Analyzing marketing strategies for medicines of the national pharmaceutical company no 2 (codupha)

Its price isattractive enough, the products are available in adequate quantities in accessiblelocations at the right time when they desire them, and whether it plans andimplements necess

NATIONAL PHARMACEUTICAL COMPANY No 2 (CODUPHA)

Student's name: TRA.N HAl KIEV

First of all, I wish to express my gratitude to the professors of HUFLIT's Department of International Business Administration who helped and supported me heartedly and enthusiastically so that my research can be completed timely.

Secondly, I would like to thank Dr Vo Ngoc Nhu Oanh who directly instructed and gave me the helpful recommendations as well as spent a lot of time on assessing and exchanging views during each chapter so that my research can be clearly oriented.

Also, I am deeply grateful to the Director of National Pharmaceutical Company No.2 (CODUPHA) and the staffs at the company's departments who provided me with necessary information and data so that I can analyze, evaluate and approach practical issues in order to enhance the topic's reliability and possibility.

Last but not least, I would like to express my great appreciation to the concerns, encouragement and supports from my family and my friends until now.

TRAN HAl KIEV

For the recent years, the market of medicines has dramatically changed in Vietnam mostly due to state-owned pharmaceutical companies Research on this market is always a practical and interesting topic owing to customers' characteristics in Vietnam.

In my view, as a student majoring in International Business Administration, the writer chose an absolutely realistic thesis because of its essence.

For the content and other aspects of the graduation paper, I would please to get the examiners' evaluation As an advisor, I only mention to the writers' consciousness, independence, and competence in scientific research.

During the course of making the research on the thesis, the writer, all the time proved that she tried her best in data collection from various sources, analyzed in detail, synthesized, had a sharp insights and was very active in research Furthermore, she strictly ensured regulations of time.

The final score is determined by the examiners' comments as well as the writer's oral presentation However, with her working manner, capability and effort, I believe that she deserves to get high grades.

HCMC, July 5, 2006

Dr. VO NGQC NHU OANH

Someone said: "Doing business is an art !". It is right Setting up a businesswith good facilities and desirable products does not mean that the business can be

successful In fact, the customers are normally demanding, and they are willing to

stop buying a product when it no longer satisfies their continuously changingneeds The business must research business opportunities and carefully applysegmentation, targeting, and positioning so that the business runs smoothly, andthen it must consider whether its products meet customers' demand Its price isattractive enough, the products are available in adequate quantities in accessiblelocations at the right time when they desire them, and whether it plans andimplements necessary promotion activities to persuade them to buy its products.Such activities are the four strategies in a marketing strategy as a whole Thus, thisstudy is very useful for those who want to know how to determine the rightmarketing strategies and apply them effectively

The purpose of this research is to analyze and evaluate the marketing strategiesfor medicines of The National Pharmaceutical Company NO.2 (CODUPHA) Thedatum sources are based on the company's materials, newspapers, "Marketing"books, and Internet

The first part is the basic theories of marketing A collection of informationfrom "Marketing" books helps readers have an overview about the roles, purposes,and importance of the marketing in business

The second part introduces the National Pharmaceutical Company NO.2(CODUPHA) such as its establishment and development, labor structure, its

basis to evaluate marketing strategies of the company and to help readers have an overview about its operation Finally, basing on the real situation of the business, the matrix SWOT is set up to analyze the strengths, the weaknesses, the opportunities and the threats of the company This is also the basis to put forward the solutions and suggestions to both the company and the government in the third part.

In the third part, several solutions and suggestions are posed to contribute to perfecting CODUPHA's marketing strategies in particular and those who are marketers and for some students who want to study marketing in general.

