CONSUMER BEHAVIOR

How many times throughout the day do people make product decisions? If you stop to think about it, many
product decisions are made every day, some without much thought. What should I wear? What should I
eat? What am I going to do today? Many product decisions are answered routinely every day and they
help move the economy of cities, countries and ultimately the world.
-Provide value and customer satisfaction.
-Effectively target customers.
-Enhance the value of the company.
-Improve products and services.
-Create a competitive advantage
-Understand how customers view their products versus their competitors products.
-Expand the knowledge base in the field of marketing,
Apply marketing strategies toward a positive effect on society (encourage people to support charities,
promote healthy habits, reduce drug use etc.)
Product decisions also shape life for the consumer. How can simple decisions be so important? Why do
marketers spend millions of dollars to uncover the reasons behind these decisions?
To define consumer behavior: it is the study of consumers and the processes they use to choose, use
(consume), and dispose of products and services. A more in depth definition will also include how that
process impacts the world. Consumer behavior incorporates ideas from several sciences including
psychology, biology, chemistry and economics.
Marketing strategyi.e., for making better marketing campaigns. For example, by understanding that
consumers are more receptive to food advertising when they are hungry, we learn to schedule snack
advertisements late in the afternoon. By understanding that new products are usually initially adopted by a
few consumers and only spread later, and then only gradually, to the rest of the population, we learn that
(1) companies that introduce new products must be well financed so that they can stay afloat until their
products become a commercial success and (2) it is important to please initial customers, since they will
in turn influence many subsequent customers brand choices.
Public policy. In the 1980s, Accutane, a near miracle cure for acne, was introduced. Unfortunately,
Accutane resulted in severe birth defects if taken by pregnant women. Although physicians were
instructed to warn their female patients of this, a number still became pregnant while taking the drug. To
get consumers attention, the Federal Drug Administration (FDA) took the step of requiring that very
graphic pictures of deformed babies be shown on the medicine containers.
Social marketing involves getting ideas across to consumers rather than selling something. Marty
Fishbein, a marketing professor, went on sabbatical to work for the Centers for Disease Control trying to
reduce the incidence of transmission of diseases through illegal drug use. The best solution, obviously,
would be if we could get illegal drug users to stop. This, however, was deemed to be infeasible. It was
also determined that the practice of sharing needles was too ingrained in the drug culture to be stopped.
As a result, using knowledge of consumer attitudes, Dr. Fishbein created a campaign that encouraged the
cleaning of needles in bleach before sharing them, a goal that was believed to be more realistic. As a final
benefit, studying consumer behavior should make us better consumers.
Common sense suggests, for example, that if you buy a 64 liquid ounce bottle of laundry detergent, you
should pay less per ounce than if you bought two 32 ounce bottles. In practice, however, you often pay a
size premium by buying the larger quantity. In other words, in this case, knowing this fact will sensitize you
to the need to check the unit cost labels to determine if you are really getting a bargain

REASON OF STUDYING CONSUMER BEHAVIOR

Understanding the reasons for studying a discipline enables one to better appreciate its contribution;
therefore, this article presents a justification for the time and effort that the reader will expand in learning
about consumers.
Significance in daily lives:

In a general sense, the most important reason for studying consumer behavior is the significant role it
plays in our lives. Much of our time is spent directly in the market place, shopping or engaging in other
activities. A large amount of additional time is spent thinking about products and services, talking to friends
about them, and seeing or hearing advertisements about them. In addition, the goods we purchase and
the manner in which we use them significantly influence how we live our daily lives. These general
concerns alone are enough to justify our study. However, many seek to understand the behavior of
consumers for what are thought to be more immediate and tangible reasons.
Application to decision making:
Consumers are often studied because certain decisions are significantly affected by their behavior or
expected actions. For this reason, consumer behavior is said to be an applied discipline. Such
applications can exist at two different levels of analysis.
The micro perspective seeks application of this knowledge to problems faced by the individual firm or
organization. The societal perspective applies knowledge of consumers to aggregate level problems faced
by large groups or by society as a whole.
Micro Perspective:
The micro perspective involves understanding consumers for the purpose of helping a firm or organization
accomplish its objectives. Advertising managers, product designer, and many others in profit oriented
businesses are interested in understanding consumers in order to be more effective at their tasks. In
addition, managers of various nonprofit organizations have benefited from the same knowledge. For
example, the United Way and the American Red Cross have been effective in applying an understanding
of consumer behavior concepts to their activities.
Societal Perspective:
On the macro, or aggregate, level we know that consumers collectively influence economic and social
conditions within an entire society. In market systems based on individual choice, consumers strongly
influence what will be produced, for whom it will be produced, and what resources will be used to produce
it. Consequently, the collective behavior of consumers has a significant influence on the quality and level
of our standard of living. Consider the overall impact of consumers strong desire for private automobile
transportation. Vast amounts of resources have been used to produce cars, highway systems, and
petroleum products used in their operation. It has also strongly influenced where many of us live (for
example, suburbs) and how we run our daily lives (for example what we eat, where we shop, and how are
entertained). Furthermore, this collective desire not only has led to the development of a string
transportation network but also has significantly contributed to our pollution problems, energy needs and
international relations.

APPLYING CONSUMER BEHAVIOR KNOWLEDGE

Applying Consumer behavior knowledge:

The following selections have been made from a variety of practical applications in the field of consumer
behavior. Some involve a societal perspective while others illustrate a micro viewpoint. Together they
underscore the importance of understanding consumers for solving a variety of contemporary problems.
Consumer Behavior and Marketing Management:
Effective business managers realize the importance of marketing into the success of their firm. Marketing
may be defined as:
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.
Notice that the definition encompasses services and ideas as well as products.
A sound understanding of consumer behavior is essential to the long run success of any marketing
program. In fact, it is seen as a cornerstone of the marketing concept, an important orientation of
philosophy of many marketing managers. The essence of the marketing concept is captured in here
interrelated orientations:
Consumers wants and needs: When the focus is on identifying ad satisfying the wants and needs of
consumers, the intention of the firm is not seen as merely providing goods and services. Instead, want
and need satisfaction is viewed as the purpose, and providing products and services is the means to
achieve that end.

Company objectives: Consumers wants and needs are numerous. Therefore, a firm that concentrates on
satisfying a small proportion of desires will most effectively utilize its resources. Company objective and
any of the firms special advantages are used as criteria to select the specific wants and needs to be
addressed.

