Managerial Economics is both conceptual and metrical. Before the substantive decision problems which fall within the purview of managerial economics are discussed, it is useful to identify and under­stand some of the basic concepts underlying the subject.

Economic theory provides a number of con­cepts and analytical tools which can be of considerable and immense help to a manager in taking many decisions and business planning. This is not to say that economics has all the solutions. In fact, actual problem solving in business has found that there exists a wide disparity between economic theory of the firm and actual observed practice.

Therefore, it would be useful to examine the basic tools of managerial economics and the nature and extent of gap between the economic theory of the firm and the managerial theory of the firm. The contribution of economics to managerial economics lies in certain principles which are basic to managerial economics. There are six basic principles of managerial economics. They are:-

1. The Incremental Principle

The incremental concept is probably the most important concept in economics and is certainly the most frequently used in Managerial Economics. Incremental concept is closely related to the mar­ginal cost and marginal revenues of economic theory.

The two major concepts in this analysis are incremental cost and incremental revenue. Incremental cost denotes change in total cost, whereas incremental revenue means change in total revenue resulting from a decision of the firm.

The incremental principle may be stated as follows:

A decision is clearly a profitable one if

(i) It increases revenue more than costs.

(ii) It decreases some cost to a greater extent than it increases others.

(iii) It increases some revenues more than it decreases others.

(iv) It reduces costs more than revenues.

2. Marginal Principle

Marginal analysis implies judging the impact of a unit change in one variable on the other. Marginal generally refers to small changes. Marginal revenue is change in total revenue per unit change in output sold. Marginal cost refers to change in total costs per unit change in output produced (While incremental cost refers to change in total costs due to change in total output). The decision of a firm to change the price would depend upon the resulting impact/change in marginal revenue and marginal cost. If the marginal revenue is greater than the marginal cost, then the firm should bring about the change in price.

3. The Opportunity Cost Principle

Both micro and macro economics make abundant use of the fundamental concept of opportunity cost. In everyday life, we apply the notion of opportunity cost even if we are unable to articulate its significance. In Managerial Economics, the opportunity cost concept is useful in decision involving a choice between different alternative courses of action.

Resources are scarce, we cannot produce all the commodities. For the production of one com­modity, we have to forego the production of another commodity. We cannot have everything we want. We are, therefore, forced to make a choice.

Opportunity cost of a decision is the sacrifice of alternatives required by that decision. Sacrifice of alternatives is involved when carrying out a decision requires using a resource that is limited in supply with the firm. Opportunity cost, therefore, represents the benefits or revenue forgone by pursuing one course of action rather than another.

The concept of opportunity cost implies three things:

(i) The calculation of opportunity cost involves the measurement of sacrifices.

(ii) Sacrifices may be monetary or real.

(iii) The opportunity cost is termed as the cost of sacrificed alternatives.

Opportunity cost is just a notional idea which does not appear in the books of account of the company. If resource has no alternative use, then its opportunity cost is nil.

In managerial decision making, the concept of opportunity cost occupies an important place. The economic significance of opportunity cost is as follows:

(i) It helps in determining relative prices of different goods.

(ii) It helps in determining normal remuneration to a factor of production.

(iii) It helps in proper allocation of factor resources.

4. Discounting Principle

This concept is an extension of the concept of time perspective. Since future is unknown and incalculable, there is lot of risk and uncertainty in future. Everyone knows that a rupee today is worth more than a rupee will be two years from now. This appears similar to the saying that “a bird in hand is more worth than two in the bush.” This judgment is made not on account of the uncertainty surround­ing the future or the risk of inflation.

It is simply that in the intervening period a sum of money can earn a return which is ruled out if the same sum is available only at the end of the period. In technical parlance, it is said that the present value of one rupee available at the end of two years is the present value of one rupee available today. The mathematical technique for adjusting for the time value of money and computing present value is called ‘discounting’.

5. Concept of Time Perspective Principle

The time perspective concept states that the decision maker must give due consideration both to the short run and long run effects of his decisions. He must give due emphasis to the various time periods. It was Marshall who introduced time element in economic theory.

The economic concepts of the long run and the short run have become part of everyday language. Managerial economists are also concerned with the short run and long run effects of decisions on revenues as well as costs. The main problem in decision making is to establish the right balance between long run and short run.

In the short period, the firm can change its output without changing its size. In the long period, the firm can change its output by changing its size. In the short period, the output of the industry is fixed because the firms cannot change their size of operation and they can vary only variable factors. In the long period, the output of the industry is likely to be more because the firms have enough time to increase their sizes and also use both variable and fixed factors.

In the short period, the average cost of a firm may be either more or less than its average revenue. In the long period, the average cost of the firm will be equal to its average revenue. A decision may be made on the basis of short run considerations, but may as time elapses have long run repercussions which make it more or less profitable than it at first appeared.