The last part presents a brief conclusion of the study and comments on them

LIST OF FIGURES

Table 1: Educational levels at CODUPHA (2005) 41

LIS T 0 F TAB LE S 0 7 Table 1

Table 2

Table 3

Table 4

Table 5

1.3.1 Forces that influence marketing strategies 13

104.1.3. Product Positioning and Repositioning 19

CHAPTER 2: Analyzing marketing strategies for medicines of

2.1.3.6 Warehouse and Transport Department 41

2.2 Business activities of CODUPHA company in recent years 43

2.2.1 Evaluating the general situation of medicine market in Vietnam 43 2.2.2 Situation of purchasing medicine of CODUPHA 44

2.2.5 Situation of business activities of CODUPHA in recent years (2003,

204.1.2 Provincial pharmaceutical companies and limited

I

CHAPTER 3: Solutions for perfecting the marketing strategies of

3.1.2 Perfecting the marketing- mix strategy of the company 71

3.1.3 Restructuring the Marketing-Sales Division 76

3.1.4 hnproving management skills of the pool of managers and human

1 RESEARCH PAPER OBJECTIVES

In the war time, medicine became vital because people needed it for the treatment of injuries and preventing them from diseases in order to continue

to contribute to the struggle for our country's independence Today, when our country is peaceful, the society is developing and the standards of living of Vietnamese people are being improved, the role of medicine becomes more and more important because of our higher perception in protecting the health In particular, the medicine market in Vietnam is now increasing steadily with medicine consumption level per capita from 0.5USD/person/year in 1990 to l2USD/person/year in 2010 as estimated by the Ministry of Health Care Medicine

is used not only in preventing diseases and smoothing the pains but also in perfecting our beauty such as in the treatment of beauty surgeries In general, medicine can be consumed in many ways Therefore, in term of an economic aspect, medicine is very potential Also, medicine is sensitive because it is very necessary for human health and it is under the government's control.

Understanding such demands and seeing huge profits that they can get from medicine through this potential market, many foreign and national pharmaceutical companies have quickly established plants and launched a great number of medicines with different functions and effects in order to satisfy their customers who always require the board assortment of products in small quantity In this situation, the national market is tougher and tougher because so many companies trade in the same market with the same product As a result, a lot of national pharmaceutical companies have been facing fierce competition and evenly some

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of them must get losses There are a lot of reasons for a company's failure A company may lose its sales just because it doesn't have enough funds to compete with its stronger competitors, or because its product does not offer the best quality

to satisfy its demanding customers and so on However, the main reason is that most of the companies normally tend to make a mistake in trading It means that they just focus on maximizing profits without caring about researching and developing the basic characteristics of the marketing In reality, providing customers with products that they desire doesn't mean that companies can defeat their competitors In fact, only the companies that apply marketing strategies more effectively and efficiently than others do can survive in this market and continue

to develop It means that the customers are respected, satisfied, in the meanwhile the companies still make profits or the interesting advertising campaigns to make customers know about their new products and so on It may be said that marketing plays an important role in any business operations.

So, in order to widen my knowledge about the marketing field, to understand the problems above, and to accumulate enough experience for my future career, I decided to choose the topic: "Analyzing marketing strategies for medicine of The National Pharmaceutical Company No.2 (CODUPHA)" for my graduation paper.

2 SCOPE OF RESEARCH

CODUPHA, established in 1976, is a state - owned pharmaceutical company CODUPHA has a largest capital amount in the Vietnam pharmaceutical sector along with many branches in Vietnam (Cantho city, Hanoi) Especially it has extended its market to Laos In general, CODUPHA focuses on importing the highest quality items originated from Europe, American and its products comprise medicine, pharmaceutical raw materials, cosmetics, chemicals, nutritional

However, because of seeing the potential from medicine, I would like to selectmedicines as the product in analyzing marketing strategies of The NationalPharmaceutical Company No.2 (CODUPHA) in Ho Chi Minh city in the recentyears, from 2003 to 2005.

Collecting secondary information from books, newspapers, the practicalsituations that happened to the National Pharmaceutical Company No.2 before andthe potential of this company for the next few years

Using quantitative methods such as statistics, analyzing and synthesis methods,and studying materials that is available at the company

Examining the company's practical activities during the past few years (from

2003 to 2005) and forecasting the medicine market in Viet Nam

4 CONTENTS

My graduation paper includes 3 main chapters:

>- Chapter 1 :The basic theories

>- Chapter 2 : Analyzing marketing strategies for medicine

of the National Pharmaceutical Company No.2 (CODUPHA)

strategies of CODUPHA

.: The American Marketing Association's concept:

Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives

•: The traditional concept:

Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others.

