a need for storage of from one place to the other. As adequate stock of goods to protect generally the users of products, against unavoidable delays in delivery particularly consumer products are or to meet out contingencies in the wide spread and geographically demand. In the process of marketing, separated from the place these are the function of storage is performed by produced, it is necessary to move them different agencies such as to the place where it is needed for manufacturers, wholesalers and consumption or use, For example, tea retailers. produced in Assam has to be transported not only within the state ROLE OF MARKETING but to other far off places like Tamil Nadu, Punjab, Jammu and Kashmir All marketing organisations operate and Haryana, Rajasthan, where it is either to earn profit or pursue some consumed. other goals such as community service, improvement of quality of life A marketing firm has to analyse or promotion of a cause, say UNICEF its transportation needs after taking working for the welfare of children or into consideration various factors ‘Helpage’ working for the cause of such as nature of the product, cost senior citizens. Whether it is a and location of target market and take profit organisation or a non-profit decisions in respect of mode of organisation, marketing plays transportation to be chosen and other an important role in achieving its related aspects. objectives. It helps the individual consumers in raising their standard 12. Storage or Warehousing: Usually of living by making available the there is a time gap between the products and services that satisfy their production or procurement of goods needs and wants. It also plays a and their sale or use. It may be significant role in the economic because of irregular demand for the development of a nation. The role of marketing in different situations may be described in brief as follows. 2018-19

BUSINESS STUDIES of a country and helps in raising the standards of living of the people. 312 Development of a nation can be Role in a Firm judged by the level of standard of living of its people. Another important The modern concept of marketing plays criteria, which is related to the first a significant role in achieving the one, is the per capita income of an objectives of a firm. It emphasises that average citizen of a country. On this customer satisfaction is the key to the basis, an underdeveloped country may survival and growth of an organisation be stated to be one which is in the contemporary competitive characterised by factors like poverty, marketing environment. By adopting scarcity of goods and services, marketing orientation, an organisation predominance of agriculture, etc. whether profit making or non-profit making, can achieve its goals in the Marketing can play a significant most effective manner. It helps in role in the economic development of a focusing the activities of an nation. It can inspire people to organisation on the needs and wants undertake new activities and to set up of the customers. For example, what enterprises for producing goods that products or services will be marketed are needed by the customers. by a firm will depend upon what do Marketing can help in overcoming its customers need. Thus, an analysis obstacles posed by high prices due to of the needs of the customers shall be imbalances in the levels of production undertaken in order to decide what to and consumption. It can also ensure produce and sell. The product will smooth flow of goods through efficient then be designed according to the physical distribution arrangements. needs of the potential buyers and be made available through the outlets In other words, marketing can help convenient to customers and be priced in finding out right type of products at a level which the target customers and services that a firm should can afford. In other words, marketing manufacture, the places where it as a business philosophy helps in should make such products available serving the customers by satisfying for sale, the price at which the their needs. It is a well known fact that products should be sold and the a satisfied customer is the most channels that should be used for valuable asset of any firm. Thus, moving the products to the ultimate marketing plays a crucial role in the place of consumption or use. This survival and growth of a firm. linkage between the business and consumption centres, accelerates the Role in the Economy economic activity leading to higher incomes, more consumption and Marketing plays a significant role in the increased savings and investment. development of an economy. It acts as a catalyst in the economic development 2018-19

MARKETING 313 Test your Understanding II State whether the following statements are true or false: (i) packaging serves as a promotional tool; (ii) storage adds time value to the product; (iii) financing is important for marketing only high value products; (iv) marketing play important role from the point of view of individual consumers only; and (v) marketing acts as a catalyst in the economic development of a country. MARKETING MIX at what price it will be sold, (at par with the price at which other As stated in an earlier section, the competitive brands are sold or below process of marketing involves creating it or above it); what distribution a market offering, to satisfy the needs network will be used to make the and wants of the present and potential product available (e.g., hotels, buyers. The real question is how to restaurants, groceries shops, kiosks create a market offering. Let us say a selling cigarette, paan, etc.) to the profitable business opportunity is buyers whether the new soft drink will seen by some firm in the field of be promoted by putting up producing soft drinks. To develop and advertisements in newspaper or market a new brand of soft drinks, a magazine or on radio or television; or number of important decisions will say if newspaper, whether in a local have to be taken for example whether newspaper or a national daily; whether to go for any collaboration with a in a paper of regional language or an foreign manufacturer of soft drinks, English daily, etc. is decided at the whether to produce for the local level of marketing manager of the firm. market or for a wider market, what will be the features of the new product, However, there are certain other and so on. factors which affect the decision but are not controllable at the firm’s level. There are large number of factors These are called environmental affecting marketing decisions. These variables. For example, the political can broadly be divided into two factors such as the government policy categories: (i) controllable factors, and on whether to allow any technical or (ii) non-controllable factors. Controllable financial collaboration in the area of factors are those factors which can be soft drinks, production or economic influenced at the level of the firm. In factors such as rate of inflation the previous illustration, for example, prevailing in a given period or a credit whether the drink will be packed in policy of the central bank affecting the glass bottles or plastic cans; what will total availability of money in the be the name (brand name) of the drink; 2018-19