MARKET SEGMENTATION

A marketing term referring to the aggregating of prospective buyers into group(segments) that have
common needs and will respond similarly to a marketing actions

WHY SEGMENT?

1.

Identify the most and least profitable customer.

2.

Better focus marketing efforts.

3.

Improve customer service.

4.

Build loyal relationships.

5.

Price products differently.

6.

Develop better product.

7.

Create personas.

8.

Customize features.

THE SEGMENTATION PROCESS

Market segmentation, targeting, and positioning (STP) process- a fundamental concept and
understanding marketing and the strategies of firms.
9 steps in STP process
1 Define the market for organization.
2 Create market segment.
3 Evaluate the segments and set criteria.
4 Construct segments profiles.
5 Evaluate the attractiveness of the segments.
6 Select target markets.
7 Develop positioning strategy.
8 Develop and implement marketing mix.
9 Review performance.

FACTORS INFLUENCING CONSUMER BEHAVIOR

SOCIAL INFLUENCES

social factors are among the factors influencing consumer behavior significantly.

Three categories of social influences

1.
Reference groups and membership groups- is the group whose perspective an individual takes on
in forming values, beliefs, attitudes, opinions, and overt behaviors. One considers this group as a point of
reference when evaluating how they view their own existence in the world. Reference groups can be very
small (just a few close friends) or fairly large (a sports team fan club or even a political party).

2.
Family-The family is maybe the most influencing factor for an individual. It forms an environment of
socialization in which an individual will evolve, shape his personality, acquire values. But also develop
attitudes and opinions on various subjects such as politics, society, social relations or himself and his
desires.
3.
Social roles and status-One aspect of social status is a consumer's economic status. Marketers
take into consideration the social class of the consumer when tailoring messaging to them. A social class
is a relatively "permanent" and ordered division in a society whose members share similar values,
interests, and behaviors. These classes have their own distinct reference groups, and often reference
groups in some classes will influence consumers who are members of a different social class. Different
social classes will tend to desire different categories of products as part of their consumer buyer behavior.

PERSONAL INFLUENCES

decision ad buying behavior obviously also influence by the characteristics of each consumer.

Categories

1.
Age and way of life- Age and life-cycle have potential impact on the consumer buying behavior. It is
obvious that the consumers change the purchase of goods and services with the passage of time. Family
life-cycle consists of different stages such young singles, married couples, unmarried couples etc which
help marketers to develop appropriate products for each stage.
2.
Purchasing power and revenue- The occupation of a person has significant impact on his buying
behavior. For example a marketing manager of an organization will try to purchase business suits,
whereas a low level worker in the same organization will purchase rugged work clothes.
3.
Lifestyle- Lifestyle of customers is another import factor affecting the consumer buying behavior.
Lifestyle refers to the way a person lives in a society and is expressed by the things in his/her
surroundings. It is determined by customer interests, opinions, activities etc. and shapes his whole pattern
of acting and interacting in the world.
4.
Personality and Self concept- Personality changes from person to person, time to time and place to
place. Therefore it can greatly influence the buying behavior of customers. Actually, Personality is not what
one wears; rather it is the totality of behavior of a man in different circumstances. It has different
characteristics such as: dominance, aggressiveness, self-confidence etc which can be useful to determine
the consumer behavior for particular product or service.

PSYCHOLOGICAL INFLUENCES

Convincing consumers that you're selling what they ought to be buying forms the central job of the
marketer and advertiser. Marketing plans the strategies and tactics; advertising implements them and
spreads the message. To succeed in positioning your brand as the right solution to consumers' problems
or needs, take advantage of the psychological tenets that explain and predict what people buy. Four basic
factors underlie the decisions consumers make when they spend.
Categories
1. Motivation- The level of motivation also affects the buying behavior of customers. Every person has
different needs such as physiological needs, biological needs, social needs etc. The nature of the needs is
that, some of them are most pressing while others are least pressing. Therefore a need becomes a motive
when it is more pressing to direct the person to seek satisfaction.
2. Perception- Selecting, organizing and interpreting information in a way to produce a meaningful
experience of the world is called perception. There are three different perceptual processes which are
selective attention, selective distortion and selective retention. In case of selective attention, marketers try
to attract the customer attention. Whereas, in case of selective distortion, customers try to interpret the
information in a way that will support what the customers already believe. Similarly, in case of selective
retention, marketers try to retain information that supports their beliefs.
3. Learning- Consumers can gain decision-making information from advertising, especially about products
in categories beyond their experience. If a commercial message convinces consumers to try a product but
their post-purchase experiences prove dissatisfying, they learn to avoid that product, even if it changes
enough to negate their prior dissatisfaction. In response, the advertiser must try to teach consumers
another message about the product, one that removes prior conditioning in favor of new information.

4. Beliefs and attitudes- Customer possesses specific belief and attitude towards various products. Since
such beliefs and attitudes make up brand image and affect consumer buying behavior therefore marketers
are interested in them. Marketers can change the beliefs and attitudes of customers by launching special
campaigns in this regard.