In general, marketing is all activities of an organization by which customers' needs are defined and satisfied as well as the organization's objectives are obtained through creating and exchanging products Under the market mechanism now where so many same kinds of products are traded in the same market, the American Marketing Assosiation's concept seems to be more persuadsive because

it emphasizes the activities in marketing Creating products, and then, obtaining what consumers need through exchanging is no longer effective In fact, marketing

is a system of collecting, recording, and analyzing data that directly relate to the cycle of circulating wanted products and values from producers to consumers Then strategies are set up to satisfy customers and obtain the organizational objective at the same time.

1.1.2 Roles and functions of Marketing:

1.1.2.1 Role:

Marketing plays an important role in the market economy, and it's closely connected to the practice because its content is extracted from business activities Marketing is evaluated as an unexpected secret by economists because it always trains experts to be more flexible in every situation, know how to manage and be right in their behaviors So many people suppose marketing as a detector in the market because it discovers needs for producing products that generates lots of profits and intangible assets for businessmen Marketing focuses on researching customs and behaviors of foreigners as well as domestic consumers so that marketing activities can be correspondently conducted to production activities.

1.1.2.2 Functions:

Marketing activities help produce the profits that are essential because they drive economic growth Without them, businesses find it difficult, if not impossible, to buy more raw materials, hire more employees, attract more capital and create additional products that in tum make more profit Marketing itself researches needs of customers, looks for potential markets in order to forecast the trend of these potential markets Also, Marketing is simply more than advertising

or selling a product; it involves developing and managing a product that will satisfy customer needs Finally, Marketing makes companies more active in operation, and it develops the adaptability and suitability due to the continuous changes of the market.

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Mifflin, 2000, Chapter 7, Page 165) However, our definition is more specific; it refers to persons seeking products in a specific product category. For example,

students are part of the market for textbooks, as well as the markets for software, pens, paper, food, music, and other products Obviously, there are many different markets in our complex economy.

1.2.1.2. Requirements for a Market:

As stated in our definition, to be a market, the people in the aggregate must meet the following four requirements:

I) They must need or desire a particular product They do not, then that aggregate is not a market.

2) They must have the ability to purchase the product.

3) They must be willing to use their buying power.

4) They must have the authority to buy the specific products.

In fact, individuals can have the desire, the buying power, and the willingness

to purchase certain products but may not be authorized to do so.

1.2.1.3. Types of Markets:

Market falls into one of two categories: consumer markets & organizational or business-to-business markets These categories are based on the characteristics of the individuals and groups that make up a specific market and the purposes for which they buy products

>- Consumer markets:

A consumer market consists of purchasers and household members who intend

to consume or benefit from the purchased products and who do not buy products

to make profits The millions of individuals with the ability, willingness, and authority to buy make-up multitude of consumer markets for such products as housing, food, clothing, vehicles, personal services, appliances, furniture, and

~ Organizational or business-to-business markets:

They are individuals or groups that purchase a kind of specific products forrelease, direct use in producing other products, or use in general daily operations.Four categories of organizational markets are producer, reseller, government,and institution

1.2.2 Target consumers:

Sound marketing requires a careful analysis of consumers If a company islooking at possible markets for a potential new product, it first needs to make a

careful estimate of the current and future size of the target market because it can

not satisfy all consumers in a given market when buyers are too numerous, toowidely scattered, too varied in needs and buying practice Thus, organizationshave to define products not as what they make or produce but as what they do to

satisfy customers The Walt Disney Company is not in the business of establishing

theme parks; it is in the business of making people happy In general, there are toomany different kinds of needs Therefore, companies must divide up the totalmarket, choose the best segments, and design strategies for profitably serving

chosen segments better than its competitors This process involves 3 steps: Market

segmentation, market targeting, and market positioning.

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step in targeting a market Selecting an inappropriate variable limits the chances of developing a successful marketing strategy.

a)Variables for Segmenting Consumer Markets:

A marketer using segmentation to reach a consumer market can choose one or several variables from an assortment of possibilities.