BUSINESS STUDIES chosen by a firm to prepare its market offering is also called marketing mix. 314 Thus, marketing mix is described as the set of marketing tools that a firm uses market, all of which affect the sale of to pursue its marketing objectives in a a particular product but can not be target market. controlled or influenced by the decisions at the level of a firm. To be ELEMENTS OF MARKETING MIX successful, the decisions regarding ‘controllable factors’ are to be taken The marketing mix consists of various keeping the environmental variables elements, which have broadly been into consideration. classified into four categories, popularly known as four Ps of The controllable variables become marketing. These are: (i) Product, (ii) marketing tools, which are constantly Price, (iii) Place, and (iv) Promotion. shaped and reshaped by marketing These are briefly discussed as follows: managers, to achieve marketing success. For example, a firm can 1. Product: Product means goods reshape a market offering by bringing or services or ‘anything of value’, in a change in any of the variable under which is offered to the market for its own control, say introducing a sale. For example, Hindustan lever change in the price or promotion offer offers number of consumer or product features or channel used to products like toiletries (Close-Up make the product available to buyers. toothpaste, Lifebuoy soap, etc.), Thus, from a number of alternatives available a firm chooses a particular combination to develop a market offering. The combination of variables Marketing Mix: Elements Product Price Product Mix Price Level Product Quality Margins New Product Pricing Policy Design and Development Pricing Strategies Packaging Price Change Labelling Branding Place Promotion Channel Strategy Promotion Mix Channel Selection Advertising Channel Conflict Personal Selling Channel Cooperation Sales Promotion Physical Distribution Publicity Public Relations 2018-19

detergent powder (Surf, Wheel), food MARKETING products (Refined Vegetable Oil); Tata offers Tata Steel, Trucks, Salt and a 315 large number of other products; LG Electronics offers televisions, traders and credit terms, etc. so that refrigerators, colour monitors for customers perceive the price to be in computers, etc; Amul offers a number line with the value of the product. of food products (Amul milk, ghee, butter, cheese, chocolates, etc.). 3. Place: Place or Physical Distribution include activities that make firm’s The concept of product relates to products available to the target not only the physical product as customers. Important decision areas in mentioned in the above examples but this respect include selection of dealers also the benefits offered by it from or intermediaries to reach the customer’s view point (for example customers, providing support to the toothpaste is bought for whitening intermediaries (by way of discounts, teeth, strengthening gums, etc.). The promotional campaigns, etc.). The concept of product also include the intermediaries in turn keep inventory extended product or what is offered of the firm’s products, demonstrate to the customers by way of after sales them to potential buyers, negotiate services, handling complaints, price with buyers, close sales and also availability of spare parts etc. service the products after the sale. The These aspects are very important, other decision areas relate to managing particularly in the marketing of inventory, storage and warehousing consumer durable products (like and transportation of goods from the Automobiles, Refrigerators, etc.). The place it is produced to the place it is important product decisions include required by the buyers. deciding about the features, quality, packaging, labelling and branding of 4. Promotion: Promotion of products the products. and services include activities that communicate availability, features, 2. Price: Price is the amount of money merits, etc. of the products to the customers have to pay to obtain the target customers and persuade product. In case of most of the them to buy it. Most marketing products, level of price affects the level organisations, undertake various of their demand. The marketers have promotional activities and spend not only to decide about the objectives substantial amount of money on the of price setting but to analyse the promotion of their goods through factors determining the price and fix using number of tools such as a price for the firm’s products. advertising, personal selling and sales Decisions have also to be taken in promotion techniques (like price respect of discounts to customers, discounts, free samples, etc.). A large number of decisions are to be taken in each of the area specified above. For example, in the respect of advertising it is important to decide about the message, the media to be used (example, print-media–newspaper, 2018-19