CONSUMER SEGMENTATION CRITERIA

A. Demographic Segmentation:
Demographic segmentation divides the markets into groups based on variables such as age, gender,
family size, income, occupation, education, religion, race and nationality. Demographic factors are the
most popular bases for segmenting the consumer group. One reason is that consumer needs, wants, and
usage rates often vary closely with the demographic variables. Moreover, demographic factors are easier
to measure than most other type of variables.
1. Age:
It is one of the most common demographic variables used to segment markets. Some companies offer
different products, or use different marketing approaches for different age groups. For example,
McDonalds targets children, teens, adults and seniors with different ads and media. Markets that are
commonly segmented by age includes clothing, toys, music, automobiles, soaps, shampoos and foods.
2. Gender:
Gender segmentation is used in clothing, cosmetics and magazines.
3. Income:
Markets are also segmented on the basis of income. Income is used to divide the markets because it
influences the peoples product purchase. It affects a consumers buying power and style of living. Income
includes housing, furniture, automobile, clothing, alcoholic, beverages, food, sporting goods, luxury goods,
financial services and travel.
4. Family cycle:
Product needs vary according to age, number of persons in the household, marital status, and number
and age of children. These variables can be combined into a single variable called family life cycle.
Housing, home appliances, furniture, food and automobile are few of the numerous product markets
segmented by the family cycle stages. Social class can be divided into upper class, middle class and
lower class. Many companies deal in clothing, home furnishing, leisure activities, design products and
services for specific social classes.
B. Geographic Segmentation:
Geographic segmentation refers to dividing a market into different geographical units such as nations,
states, regions, cities, or neighbourhoods. For example, national newspapers are published and distributed to different cities in different languages to cater to the needs of the consumers.
Geographic variables such as climate, terrain, natural resources, and population density also influence
consumer product needs. Companies may divide markets into regions because the differences in
geographic variables can cause consumer needs and wants to differ from one region to another.
C. Psychographic Segmentation:
Psychographic segmentation pertains to lifestyle and personality traits. In the case of certain products,
buying behaviour predominantly depends on lifestyle and personality characteristics.
1. Personality characteristics:
It refers to a persons individual character traits, attitudes and habits. Here markets are segmented
according to competitiveness, introvert, extrovert, ambitious, aggressiveness, etc. This type of
segmentation is used when a product is similar to many competing products, and consumer needs for
products are not affected by other segmentation variables.
2. Lifestyle:
It is the manner in which people live and spend their time and money. Lifestyle analysis provides
marketers with a broad view of consumers because it segments the markets into groups on the basis of
activities, interests, beliefs and opinions. Companies making cosmetics, alcoholic beverages and
furnitures segment market according to the lifestyle.

D. Behavioural Segmentation:
In behavioural segmentation, buyers are divided into groups on the basis of their knowledge of, attitude
towards, use of, or response to a product. Behavioural segmentation includes segmentation on the basis
of occasions, user status, usage rate loyalty status, buyer-readiness stage and attitude.
1. Occasion:
Buyers can be distinguished according to the occasions when they purchase a product, use a product, or
develop a need to use a product. It helps the firm expand the product usage. For example, Cadburys
advertising to promote the product during wedding season is an example of occasion segmentation.
2. User status:
Sometimes the markets are segmented on the basis of user status, that is, on the basis of non-user, exuser, potential user, first-time user and regular user of the product. Large companies usually target
potential users, whereas smaller firms focus on current users.
3. Usage rate:
Markets can be distinguished on the basis of usage rate, that is, on the basis of light, medium and heavy
users. Heavy users are often a small percentage of the market, but account for a high percentage of the
total consumption. Marketers usually prefer to attract a heavy user rather than several light users, and
vary their promotional efforts accordingly.
4. Loyalty status:
Buyers can be divided on the basis of their loyalty statushardcore loyal (consumer who buy one brand
all the time), split loyal (consumers who are loyal to two or three brands), shifting loyal (consumers who
shift from one brand to another), and switchers (consumers who show no loyalty to any brand).
5. Buyer readiness stage:
The six psychological stages through which a person passes when deciding to purchase a product. The
six stages are awareness of the product, knowledge of what it does, interest in the product, preference
over competing products, conviction of the products suitability, and purchase. Marketing campaigns exist
in large part to move the target audience through the buyer readiness stages.

INVENTORY MANAGEMENT
INTRODUCTION

Every enterprise needs inventory for smooth running of its activities. It serves as a link between
production and distribution processes. There is, generally, a time lag between the recognition of need and
its fulfillment. The greater the time lag, the higher the requirements for inventory.
The investment in inventories constitutes the most significant part of current assets/working capital in most
of the undertakings. Thus, it is very essential to have proper control and management of inventories. The
purpose of inventory management is to ensure availability of materials in sufficient quantity as and when
required and also to minimize investment in inventories.

MEANING AND NATURE INVENTORY

In accounting language it may mean stock of finished goods only. In a manufacturing concern, it may
include raw materials, work in process and stores, etc. Inventory includes the following things:
(a) Raw Material: Raw material form a major input into the organization. They are required to carry out
production activities uninterruptedly. The quantity of raw materials required will be determined by the rate
of consumption and the time required for replenishing the supplies. The factors like the availability of raw
materials and government regulations etc. too affect the stock of raw materials.
(b) Work in Progress: The work-in-progress is that stage of stocks which are in between raw materials and
finished goods. The raw materials enter the process of manufacture but they are yet to attain a final shape
of finished goods. The quantum of work in progress depends upon the time taken in the manufacturing
process. The greater the time taken in manufacturing, the more will be the amount of work in progress.
(c) Consumables: These are the materials which are needed to smoothen the process of production.
These materials do not directly enter production but they act as catalysts, etc. Consumables may be
classified according to their consumption and criticality.

(d) Finished goods: These are the goods which are ready for the consumers. The stock of finished goods
provides a buffer between production and market. The purpose of maintaining inventory is to ensure
proper supply of goods to customers.
(e) Spares: Spares also form a part of inventory. The consumption pattern of raw materials, consumables,
finished goods are different from that of spares. The stocking policies of spares are different from industry
to industry. Some industries like transport will require more spares than the other concerns. The costly
spare parts like engines, maintenance spares etc. are not discarded after use, rather they are kept in
ready position for further use.

BENEFITS OF HOLDING INVENTORIES

There are three main benefits or motives of holding inventories:

1. The Transaction Motive which facilitates continuous production and timely execution of sales
orders.
2. The Precautionary Motive which necessitates the holding of inventories for meeting the
unpredictable changes in demand and supplies of materials.
3. The Speculative Motive which induces to keep inventories for taking advantage of price
fluctuations, saving in re-ordering costs and quantity discounts, etc.