Figure 1:Segmentation Variables for Consumer Market

Dcmogrdphic Variables

);> Age , Occupation , Gender , Family size , Race , Family life cycle

Geogrd phic va ria bles

, Urban, rural );> Market dens ity , City size >- Terrain

(Source: Pride/Ferrell, Marketing, Houton Mifflin, 2000, Chapter 7,Page171)

As shown in Figure 1, segmentation variables can be grouped into four categories: (I) demographic variables, (2) geographic variables, (3) psychographic variables, and (4) behavioristic variables.

b) Variables for Segmenting Organizational Markets:

Like consumer markets, organizational markets are frequently segmented Marketers segment organizational markets according to geographic locations, types of organization, consumer sizes, and product uses Here are some examples:

• Geographic Location:

Producers of certain types of lumber divide their markets geographically because their customers' needs vary region to region.

8

-• Types of organization:

A carpet producer could segment potential customers into several groups, such

as automobile makers, commercial carpet constructors, apartment complexdevelopers, carpet wholesalers, and large retail carpet outlets

• Customer Sizes:

To reach a segment of a particular size, marketers may have to adjust one or

more marketing mix components For example, customers who buy in extremely

large quantities are sometimes offered discounts

• Product uses:

Computers are used for engineering purposes, basic scientific research, andbusiness operations, such as word processing, accounting, and telecommunications

c) Requirements for Effective Segmentation:

• Measurability: The degree to which the size and purchasingpower of segments can be measured

• Accessibility: The degree to which segments can be reached,and served

• Substantiality: The degree to which segments are large orprofitable

• Actionability: The degree to which effective programs can bedesigned for attracting and serving segments

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Marketing segmentation reveals the market-segment opportunities facing thefInn The fInn now has to decide how many segments to cover and how to identifythe best ones through choosing the three basic targeting strategies:

a) Undifferentiated strategy:

It is a strategy in which an organization defmes an entire market for aparticular product as its target market, designs a single marketing mix, and directs

it at that market

The designed single marketing mix consists of one type of products with little

or no variation, one price, one promotional program aimed at everybody, and onedistribution to reach most customers in the total market

Figure 2: Undifferentiated strategy

I Organization Single Marketing mix

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a new products, for most products their need decidedly differ In such instances, a

b) Concentrated strategy:

It is a strategy in which an organization targets a single market segment usingone marketing mix

Figure 3: Concentrated strategy

I Organization ISingle marketing mix

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BBBBBB BBBBBBcccccccccccc

Figure 4: Differentiated strategy

AAAAA AAAAA BBBBBB BBBBBBcccccccccccc

Target market

(Source: PridelFerrell, Marketing, Houton Mifflin, 2000, Chapter 7,Page167)

1.2.2.3 Market positioning:

Once a company has decided which segments of the market, it will enter, and

it must decide what "position" it wants to occupy in those segments

important attributes- the places the product occupies in consumers' minds relative

to competing products.( Source: Philip Kolter and Gary Armstrong Principles of

Marketing New Jersey: Prentice Hall 2004 page 259).

Marketer can follow several positioning strategies They can position products

on specific product attributes, the needs they fill or the benefits they offer or a

competitors and so on (Source: Philip Kolter and Gary Armstrong Principles of Marketing New Jersey: Prentice Hall 2004 page 259).

1.3 Breaking into a market strategy:

Figure 5: Components of strategic Marketing

Economic forces

Technological forces

(Source: PridelFerrelL Marketing, Houton Mifflin, 2000, page 5)

1.3.1 Forces that influence marketing strategies:

There are six environmental forces-eompetitive, economic, political, legal andregulatory, technological, and sociocultural forces-that interact to createopportunities and risks that must be considered in strategic planning

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1.3.1.1 Competitive forces:

Few firms, if any, operate free of competition In fact, for most goods andservices, customers have many alternatives from what to choose Thus, whenmarketing managers define the target market(s) their firm will serve, theysimultaneously establish a set of competitors Additionally, marketing managersmust consider the type of competitive structures in which the firm operates:

momopoly, oligopoly, monopolistic competition, and pure competiton.