BUSINESS STUDIES bought a car or a pen or a Cell phone or a tractor. 316 Our decision to buy a product is magazines, etc. the objections of not only affected by its physical customers, etc.). qualities, but also by certain non- tangible and psychological factors, The success of a market offer will e.g., brand name, reputation, depend on how well these ingredients guaranty, packaging etc. Let us say, are mixed to create superior value for when a person buys a car, he/she is the customers and simultaneously not just buying a few nuts and bolts, achieve their sale and profit objectives. an engine, four wheels and so on. Let us say a firm would like to achieve Rather he/she is buying a means of necessary volume of sale at a cost that transport, a status symbol, guarantees will permit a desired level of profit. But and warranties accompanying the so many alternative mixes can be product, image of the company and adopted by a firm to achieve this many other such attributes. Thus, in objectives. The issue before a firm then marketing, product is a mixture of is to decide what would be the most tangible and intangible attributes, effective combination of elements to which are capable of being exchanged achieve the given objectives. for a value, with ability to satisfy customer needs. Besides physical PRODUCT objects, we also include services, ideas, persons, and places in the In common parlance, the word ‘product’, is used to refer only to the physical or tangible attributes of a product. For example, we say we have PepsiCo Eyes New Products, Acquisitions Aims at Adding Production Capacity for Gatorade and other Non-carbonated Drinks PepsiCo on Monday said it will launch new healthier products next year and focus on growth in emerging markets, a continuation of the strategy that helped the world’s No. 2 beverage company stay profitable ever as sales growth of its flagship soft drinks has slowed. PepsiCo’s new CEO Indra Nooyi, who took the reins on October 1, also said the company was on track to meet its annual target of volume and revenue growth in the mid-single digits and earnings per share growth in the low double digits. PepsiCo evolved from being known mostly for selling soda and salty snacks into a $33-billion food company that has embraced the push into healthier options like Tropicana juice, Aquafina water and whole grain Quaker Oats Cereals. The company said that moving forward, its capital expenditure as a percentage of sales would increase, and that most of the increased spending will go to expansion in developing and emerging markets and adding manufacturing capacity for Gatorade and other non-carbonated drinks. Source: Adopted from Economic Times, Oct. 25, 2006 2018-19

concept of product. Thus, product may MARKETING be defined as anything that can be offered to a market to satisfy a want 317 or need. It is offered for attention, acquisition, use or consumption. by riding a motorbike. Thus, all these aspects should be considered while From the customer’s point of view, planning for a product. a product is a bundle of utilities, which is purchased because of its capability It is customer for companies to to provide satisfaction of certain need. review the progress of their present A buyer buys a product or service for products and constantly look for what it does for her or the benefit it opportunities of diversifying into never provides to her. There can be three areas. (see box on PepsiCo.) types of benefits a customer may seek to satisfy from the purchase of a LET US DO IT product, viz., (i) functional benefits, (ii) psychological benefits, and (iii) social Enlist the functional, psychological benefits. For example, the purchase of and social benefits that can a motorcycle provides functional utility be achieved by the purchase of of transportation, but at the same time (i) Personal computer, (ii) Colour satisfies the need for prestige and television, (iii) Wrist watch. esteem and provides social benefit by the way of acceptance from a group, CLASSIFICATION OF PRODUCTS Products may broadly be classified into two categories — (i) consumers’ products, and (ii) industrial products. The consumer products may further Products Consumer Products Industrial Products Durability Basis Shopping Efforts Involved Non- Durable Services Conven- Shopping Speciality Durable ience Products Products Products Classification of Products 2018-19

BUSINESS STUDIES A. Shopping Efforts Involved 318 On the basis of the time and effort buyers are willing to spend in the be classified into different groups, as purchase of a product, we can classify detailed below: the consumer product into the following three categories as here under: CONSUMER PRODUCTS 1. Convenience Products: Those Products, which are purchased by the consumer products, which are ultimate consumers or users for purchased frequently, immediately and satisfying their personal needs and with least time and efforts are referred desires are referred to as consumer to as convenience goods. Examples of products. For example, soap, edible oil, such products are cigarettes, ice eatables, textiles, toothpaste, fans, etc. creams, medicines, newspaper, which we use for our personal and non- stationery items toothpaste. etc. These business use are consumer goods. products have low unit-value and are bought in small qualities. Some of the The consumer products have been important characteristics of such classified on the basis of two important products are: factors: (A) the extent of shopping efforts involved, and (B) durability of the product. These have been explained as below: Convenience Products 2018-19