RISK AND COST OF HOLDING INVENTORIES

The holding of inventories involves blocking of a firms funds and incurrence of capital and other costs. It
also exposes the firm to certain risks. The various costs and risks involved in holding inventories are as
below:
1. Capital costs: Maintaining of inventories results in blocking of the firms financial resources. The
firm has, therefore, to arrange for additional funds to meet the cost of inventories. The funds may
be arranged from own resources or from outsiders. But in both cases, the firm incurs a cost. In the
former case, there is an opportunity cost of investment while in later case the firm has to pay
interest to outsiders.
2. Cost of Ordering: The costs of ordering include the cost of acquisition of inventories. It is the cost of
preparation and execution of an order, including cost of paper work and communicating with
supplier. There is always minimum cot involve whenever an order for replenishment of good is
placed. The total annual cost of ordering is equal to cost per order multiplied by the number of
order placed in a year.
3. Cost of Stock-outs: A stock out is a situation when the firm is not having units of an item in store but
there is demand for that either from the customers or the production department. The stock out
refer to demand for an item whose inventory level is reduced to zero and insufficient level. There is
always a cost of stock out in the sense that the firm faces a situation of lost sales or back orders.
Stock out are quite often expensive.
4. Storage and Handling Costs. Holding of inventories also involves costs on storage as well as
handling of materials. The storage costs include the rental of the good own, insurance charge etc.
5. Risk of Price Decline. There is always a risk of reduction in the prices of inventories by the
suppliers in holding inventories. This may be due to increased market supplies, competition or
general depression in the market.
6. Risk of Obsolescence. The inventories may become obsolete due to improved technology, changes
in requirements, change in customers tastes etc.
7. Risk Deterioration in Quality: The quality of the materials may also deteriorate while the inventories
are kept in stores.

OBJECTIVES OF INVENTORY MANAGEMENT

The main objectives of inventory management are operational and financial. The operational objectives
mean that the materials and spares should be available in sufficient quantity so that work is not disrupted
for want of inventory. The financial objective means that investments in inventories should not remain idle
and minimum working capital should be locked in it. The following are the objectives of inventory
management:
(1) To ensure continuous supply of materials spares and finished goods so that production should not
suffer at any time and the customers demand should also be met.
(2) To avoid both over-stocking and under-stocking of inventory.

(3) To keep material cost under control so that they contribute in reducing cost of production and overall
costs.
(4) To minimize losses through deterioration, pilferage, wastages and damages.
(5) To ensure perpetual inventory control so that materials shown in stock ledgers should be actually
lying in the stores.
(6) To ensure right quality goods at reasonable prices.
(7) To maintain investments in inventories at the optimum level as required by the operational and sales
activities.
(8) To eliminate duplication in ordering or replenishing stocks. This is possible with help of centralizing
purchases.
(9) To facilitate furnishing of data for short term and long term planning and control of inventory.
(10) To design proper organization of inventory. A clear cut accountability should be fixed at various levels
of management.

OPTIMUM STOCK HOLDING

From the perspective of a retail store, the inventory is the stock of tangible goods to be sold at that store.
A store is interested in carrying an "optimal" inventory. Various factors come into place when considering
what is an ideal inventory level, such as having the necessary products available in the right quantity at
the right time, while minimizing the cost of ordering and carrying the goods.

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

Effective Inventory management requires an effective control system for inventories. A proper inventory
control not only helps in solving the acute problem of liquidity but also increases profits and causes
substantial reduction in the working capital of the concern

DETERMINATION OF STOCK LEVELS

Carrying of too much and too little of inventories is detrimental to the firm. If the inventory level is too little,
the firm will face frequent stock-outs involving heavy ordering cost and if the inventory level is too high it
will be unnecessary tie-up of capital. Therefore, an efficient inventory management requires that a firm
should maintain an optimum level of inventory where inventory costs are the minimum and at the same
time there is not stock-out which may result in loss of sale or stoppage of production. Various stock levels
are discussed as such.
(a) Minimum Level: This represents the quantity which must be maintained in hand at all times. If stocks
are less than the minimum level then the work will stop due to shortage of materials. Following factors
are taken into account while fixing minimum stock level:
Lead Time: A purchasing firm requires some time to process the order and time is also required by
supplying firm to execute the order. The time taken in processing the order and then executing it is known
as lead time.
Rate of Consumption: It is the average consumption of materials in the factory. The rate of consumption
will be decided on the basis pas experiences and production plans.
Nature of Material: The nature of material also affects the minimum level. If material is required only
against special orders of customer then minimum stock will not be required for such materials.
Minimum stock level = Re-ordering level-(Normal consumption x Normal Re-order period).
(b) Re-ordering Level: When the quantity of materials reaches at a certain figure then fresh order is sent to
get materials again. The order is sent before the materials reach minimum stock level. Reordering level is
fixed between minimum and maximum level. The rate of consumption, number of days required to
replenish the stock and maximum quantity of material required on any day are taken into account while
fixing reordering level.
Re-ordering Level = Maximum Consumption x Maximum Re-order period.

(c) Maximum Level: It is the quantity of materials beyond which a firm should not exceed its stocks. If the
quantity exceeds maximum level limit then it will be overstocking. A firm should avoid overstocking
because it will result in high material costs.
Maximum Stock Level = Re-ordering Level+ Re-ordering Quantity -(Minimum Consumption x Minimum
Re-ordering period).
(d) Danger Level: It is the level beyond which materials should not fall in any case. If danger level arises
then immediate steps should be taken to replenish the stock even if more cost is incurred in arranging the
materials. If materials are not arranged immediately there is possibility of stoppage of work.
Danger Level = Average Consumption x Maximum reorder period for emergency purchases.
(e) Average Stock Level
The average stock level is calculated as such:
Average Stock level = Minimum Stock Level + of re-order quantity

DETERMINATION OF ECONOMIC ORDER QUANTITY

A decision about how much to order has great significance in inventory management. The quantity to be
purchased should neither be small nor big because costs of buying and carrying materials are very high.
Economic order quantity is the size of the lot to be purchased which is economically viable. This is the
quantity of materials which can be purchased at minimum costs. Generally, economic order quantity is the
point at which inventory carrying costs are equal to order costs. In determining economic order quantity it
is assumed that cost of a managing inventory is made of solely of two parts i.e. ordering costs and
carrying costs.
(A) Ordering Costs: These are costs that are associated with the purchasing or ordering of materials.
These costs include:
(1) Inspection costs of incoming materials.
(2) Cost of stationery, typing, postage, telephone charges etc.
(3) Expenses incurred on transportation of goods purchased. These costs are also know as buying costs
and will arise only when some purchases are made.
(B) Carrying Costs: These are costs for holding the inventories. These costs will not be incurred if
inventories are not carried. These costs include:
(1) The cost of capital invested in inventories. An interest will be paid on the amount of capital locked up
in inventories.
(2)

Cost of storage which could have been used for other purposes.

(3)

Insurance Cost

(4)

Cost of spoilage in handling of materials

Assumptions of EOQ: While calculating EOQ the following assumptions are made.
1.

The supply of goods is satisfactory. The goods can be purchased whenever these are needed.

2.

The quality to be purchased by the concern is certain.