1.3.1.2 Economic forces:

Economic forces in the marketing environment influence both marketers' andcustomers' decisions and activities People's willingness to spend can be affectedby:

Fluctuations in the economy follow a general pattern, often referred to as thebusiness cycle In the traditional view, the business cycle consists of four stages:prosperity, recession, depression, recovery Under each stage, marketers shouldadjust their marketing strategies to serve their target market effectively

Buying power depends on economic conditions and the size of the money, goods, and services that can be traded in an exchange-that enable theindividual to make purchases The major financial sources of buying power areincome, credit, and wealth Marketing managers need to be aware of current levelsand expected changes in buying power in their own markets because buying powerdirectly affects the types and quantities of goods and services that customerspurchase

resources-1.3.1.3. Political forces:

Marketing organizations strive to maintain good relations with elected political officials for several reasons Political officials well disposed toward particular firms or industries are less likely to create or enforce laws and regulations unfavorable to these companies For example, political officials who believe that oil companies are making honest effort to control pollution are unlikely to create and enforce highly restrictive pollution control laws In addition, governments are big buyers, and political officials can influence how much a government agency purchase and from whom Finally, political officials can play key roles in helping organizations secure domestic and foreign markets.

1.3.1.4. Legal and Regulatory forces:

There are many marketers lack of experience in dealing with complex legal actions and decisions Other marketers, however, interpret regulations and statuses conservatively and strictly to avoid violating a vague law When marketers interpret laws in relation to specific marketing practices, they often analyze recent court decisions, both to better understand what the law is intended to do and to predict future court interpretations.

1.3.1.5. Technological forces:

Technology can help marketers become more productive Many restaurants,jor

and labor in food preparation Moreover, technological advances in transportation enable customers to travel farther and more often to shop at a lager number of stores and so on Although new technology creates new products and market opportunities, companies that do not keep up with technological changes will soon find their products out-of-date.

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1.3.1.6. Sociocultural forces:

Sociocultural forces are influences in a society and its culture(s) that bring about changes in attitudes, beliefs, norms, customs, and lifestyles Profoundly affecting how people live, these forces help determine what, where, how, and when people buy products. In addition, changes in a population's demographic characteristics-age, gender, race, ethnicity, marital and parental status, income, and education-have a significant bearing on relationships and individual behavior It is possible to say that changes in values have dramatically influenced people's needs and desires for products Marketers try to monitor these changes knowing that this information can equip them to predict changes in consumers' needs for products at least in the next future.

1.3.2. Methods of breaking into a market:

Breaking into a market is to increase the company's sales of the present products in the present market. In order to do that, marketers have to improve and develop the effectiveness of advertising They have to reform the way of distributing, displacing products conspicuously on the shelves of retailers and wholesalers Or they must apply discount campaigns reasonably Moreover, marketers must always look for the methods to attract customers of other brands while keeping their own original customers.

1.4 Marketing-Mix strategies:

Marketing mix is one of the major concepts in modem marketing We define the Marketing mix as the set of controllable marketing variables that the firm blends to produce the response it wants in the target market (Source: Philip Kolter and Gary Armstrong. Principles of Marketing. New Jersey: Prentice Hall 2004 page 56) The marketing mix consists of everything the firm can do to influence the demand for its products.

The many possibilities can be collected into four Ps of variables known as

Channel Coverage Locations Inventory Transport

Promotion

Advertising Personal selling Sales promotion Publicity

(Source: P Kotler and Gary Armstrong and Sak Onkvisit, complied by Dr

Truong Quang Tuan, Marketing & Basic & International Concepts & Practice.

customers' attitudes and product preferences change over time, their desire for

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certain products may wane In certain cases, a company needs to alter its productmix for competitive reasons A marketer may have to delete a product from themix because a competitor dominates the market for the product Similarly, a firmmay have to introduce a new product or modify an existing one to compete moreeffectively A marketer may expand a firm's product mix to take advantage ofexcess marketing and production capacity

1.4.1.1 Managing Existing Products:

An organization can benefit by capitalizing on its existing products Byassessing the composition of the current product mix, a marketer can identifyweakness and gaps This analysis can lead to improvement of a product mixthrough:

Line Extensions:

A line extension is the development of a product closely related to one ormore products in the existing product line, but is designed specially to meetsomewhat different needs of customers Line extensions are more common thannew products because they are less expensive, lower-risk alternatives forincreasing sales A line extension may focus on a different market segment, ormay be an attemption to increase sales within the same market segment by moreprecisely satisfying the needs of people in that segment Line extensions also areused to take market shares from competitors