(a) These products are purchased at MARKETING convenient locations, with least efforts and time; 319 (b) Convenience products have a (f) Sales promotion schemes or short- regular and continuous demand, term incentives such as sales as these generally come under the contests, discount offers, etc play category of essential products; an important role in the marketing of such products. (c) These products have small unit of purchase and low prices. For 2. Shopping Products: Shopping example the eggs are sold at Rs. products are those consumer goods, 28 per dozen and the customers in the purchase of which buyers purchase them in small numbers; devote considerable time, to compare the quality, price, style, suitability, etc., at several stores, before making final purchase. Some of the examples Shopping Products (d) Convenience products have of shopping products are clothes, standardised price as most of these shoes, jewellery, furniture, radio, products are branded products; television, etc. The important characteristics of shopping products (e) The competition in these products are as below: is high as the supply is greater than the demand. The marketers (a) The shopping products are have, therefore, to heavily advertise generally of durable nature, i.e., for these products; and they normally survive many uses; 2018-19

BUSINESS STUDIES order, with a significant number of buyers. The buyers are willing to spend 320 a lot of time and efforts on the purchase of such products. For example, if there (b) The unit price as well as profit is a rare collection of artwork or of margin of shopping products is antiques, some people may be willing generally high; to spend a lot of shopping effort and travel long distance to buy such (c) As these products have high unit products. In our day-to-day life, we see price, customers compare the people going to a particular hair- products of different companies cutting saloon or restaurant, or a tailor. before making selection; The demand for these goods is relatively inelastic, i.e., even if the price is (d) Purchases of shopping products increased, the demand does not come are generally pre-planned and down. Some of the important there is little degree of impulse characteristics of the speciality buying in these products; and products may be summed up as follows: (e) Retailers generally play an important role in the sale of (a) The demand for speciality products shopping products as lot of is limited as relatively small persuasive effort is needed to number of people buy these convince the buyers to purchase products; them. (b) These products are generally costly 3. Speciality Products: Speciality and their unit price is very high; products are those consumer goods which have certain special features because of which people make special efforts in their purchase. These products are such, which have reached a brand loyalty of the highest Speciality Products 2018-19

(c) These products are available for MARKETING sale at few places as the number of customers is small and are 321 willing to take extra efforts in the purchase of these products; normally consumed in one or few uses are called non-durable products. For (d) An aggressive promotion is required example, we purchase products like for the sale of speciality products, toothpaste, detergents, bathing soap in order to inform people about and stationary products etc. From the their availability, features, etc.; and marketing point of view, these products generally command a small (e) After sales services are very margin, should be made available in important for many of the many locations and need to be heavily speciality products. advertised. B. Durability of Products 2. D u r a b l e P ro d u c t s : T h o s e tangible consumer products which On the basis of their durability, the normally survive many uses, for consumer products have been example, refrigerator, radio, bicycle, classified into three categories— sewing machine and kitchen gadgets Durable, Non-durable and Services. are referred to as durable products. These goods are generally used for a 1. Non-durable Products: The longer period, command a higher per consumer products which are unit margin, require greater personal-selling efforts, guarantees Marketing of Services India Post Has 28% Market Share Against Blue Dart’s 20% Speed Post Leads the Race in Express Mail Speed Post has emerged as a market leader in the express mail category with a 27.55% volume share, a study commissioned by the Department of Post (DOP) and government of India shows. According to the study, almost 46.67% crore articles were sent by express mail in 05-06. The study values the express mail industry alone (excluding logistics and cargo which account for almost 35-40% of private firm’s turnover) at around Rs 1,500 crore. In value terms, while Speed Post is the leader, Blue Dart is a close second with a 20% market share, followed by DTDC with a 11.91% share and First Flight with a 10.89% share. “This has been possible because of our competitive pricing. We are offering the same services as other private couriers do, with the same efficiency but at half the rates”, added Mr. Samuel. In fact, Speed Post claims that its volumes have increased by almost 30-40% after the introduction of the One India One Rate scheme. Express companies are hopeful that the market is going to grow further with the setting up of SEZs and greater economic activity in the country fuelled by the increasing throughput from the manufacturing sector. Source: Adopted from Economic Times, Oct. 20, 2006 2018-19