3.

The prices of goods are stable. It results to stabilise carrying costs.

ABC ANALYSIS

Under A-B-C analysis, the materials are divided into three categories viz, A, B and C. Past experience has
shown that almost 10 per cent of the items contribute to 70 percent of value of consumption and this
category is called A Category. About 20 per cent of value of consumption and this category is called A
Category. About 20 per cent of the items contribute about 20 per cent of value of consumption and this is
known as category B materials. Category C covers about 70 per cent of items of materials which
contribute only 10 per cent of value of consumption. There may be some variation in different
organizations and an adjustment can be made in these percentages.
he information is shown in the following diagram:

Class

No. of Items (%)

Value of Items (%)

10

70

20

20

70

10

A-B-C analysis helps to concentrate more efforts on category A since greatest monetary advantage will
come by controlling these items. An attention should be paid in estimating requirements, purchasing,
maintaining safety stocks and properly storing of A category materials. These items are kept under a
constant review so that substantial material cost may be controlled. The control of C items may be
relaxed and these stocks may be purchased for the year. A little more attention should be given towards
B category items and their purchase should be undertaken a quarterly or half-yearly intervals.

VED ANALYSIS

The VED analysis is used generally for spare parts. The requirements and urgency of spare parts is
different from that of materials. A-B-C analysis may not be properly used for spare parts. Spare parts are
classified as Vital (V), Essential (E) and Desirable (D) The vital spares are a must for running the concern
smoothly and these must be stored adequately. The non-availability of vital spares will cause havoc in the
concern. The E type of spares are also necessary but their stocks may be kept at low figures. The
stocking of D type of spares may be avoided at times. If the lead time of these spares is less, then
stocking of these spares can be avoided.

PERPETUAL INVENTORY SYSTEM

Under the perpetual inventory system, an entity continually updates its inventory records to account for
additions to and subtractions from inventory for such activities as:
-

Received inventory items

Goods sold from stock
Items moved from one location to another
Items picked from inventory for use in the production process
Items scrapped

Thus, a perpetual inventory system has the advantages of both providing up-to-date inventory balance
information and requiring a reduced level of physical inventory counts. However, the calculated inventory
levels derived by a perpetual inventory system may gradually diverge from actual inventory levels, due to
unrecorded transactions or theft, so you should periodically compare book balances to actual on-hand
quantities, and adjust the book balances as necessary.
Perpetual inventory is by far the preferred method for tracking inventory, since it can yield reasonably
accurate results on an ongoing basis, if properly managed. The system works best when coupled with a
computer database of inventory quantities and bin locations, which is updated in real time by the
warehouse staff using wireless bar code scanners, or by sales clerks using point of sale terminals. It is
least effective when changes are recorded on inventory cards, since there is a significant chance that
entries will not be made, will be made incorrectly, or will not be made in a timely manner.
The perpetual inventory system is a requirement for any organization planning to install a material
requirements planning system.
BUYING FORMULA THEORY OF MARKETING
There has been a lot of research by behavioral scientists and marketing scholars to examine whether
selling is an art or science and various theories have been developed to explain the buyer-seller buying
process. The process of influencing others to buy may be viewed from four different angles on the basis of
different theories: thus there are four theories of selling viz.
1. AIDAS theory of personal selling
2. Right Set of Circumstances theory of selling
3. Buying Formula theory of selling

4. Behavioral Equation theory

The first two of the four above-mentioned theories, are seller oriented and the third one is buyers
oriented. The fourth one emphasizes the buyers decision process but also takes the salespersons
influence process into account.

AIDAS Theory of Selling:

This theory, popularly known as AIDAS theory (attention, interest, desire, action and satisfaction), is based
on experimental knowledge. This theory is very common.
According to this theory potential buyers mind passes through the following stages:
1. Attention Getting:
It is the crucial step in the AIDAS process. The objective is to put the prospect into the right state of mind
to continue the sales talk. The salesperson has to convince the prospect for participating in the face-toface interview. A good beginning of conversation may set the stage for a full sales presentation. The
salesperson must apply his social and psychological skills to draw the attention of the prospect to his
sales presentation.
2. Interest Creating:
The second step is to intensify the prospects attention so that it involves into strong interest. To achieve
this, the salesperson has to be enthusiastic about the product. Another method is to hand over the product
to the prospect and let him handle it. Brochures and other visual aids serve the same purpose.
Throughout the interest phase, the hope is to search out the selling appeal that is most likely to be
effective.
3. Desire Stimulating:
After the attention getting and creating interest, the prospect must be kindled to develop a strong desire
for the product. This is a ready-to-buy point. Objection from the prospect will have to be carefully handled
at this stage. Time is saved and the chances of making a sale improved if objections are anticipated and
answered before the prospect raises them.
4. Action Inducing:
If the presentation has been perfect, the prospect is ready to act, that is, to buy. Very often there may be
some hesitation on the part of the prospect at this stage. The salesperson should very carefully handle
this stage and try to close the deal effectively. Once the buyer has asked the seller to pack the product,
then it is the responsibility of the seller to reassure the customer that the decision was correct.
5. Satisfaction:
The customer should be left with the impression that the salesperson merely helped in deciding. After the
sale has been made, the salesperson should ensure that the customer is satisfied with the product. The
salesperson should sense the prospects mind and brief his talks.
Right set of circumstances Theory of Selling:
It is also called the situation-response theory. It has its psychological origin in experiments with animals.
The major emphasis of the theory is that a particular circumstance prevailing in a given selling situation
will cause the prospect to respond in a predictable way. The set of circumstances can be both internal and
external to the prospect. This is essentially a seller-oriented theory and it stresses that the salesman must
control the situation in such a way as to produce a sale ultimately.

Buying Formula Theory of Selling:

The buyers needs or problems receive major attention, and the salespersons role is to help the buyer to
find solutions. This theory purports to answer the question: What thinking process goes on in the
prospects mind that causes the decision to buy or not to buy? The name buying formula was given to
this theory by strong.
The theory is based on the fact that there is a need or a problem for which a solution must be
found which would lead to purchase decision, as shown below:

Whenever an individual feels a need, he is said to be conscious of a deficiency of satisfaction. The

solution will always be a product or service or both and they may belong to a producer or seller. The buyer
develops interest in buying a solution.
In purchasing, the solution involves two parts:
1. Product or service or both,
2. The brand name, manufacturer or the salesperson of the particular brand name:

The product or service (Brand name) must be considered adequate to satisfy the need and the buyer
must experience a pleasant feeling or anticipated satisfaction. This ensure the purchase.