Product Modifications:

Product Modification means changing one or more characteristics of aproduct A product modification differs from a line extension in which the original

product does not remain in the line For example, the U.S auto makers use product

modifications annually when they create new models of the same brand Once thenew models are introduced, the manufacturers stop producing last year's model.Like line extensions, product modifications entail less risky than developing new

1.4.1.2 Developing new products:

A firm develops new products as a means of enhancing its product mix and ofadding depth to a product line Developing and introducing new products is

frequently expensive and risky "Although new-product development is risky, so is

Mifflin, 2000, page 273) For example, the makers of Timex watches gained a

large share of the US watch market through effective marketing strategies duringthe 1960s and the early 1970s By 1983, Timex's market share has slippedconsiderably, in part because Timex has failed to introduce new products

1.4.1.3 Product Positioning and Repositioning:

There are decisions relating to the development of individuals products such as

product attributes, branding, packaging, and labeling decisions.

aJ Product attribute decisions:

Developing a product involves defining the benefits that the product will offer.These benefits are communicated and delivered by tangible product attributes:

Product quality:

In developing a product, the manufacturer has to choose a quality level that will

support the product's position in the target market Quality is one of the marketer'smajor positioning tools

To some companies, improving quality means using better quality control toreduce defects that annoy customers However, strategic quality managementrefers to gaining an edge over competitors by offering products that better serveconsumers' needs and preferences for quality

Product feature:

Feature is a competitive tool for differentiating the company's product from

Packaging can be a major component of a marketing strategy A new cap orclosure, a better box or wrapper, or a more convenient container may give aproduct a competitive advantage The right type of package for a new product canhelp it gain market recognition very quickly.

d) Labeling decisions:

Labeling is very closely interrelated with packaging, and is used foridentification, promotion, and informational and legal purposes Labels can besmall or large relative to the size of the product, and carry varying amount of

information The sticker on a Chiquita banana, for example, is quite small and

itself or a separate feature attached to the package The label on a can of Coke isactually part of the can, while the label on a two-liter bottle of Coke is separateand can be removed.

1.4.1.4 Product Deletion:

Generally, a product cannot satisfy target market customers, and attribute to the

achievement of an organization's overall goals indefinitely Products deletion is

the process of eliminating a product from the product mix, usually because it nolonger satisfies a sufficient number of customers A declining product reduces anorganization's profitability, and drains resources that could, instead, be used tomodify other products or to develop new ones

1.4.1.5 Organizing to Manage Products:

Managing a product is a complex task Often, the traditional functional form of

an organization-in which managers specialize in such business functions asadvertising, sales, and distribution-does not fit a company's needs In this case,management must find an organizational approach that accomplishes the tasknecessary to develop and to manage products Whereas, a product manager is aperson within the organization responsible for a product, a product line, or severaldistinct products that make up a group

Simply defined, price is the amount of money charged for a product or service.More broadly, price is the sum of the values consumers exchange for the benefits

of having or using the product or service

All profit organizations and many nonprofit organizations must set prices ontheir products or services A company's pricing decisions are affected both byinternal company factors and by external environmental factors

• Internal factors include the company's marketing objectives,marketing mix strategies, costs, and organization.

competition, and other environmental factors

Price has been the major factor affecting the buyers' choices This is still true

in poorer nations, among poorer groups, and with commodity products Today, inthe market economy, the price of the product or service is determined by thesupply and demand Price is the only element in the marketing mix that producesrevenues; all other elements represent costs Furthermore, pricing and pricecompetition have been related as the number one problem facing marketingexecutives However, /tow are prices set?