BUSINESS STUDIES in producing other products. The examples of such products are raw 322 materials, engines, lubricants, machines, tools, etc. In other words, and after sales services, on the part industrial products are meant for non- of the seller. personal and business use for producing other products. 3. Services: The durable and non- durable goods are tangible in the The market for industrial products sense that these have a physical consists of manufacturers, transport existence and can be seen and agencies, banks and insurance touched. Services are intangible in companies, mining companies and form. By services we mean those public utilities. The important activities, benefits or satisfactions, characteristics of industrial products which are offered for sale, e.g., dry are given below: cleaning, watch repairs, hair cutting, postal services, services offered by a 1. Number of Buyers: As compared doctor, an architect and a lawyer. Some to the consumer products, the of the distinguishing characteristics of numbers of buyers of industrial services are as follows: products are limited. For example, sugarcane is purchased by few (a) By their very nature, services are producers of sugar, but sugar, which intangible, i.e., we can not see, feel is a consumer product, is purchased or touch them; by crores of people in our country. (b) A service is inseparable from its 2. Channel Levels: Because of limited source. That means we cannot number of buyers, the sale of separate the service from the industrial products is generally made person providing the service; with the help of shorter channels of distribution, i.e., direct selling or one (c) The services cannot be stored. level channel. They are highly perishable. For example, if a tailor does not work 3. Geographic Concentration: for one week, the services he would Because of location of industries at have provided during such period certain points or regions, industrial go waste; and markets are highly concentrated, geographically. For instance, the (d) Services are highly variable as their demand for power loom comes from type and quality depends on the Bombay, Sholapur, Bangalore, etc. person providing them. That is where the textile industry is why, there is a difference in the concentrated in our country. extent of satisfaction we get from the services provided by different 4. Derived Demand: The demand for people. industrial products is derived from the demand for consumer products. For INDUSTRIAL PRODUCTS Industrial products are those products, which are used as inputs 2018-19

MARKETING 323 example, the demand for leather will be Classification derived from demand for shoes and other leather products in the market. The industrial goods are classified into the following major categories: 5. Role of Technical Considerations: Technical considerations assume (i) Materials and Parts: These greater significance in the purchase include goods that enter the of industrial products because these manufacture’s products products are complex products, completely. Such goods are of bought for use in business operations. two types: (a) Raw material: including farm products like 6. Reciprocal Buying: Some big cotton, sugar cane, oil seed and companies from basic industries like natural products such as oil, steel, rubber, and medicines resort minerals (say crude petroleum, to the practice of reciprocal buying. For iron ore), fish and lumber; and example, Ashok Leyland may buy tyres (b) manufactured material and and tubes from MRF, which in turn parts. These are again of two may buy trucks from Leyland, types – component materials whenever it feels the need for the same. like glass, iron, plastic and component parts such as tyre, 7. Leasing Out: A growing trend in electric bulb, steering, and industrial product market is to lease battery. out rather than to purchase the products on outright basis because of (ii) Capital Items: These are such the heavy price of these products. goods that are used in the Industrial Goods Materials and Capital Items Supplies and Parts Business Services Raw Manufactured Installations Equipments Maintanence Operating Material Material and Parts and Repair Supplies items Farm Natural Component Component Products Products Material Parts Classification of Industrial Goods 2018-19

BUSINESS STUDIES products have different buying motives and have different attitudes 324 and use different approaches in the purchase of the products. For production of finished goods. example, an industrial buyer is These include: (a) installations expected to be more rational who will like elevators, mainframe Computers, and (b) equipments like Hand Tools, Personal Computer, Fax Machines, etc. Test Your Understanding III Please check whether the following statements are true or false: (i) Products purchased by ultimate consumers for satisfying their personal needs are referred to as industrial products. (ii) Speciality products are generally costly and their unit price is high. (iii) Purchase of convenience products in generally pre-planned. (iv) Shopping products are purchased frequently, immediately and with least efforts. (v) Sales promotional schemes play important role in the sale of industrial products. (vi) Product is anything that can be offered to a market to satisfy a want or need. (vii) Durable products are normally consumed in one or few uses. (viii) Services can not be stored. (ix) Furniture is an example of consumer non-durable product. (x) Toothpaste is an example of consumer product. (iii) Supplies and Business study the cost of different available Services: These are short brands, their technical specifications lasting goods and services that and the goodwill of the supplier. facilitate developing or Whereas, the buyer of a consumer managing the finished product. product may be more impulsive and These include: (a) maintenance emotional who is susceptible to and repair items like Paint, advertising and various sales Nails, etc., and (b) operating promotion schemes. supplies like Lubricant, Computer Stationary, Writing BRANDING Paper, etc. One of the most important decisions The difference in the nature of that a marketer has to take in the area consumer products and industrial of ‘product’ is in respect of branding. products is important because of the He has to decide whether the firm’s fact that the buyers of the two sets of products will be marketed under a brand name or a generic name. 2018-19