Behavior Equation Theory of Selling:

This theory is a sophisticated version of the right set of circumstances and this theory was proposed by
Howard, using a stimulus response model and using large number of findings from behavioral research.
This theory explains buying behavior in terms of purchasing decision process, viewed as a phase of the
learning process, four essential elements of learning processes included in the stimulus response model
are drive, cues, response and reinforcement, which are given below, in brief:
1. Drive is a strong internal stimuli that impel buyers response. Innate drives stem from psychological
needs and learned drives such as striving for status or social approval.

2. Cues are weak stimuli that determine when the buyer will respond. Triggering cues activate the decision
process whereas new triggering cues influence the decision process.
3. Response is what the buyer does.
4. A reinforcement is any event that strengthens the buyers tendency to make a particular response.
Howard believed that selling effort and buying action variables are multiplicative rather than additive.
Therefore, Howard incorporated these four elements into a behavioral equation that is:
B=PDKV
P = Response or internal response tendency, i.e. the act of purchasing a brand or a particular supplier.
D = Present drive or motivation level
K = Incentive potential that is, the value of product or brand or its perceived potential value to the buyer.
V = Intensity of all cues: triggering, product or informational.

RETRIEVAL AND TRANSACTION PROCESSING SYSTEM

INTRODUCTION

THE STORAGE SYSTEM

PROCESSING SYSTEM

PHYSICAL CONTROLS OF STORES

AUTOMATED STORAGE/RETRIEVAL

METHOD OF STORING VARIOUS ITEMS

ADVANTAGE OF GOOD STORAGE METHOD

MATERIALS POSITION IN THE STORES

PRESERVATION OF MATERIALS

PRESERVATION METHODS

COST ASPECTS AND PRODUCTIVITY OF STORAGE SYSTEM

PROBLEMS AND DEVELOPMENTS

ISSUE SYSTEM

ISSUES OF MATERIALS

STORAGE EQUIPMENT AND MATERIALS

MATERIAL HANDLING EQUIPMENT

PERSONAL SELLING

INTRODUCTION

The terms `personal selling' and `Salesmanship' are often used without distinction. However there are
some vital differences between the two terms. Salesmanship is Seller initiated effort, that provides
prospective buyers within formation and motivates them to make favorable decisions concerning the
seller's products or services. `Personal Selling' is a highly distinctive form of promotion. It is basically a
two way communication involving not only individual but social behavior also. It aims at bringing the right
products to the right customers. It takes several forms. Including calls by company's sales representative,
assistance by a sales clerk, an informal invitation from one company executive to another. It is employed
for the purpose of creating produce awareness, stimulating interest, developing brand preference,
negotiating price etc. Thus keeping in view the diversified nature of personal selling, we would discuss in
this unit the Growing importance of personal selling, its changing role, functions and process.
THE GROWING IMPORTANCE--OF PERSONALSELLING
The increase in complexity of products has increased the importance of personal selling Manufacturers of
highly technical products such as computers, electronic typewriters, digital phones, microwave kitchen
appliances, remote control equipment etc. depend more heavily on personal selling than do grocery or
toiletry products manufacturers. Ever growing competition from, domestic and foreign sources have also
increased the importance of sales persons in the marketing effort of a firm. In personal selling company's
sales persons are often referred to as sales representative, salesman or sales girl they remain on the
company's payroll or work on commission basis or both to push the product in the market by positively
motivating the prospective customer through oral presentation or demonstrating the product in question.
Consumers want all sorts of goods and services but inertia may keep them from buying. Sales efforts
stimulate the consumption process by reducing people's inherent reluctance to make purchase decision.
In fact sales person act as catalyst in the market place..

When the nature of the product is such that the buyer needs special information in order to use it properly,
sales representative acts as a consultant to consumer, to apprise them of products technicalities and
usage. Sales persons also work out the details of manner and timing of given physical possession.
In case of industrial products, the promotion mix mostly consists of personal selling rather than
advertising. Being high value and complex product, personal contact with the customer is essential to
convince him of the product's quality and utility.
On the other hand, consumer product companies use personal selling together with advertising, to
influence prospect to try their brand. But personal selling in this case cannot substitute for advertising; it
can only be used tactically to intensify marketing effort, mainly because it is expensive.
Personal selling is more effective during product launching stage. For example: McDowell, used personal
selling tactics during launching of soft drink "SPRINT" in Delhi.
Similarly Eureka Forbes a manufacturer of appliances which includes vacuum cleaner and a number of
home care appliances adopted personal selling for its premium product vacuum cleaners. Since the
vacuum cleaner is a high value product and the concept is fairly new to the Indian market, demonstration

is necessary to convince buyers, and personal selling has successfully achieved this. Other Companies
e.g. Johnson and Johnson for its product in the so called `embarrassment' category, like sanitary napkins
or contraceptive used personal selling successfully.
During the product launching stage companies selling products like Richbru Coffee, Signal Toothpaste,
Surf, Dalda etc. utilised personal selling efforts.
The importance of Personal Selling in the Indian context stands out due to the following factors:
In the absence of the availability of all India media many companies find it expedient to extensively use
personal selling to achieve their promotional objectives.
Companies which cannot afford a large outlay for advertising on a regular basis also find personal selling
a more reliable method.
The vast network of our distribution system needs the support of the manufacturer sales force for market
combing as well as development.
Low levels of literacy and lack of adequate customer education regarding various products, make
personal selling a very effective method in product adoption particularly in the rural markets.
Orientation of Indian Consumers are such that they want the best value for their money, owing to high
marginal value of rupee, which necessitates personal selling.
The factors discussed above individually or in combination make personal selling an integral part of the
communication mix of the company.
SITUATIONS CONDUCIVE FOR PERSONALSELLING
In certain marketing situations, personal selling provides an effective and efficient solution to most of the
selling problems. However its economic efficiency relative to other element of the marketing mix needs to
be thoroughly appraised. Now we will discuss some of the situations when personal selling in a
company becomes more relevant.
Product Situation
Personal Selling is relatively more effective and economical in case:
1.
2.
3.
4.
5.
6.