In most cases, marketers are in a better position to establish prices when theyknow the prices charged for competing brands Learning competitors' prices may

be a regular function of marketing research However, it is not always easy to findout what prices competitors are charging, especially in producer and resellermarkets Competitors' price lists are often closely guarded Even if a marketer hasaccess to competitors' price lists, these lists may not reflect the actual price atwhich competitive products are sold because those prices may be establishedthrough negotiation Accordingly, companies set prices by selecting a generalpricing approach that includes one or more of these three sets of factors:

Figure 7: Major considerations in setting price

Competitors' prices and other external And internal factors

Consumer perceptions

of value

High price

(Source: Philip Kolter and Gary Armstrong Principles of Marketing. NewJersey: Prentice Hall 2004 page 357 )

1.4.2.1 The cost-based approach:

When using cost-based pricing, a dollar amount or percentage is added to the cost of a product This approach, thus, involves calculations of desired profit margins Cost based pricing does not necessarily take into account the economic aspects of supply and demand, nor does it necessarily relate to just one pricing strategy or pricing objective Cost-based pricing is straightforward and easy to implement Three forms of cost-based pricing are cost-plus pricing, breakeven analysis and target profit pricing.

Cost plus pricing:

It is adding a standard markup to the cost of the product For example, an appliance retailer might pay a manufacturer $20 for a toaster, and mark it up to sell

at $30-a 50 percent markup on cost The retailer's gross margin is $10.

Markup as a Percentage of Cost = Markup\cost

= 10\20 = 50%

Here the firm tries to determine the price at which it will break even or make the target profit it is seeking.

Breakeven is the point at which the costs of producing a product equal to the revenue made from selling the product If a product priced at $100 per unit has an average variable cost of $60 per unit, then the contribution to fixed costs is $40 If total fixed costs are $120000, here is the way to determine the breakeven point in units:

Breakeven point = Fixed costs \ Per Unit Contribution to Fixed Costs

= Fixed costs \ Price - Variable costs

= $120000\ $40 = 3,000 units

So, breakeven pricing is setting to break even on the cost of making and marketing a product The target pricing uses the concept of a breakeven chart and

1.4.2.3 Competition-Based Pricing:

In using competition-based pricing, an organization considers costs assecondary to competitors' prices The importance of this method increases whencompeting products are relatively homogeneous and the organization is servingmarkets in which price is a key purchase consideration A firm that usescompetition-based pricing may choose to price below competitors' prices, above

competitors' prices, or at the same level For example, airlines use

competition-based pricing, often charging identical fares on same routes

1.4.3 Place ( distribution):

Developing products that satisfy customers is important but not enough toguarantee successful marketing strategies Products must also be available Inadequate quantities in accessible locations at the times when customers desirethem And the physical distribution of the product and the marketing channelprovide the structure of marking products available

1.4.3.1 Marketing channel:

a) The nature of Marketing channel:

A marketing channel (also called a channel of distribution or distributionchannel) is a group of individuals, and directs the flow of products from producers

to customers The role of marketing channels is to make products available at theright time at the right place in the right quantities Providing customer withsatisfaction should be the driving force behind marketing channel decisions.Buyers' needs and behavior are, therefore, important concerns of channelmembers

Some marketing channels are direct-from producer straight to customers-butmost channels of distribution have marketing intermediaries A marketingintermediary (middleman) links producers to other middlemen or to ultimateconsumers through contractual arrangement or through the purchase or resellingthe products Marketing create three types of utility: time, place and possession

b) Type of marketing channels:

Because marketing channels appropriate for one product may be less suitablefor others, many different distribution paths have been developed

Figure 8: Typical Marketing Channels for Consumer Products

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Producers that sell goods directly from their factories to end users are using a direct marketing channel Producers that sell goods directly from their factories to end users are using direct marketing channels, like companies that sell their own products over the internet, such as Dell Computer.

customers, is a frequent choice of large retailers, for they can buy in quantity from manufacturers.

tinally to consumers It is a practical option for producers that sell to hundreds or thousands of customers through thousands of retailers.

wholesalers, to retailers, and then to customers-is frequently used for product intended for mass distribution, such as processed food.

1.4.3.2 Physical distribution:

Physical distribution, also known as logistics, refers to the activities used to move products from producers to consumers and other end users These activities include order processing, inventory management, materials handling, warehousing, and transportation Planning an efficient physical distribution system

is crucial to developing an effective marketing strategy because it can decrease costs and increase customer satisfaction Speed of delivery, service and dependability are often as important to customers as costs Companies that have the right goods in the right place, at the right time, in the right quantity, and with the right support services are able to sell more than competitors that do not.

1.4.4. Promotion:

Company must do more than market the good products They must inform