Generic name refers to the name of the MARKETING whole class of the product. For example, a book, a wristwatch, tyre, 325 camera, toilet soap, etc. We know that a camera is a lens surrounded by most marketers give a name to their plastic or steel from all sides and having product, which helps in identifying and certain other features such as a flash distinguishing their products from the gun and so on. Similarly book is a competitors’ products. This process of bunch of papers, which are in a bound giving a name or a sign or a symbol etc., form, on which some useful information to a product is called branding. The about a subject is printed. Thus, all various terms relating to branding are products having these characteristics as follows: would be called by the generic name such as camera or book. 1. Brand: A brand is a name, term, sign, symbol, design or some If products were sold by generic combination of them, used to identify names, it would be very difficult for the the products —goods or services of one marketers to distinguish their products seller or group of sellers and to from that of their competitors. Thus, differentiate them from those of the competitors. For example, some of the common brands are Bata, Lifebuoy, Dunlop, Hot Shot, and Parker. Brand is a comprehensive term, which has Brands and Branding Branding is creating a corporate brand identity for consumer, and getting that brand identity imprinted on the minds of consumer, and this requires brand positioning and brand management. A brand today is an entity (product. service, company, person, technology, etc.), that offers a set of value exchange measures between what the owner/ market seeks and the price he is willing to pay for. It has always seemed to me that your brand is formed primarily, not by what your company says about itself, but what the company does. — Jeff Bezos A product is something made in a factory; a brand is something that is bought by the customer. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless. — Stephen King Your brand’s power lies in dominance. It is better to have 50% of one market, instead of 10% of five markets. — Al Ries Your brand image is primarily an emotional construct. Emotion is probably always more powerful in swaying people than reason. but people like to be able to rationalise their choices. — Drayton Bird Source: Adopted from Effective Executive, 2006 2018-19

BUSINESS STUDIES firm in distinguishing its product from that of its competitors. This 326 enables the firm to secure and control the market for its products. two components — brand name and brand mark. For example, Asian Paints (ii) Helps in Advertising and Display has the symbol of Gattu on its pack, Programmes: A brand aids a firm which is its brand mark. in its advertising and display programmes. Without a brand 2. Brand Name: That part of a brand, name, the advertiser can only which can be spoken, is called a brand create awareness for the generic name. In other words, brand name is product and can never be sure of the verbal component of a brand. For the sale for his product. example, Asian Paints, Safola, Maggie, Lifebuoy, Dunlop, and Uncle Chips are (iii) Differential Pricing: Branding the brand names. enables a firm to charge different price for its products than that 3. Brand Mark: That part of a brand charged by its competitors. This is which can be recognised but which is possible because if customers like not utterable is called brand mark. It a brand and become habitual of appears in the form of a symbol, it, they do not mind paying a little design, distinct colour scheme or higher for it. lettering. For example, the Gattu of Asian Paints or Devil of Onida or (iv) Ease in Introduction of New symbol of Yogkshma of LIC, or four Product: If a new product is fingers and a palm of Anacin are all introduced under a known brand, brand marks. it enjoys the reflected glory of the brand and is likely to get off to an 4. Trade Mark: A brand or part of a excellent start. Thus, many brand that is given legal protection is companies with established brand called trademark. The protection is names decide to introduce new given against its use by other firms. products in the same name. For Thus the firm, which got its brand example, Food Specialties Ltd. had registered, gets the exclusive right for a successful brand Maggie its use. In that case, no other firm can (Noodles), it extended this name to use such name or mark in the country. many of its new products introduced such as Tomato Though branding adds to the cost Ketchup, Soups, etc. Similarly e.g., to the cost of packaging, labelling, Samsung extended the brand legal protection, and promotion, it name of its Television to Washing provides several advantages to the Machines and other durable sellers as well as the consumers. products, like Microwave oven. Advantages to the Marketers (i) Enables Marking Product Differentiation: Branding helps a 2018-19