When a product is of a high unit value like Xeroxing machine, computers etc.
When a product is in the introductory state of its life cycle and require creation of core demand.
A product requires personal attention to match specific consumer needs e.g. insurance policy.
Product requires demonstration e.g. most of the industrial products.
Product requires after-sales service.
Product has no brand loyalty or very poor brand loyalty.

Market Situation
1.
2.
3.
4.

Personal selling situation can be best utilized when:

A company is selling to a small number of large-size buyers.
A company sells in a small-local market or in government or institutional market.
Desired middle men or agents are not available.
An indirect channel of distribution is used for selling to merchant-middle men only.

Company Situation
Personal selling is relatively more effective and economical when:
1. The company is not in a position to identify and make use of suitable non- personal communication
media.
2. A company cannot afford to have a large and regular advertising, outlay.
Consumer Behavior Situation
Personal selling is more effective when:
1. Purchases are valuable but infrequent.
2. Consumer needs instant answers to his questions.
3. Consumer requires persuasion and follow-up in the face of competitive pressures.
THE CHANGING ROLES OF SALES PERSONS

Now we would discuss the changing role of sales persons. Owing to the increasing importance of
personal selling in recent times, the concept of personal salesman has undergone a sea change from a
fast talker to consultant. Now before discussing the selling styles one point should be noted that only welldeveloped and established companies have reached to consultant stage level, every selling task does not
require this. Still one or more than one strategies of personal selling discussed here are used in Indian
companies.
Persuasion Strategies
The persuasion level requires the sales representatives to go beyond the role of a mere communicator to
the role of understanding at least. The immediate and narrow needs of the customers. At this stage, the
sales representative tries to fit the customer into the existing product or service mix by skillfully
anticipating and overcoming objection. This is what Indian market is experiencing.
Negotiation Strategies
During negotiation, the product and commercial terms are adjusted to meet the customer's needs rather
than just attempting to skillfully overcoming objections as practiced in previous stages. The critical skill at
this stage of selling is analyzing and understanding the customer needs and determining how the
company's products and services can meet these needs. At this point, the customer becomes a client and
the. Process of consultative selling begins.
Client Profit-planning Strategies
In India, client profit-planning strategy is applicable in industrial product selling. The representative is put
to work with clients team to learn about profit-planning system, product, finance, marketing, research and
development and future plans etc. so that the product meeting the client's needs could be developed.
Business Management Strategies
At this stage professional representative is responsible for managing territory as a strategic business unitinvesting time and expenses in most profitable manner. Few Indian Companies are using a system of
national account management (like Modi Xerox) in which manager is responsible for all sales to a few key
accounts. Territory representatives along with sales managers and accounts managers develop business
strategies and bottom line responsibility to meet objectives of the organization.
DIVERSITY OF SELLING SITUATIONS
All of us being consumers often come across variety of selling situations. Differences in marketing factors
cause each company to have individualized selling styles. Each different type of selling job requires the
sales person-to perform' a variety of different tasks and activities under different circumstances. The job of
a soft drink driver salesperson who calls in routine fashion on a number of retail stores is different from
that of a computer sales person who sells a system for managing information to executive of a
consultancy firm.
Before categorizing sales persons into basic selling styles, one convenient way to classify, the many
different types of sales job is to array them on the basis of the creative skill required in the job, from simple
service - or repeat order selling to the complex developmental selling. Let us now discuss the different
kinds of selling positions prevalent 'in Indian companies.
Delivery Sales person
The primary job of the delivery sales person is to deliver the product e.g., soft drink, bread, milk etc. The
selling responsibilities are secondary. Good service and a pleasant personality may lead to more sales.
Inside Order Taker
The retail sales person standing behind a counter is an inside order taker. The customer comes to the
sales person with the intention to buy a product or service, the sales person only serves him or her. The
sales person may use suggestion selling but ordinarily cannot do much more.
Outside Order Taker
The soap or spices sales person calling on retailer is an outside order taker. They do little creative selling.
In contract with store personnel these representatives actually may be discouraged from doing any hard
selling. That task is left to executives higher in the hierarchy.
Missionary Sales People

These sales persons we not expected or permitted to solicit an order. Their job is to build goodwill or to
educate actual or potential user or provide services for the customers, as in the case of Medical
representatives, working for the pharmaceutical company.
Creative Sales person of Tangible Products
In sales job it is often difficult to conduct creative selling for tangible product such as vacuum cleaners,
Automobiles, Airplanes, encyclopedias etc. The job happens to be difficult because the customers may not
be aware of their need for the product or they may not realize how new products can satisfy their wants
better than those they are presently using. When the product is of a technical nature, this category may
overlap that of the Sales Engineer.
Creative Sales person of Intangible Product
Saws of intangible products such as insurance, advertising services, consulting services, communication
systems or educational program, require creativity of sales person to handle me situation. Generally
selling the intangible products is difficult as their benefits cannot be demonstrated tangibly. From the
above mentioned variety of sales job it, is clear that different sales position require different amount and
kinds of skills. In today's market where self-service stores and counters have made the selling task easier,
technically developed products or intangible items require greater amount of creativity and perseverance,
on the part of sales person. To facilitate an understanding of the various roles of sakes person, they can
be grouped into four task specific determinants such as, consultative, technical commercial and direct
sales.
Consultative Sales
Consultative sales are characterized by the product or service that is sold at the higher level of an
organization e.g. computer system or management consultancy service. The decision to purchase such
products involves higher capital outlay thus sales job requires a low key, low pressure approach by the
sales person. It would also require a very strong knowledge about product, patience to discuss product
with several people of organization and potential benefits to the user. Even at times when the progress of
sales slows down representative has to make creative and sensitive efforts to resume interest but without
appearing to exert pressure on the prospect.
Technical Sales
The most distinctive characteristic of technical sales is the product knowledge required by its sales
person, unlike the consultative sales, where sophistication in organization relationship and persuasive
ability we sales persons' most valuable assets. Even time required to sell the product is relatively less than
consultative sales. Most of the technical purchasing requires approval of several people but only one or
two pups with technical knowledge influence decision. If the sales representative is able to satisfy; these
people with product characteristics, application installation process approval from higher management is
usually forthcoming. The technical sales persons though not strangers to the process of making a sale,
are trained to utilize the rational approach; by going into details of product utility and features.
Commercial Sales
This field generally includes non-technical sales to business, industry, government and non-profit
organization office equipment, wholesale goods, building products, business services and others. Unlike
the previous two types, it is customary for the commercial sales person to make sales on first or second
call. The process stresses approach to right person (decision maker), making a smooth presentation and
closing the sales. The field is composed of order takers, to follow up and maintenance of accounts and
order getter, to develop new accounts. Since these require different approaches, they normally require
different personality traits e.g. the order getter are more aggressive and more highly motivated.
Direct Sales
Direct sales are primarily concerned with the sales of products and services to ultimate consumers e.g.
restaurants, door to door sales, insurance, encyclopedias, magazines etc. There is normally some
emotional appeal associated with this type of selling, thus sales persons are required to possess strong
persuasive ability. Often length of time to close sales is shortest in the case of above product categories.
In fact, sales persons are trained to close the sales on the first visit because it is felt if consumers are
given time, they will either cool off from buying or will buy from competitor.
QUALITIES OF A GOOD SALES PERSONNEL
Some people say salesmen are born salesmen, while others believe that training can help in making good
salesmen. Irrespective of these opinions, good salesman has certain qualities and abilities as a result he

is able to perform better than others. In this section we would discuss qualities of a good sales person.
Philip Kolter has identified two basic qualities of a good sales person namely, empathy and persuasion.
But others have listed more. Some of the qualities of a good sales person are as follows
1. Ability to estimate customer's needs and desires:
He is alert and quickly determines what the customer wants and the best way to sell.
2. Ambition:
He likes to do a good job and is interested in getting ahead with your company.
3. Appearance:
Appearances mean a lot toady and the successful salesman is neat and organized. He presents himself
well in person. Also, he keeps his desk books and manuals neat and ready for use.
4. Business Sense:
He understands that you are in business to make a profit and quickly learns the ins- and -outs of your
organization
5. Courtesy:
He reveals a sincere desire to help customers and treats them as guests even when he visits their places
of business.
6. Creativeness:
Imagination, vision and the ability to create ideas make your man dynamic.
7. Curiosity:
He wants to learn all he can about his job, his products and his customers.
8. Enthusiasm:
There is nothing that can drain away a prospect's buying interest more than a half-dead salesman.
Dullness should be left at home. A sales man must radiate enthusiasm during and after the sales call.
9. Figure Sense:
He should have the mathematical ability to figure and fill up order form correctly and to make the
necessary reports.
10. Flexibility:
A good salesman is able to adapt himself to a variety of customers. Each contact may require a adapting
the sales talk, speech habits and evenappearance.
11. Friendliness:
A salesman should be able to make people like him and he must like to meet people.
12. Handwriting:
He must write legibly so that his paper work can be readily understood by his office people and by his
customers.
13. Health:
Good health generates energy and energy is needed to sell. Poor health prevents many salesmen from
fulfilling their potentials.
14. Integrity:
A salesman must be trusted to do his job well. He cannot help but he successful when his customers trust
him.
15. Interest in his job:
He likes selling and working for your company.

16. Knowledge:
In some business, an applicant must also have a thorough knowledge of the highly specialized products
or services his employer offers. In some cases, this knowledge can be gained only by years of
experience.
17. Loyalty:
He must be able to impress upon his customers the idea that his company is the best in the business.
18. Mental abilities:
He has the intelligence to understand your products and those of your competitors. He must know how to
use words, to understand and direct people' and to remember names and faces. He should also be able
to understand prospective customers and know how to act under varying conditions.
19. Motivation:
He must have more than just an interest is selling. Psychologists have found certain predominant
patterns in men who have become realty successfully sales men. They live in the present and not in the
future. They do want power over others and prefer not to work under close supervision.
20. Originality:
He is constantly searching for new ideas to be used in selling your products and will suggest better ways
of doing things.
21. Persuasiveness:
Very few products of any type actually sell themselves. They must be sold. Your man must have the ability
to get people to agree, There are situations when persuasiveness may vary keeping in view the
consumer's response.
22. Poise:
His maturity is reflected in his behavior. He should be positive and confident, energetic and businesslike.
He should be able to demonstrate to your customers that he knows what he is talking about.
23. Self-starter:
Your man works well without constant supervision and is able to make decisions on his own.
24. Speech:
He can speak clearly and maturely in a natural tone. He can emphasize sales points with sincerity and
friendliness.
THE SCOPE OF ACTIVITIES IN SALES SITUATIONS
A typical day in a sales person's life includes making certain number of calls, opening of new accounts,
analyzing the account lost, if any, sales presentation, closing of initiated sales preparing daily reports and
keeping records of transactions. We would now discuss some of the important activities.
Problem Solving Activity for the Customer
Problem solving requires substantial knowledge and decision making skill. In the case where prospective.
Customers are not aware of utility of products or services in question, there is a problem. The sales
person can contribute by identifying and suggesting best solution for it. In many sales situations, these
activities make up a substantial part of the total sales effort.
Coordinating Buyers and Sellers Activities
With the multifarious and complex system of today business situation there is a need for a catalyst to bring
together and work with the parallel departments of supplier and customer. Most of the sales persons are in
position to perform this function.
Attending Conventions
In conventions organized by company, sales persons interact with their peers about work situations and
problems and arrive at a consensus of opinion on issues which impinge on their work. Conventions range
in nature from company convention to industry -convention. They may be local, national or international in

nature. These are important motivational and inspirational tools for the sales persons whose
broad purposes are to:
1.
2.
3.
4.

Provide strength to the sales persons identity with the company to executive.
Exchange information with sales persons.
Provide specialized training.
Provide sales persons with a change of pace.

Attending Trade Show

Trade shows are held seasonally or annually. Sales persons usually attend these trade fair not only to
achieve sales, but also to understand competition's products and prices. Technological advancement in
different area is also communicated to them through these trade shows. Ever since Trade Fair Authority of
India has been set up various types of fairs and exhibitions including the Annual India International Trade
Fair are being held more regularly.
Attending Educational Workshops Many lines of sales work afford the opportunity for continued formal education throughout a career. Many
companies like NTPC, GNGC, TISC, etc. require their sales persons to follow a continued program of
studies in addition to company training.
Keeping Records
The job of sales person is not finished until the paper work is completed. A sales person has to prepare
daily call reports including new accounts opening report account closing reports etc. It is understandable
that these records not only keep track of their day to day activities, but also provide past and present data
to undertake any future assessment.