6. Equi-Marginal Principle

One of the widest known principles of economics is the equi-marginal principle. The principle states that an input should be allocated so that value added by the last unit is the same in all cases. This generalization is popularly called the equi-marginal.

Let us assume a case in which the firm has 100 unit of labour at its disposal. And the firm is involved in five activities viz., А, В, C, D and E. The firm can increase any one of these activities by employing more labour but only at the cost i.e., sacrifice of other activities.

An optimum allocation cannot be achieved if the value of the marginal product is greater in one activity than in another. It would be, therefore, profitable to shift labour from low marginal value activity to high marginal value activity, thus increasing the total value of all products taken together.

Business firms are a combination of manpower, financial, and physical resources which help in making managerial decisions. Societies can be classified into two main categories production and consumption. Firms are the economic entities and are on the production side, whereas consumers are on the consumption side.

The performances of firms get analyzed in the framework of an economic model. The economic model of a firm is called the theory of the firm. Business decisions include many vital decisions like whether a firm should undertake research and development program, should a company launch a new product, etc.

Business decisions made by the managers are very important for the success and failure of a firm. Complexity in the business world continuously grows making the role of a manager or a decision maker of an organization more challenging! The impact of goods production, marketing, and technological changes highly contribute to the complexity of the business environment.

Steps for Decision Making

The steps for decision making like problem description, objective determination, discovering alternatives, forecasting cnsequences are described below:

Business Decision Making Steps

(i) Define the Problem

What is the problem and how does it influence managerial objectives are the main questions. Decisions are usually made in the firm’s planning process. Managerial decisions are at times not very well defined and thus are sometimes source of a problem.

(ii) Determine the Objective

The goal of an organization or decision maker is very important. In practice, there may be many problems while setting the objectives of a firm related to profit maximization and benefit cost analysis. Are the future benefits worth the present capital? Should a firm make an investment for higher profits for over 8 to 10 years? These are the questions asked before determining the objectives of a firm.

(iii) Discover the Alternatives

For a sound decision framework, there are many questions which are needed to be answered such as − What are the alternatives? What factors are under the decision maker’s control? What variables constrain the choice of options? The manager needs to carefully formulate all such questions in order to weigh the attractive alternatives.

(iv) Forecast the Consequences

Forecasting or predicting the consequences of each alternative should be considered. Conditions could change by applying each alternative action so it is crucial to decide which alternative action to use when outcomes are uncertain.

(v) Make a Choice

Once all the analysis and scrutinizing is completed, the preferred course of action is selected. This step of the process is said to occupy the lion’s share in analysis. In this step, the objectives and outcomes are directly quantifiable. It all depends on how the decision maker puts the problem, how he formalizes the objectives, considers the appropriate alternatives, and finds out the most preferable course of action.

Sensitivity Analysis

Sensitivity analysis helps us in determining the strong features of the optimal choice of action. It helps us to know how the optimal decision changes, if conditions related to the solution are altered. Thus, it proves that the optimal solution chosen should be based on the objective and well structured. Sensitivity analysis reflects how an optimal solution is affected, if the important factors vary or are altered.

Managerial economics is competent enough for serving the purposes in decision making. It focuses on the theory of the firm which considers profit maximization as the main objective. The theory of the firm was developed in the nineteenth century by French and English economists. Theory of the firm emphasizes on optimum utilization of resources, cost control, and profits in a single time period. Theory of the firm approach, with its focus on optimization, is relevant for small farms and producers.

Direct marketing is an advertising strategy that relies on the individual distribution of a sales pitch to potential customers. Mail, email, and texting are among the delivery systems used. It is called direct marketing because it generally eliminates the middleman such as advertising media.

Direct Marketing is a form of advertising in which companies provide physical marketing materials to consumers to communicate information about a product or service. Direct marketing does not involve advertisements placed on the internet, on television or over the radio. Types of direct marketing materials include catalogs, mailers and fliers.

Direct marketing removes the “middle man” from the promotion process, as a company provides a message directly to a potential customer. Companies with smaller advertising budgets typically use this type of marketing since they cannot afford to pay for advertisements on television and often do not have the brand recognition of larger firms.

Direct-marketing messages generally include a call to action, encouraging the recipient to respond via a toll-free phone number or a reply card or by clicking on a link in an email promotion. Companies are able to measure the effectiveness of their direct-marketing campaigns by tracking responses. Direct marketing is more effective when companies use targeted lists of prospects developed using available marketing data that can segment them into identifiable groups that are likely to have an interest in a product or service.

Unlike most marketing campaigns, direct marketing campaigns do not rely on advertising in mass media. Instead, they deliver their sales pitches by mail, by phone, or by email. Although the number of pitches sent can be massive, an attempt is often made to personalize the message, by inserting the recipient’s name or city in a prominent place.

The call to action is a common factor in much of direct marketing. The recipient of the message is urged to immediately respond by calling a toll-free phone number, sending in a reply card, or clicking on a link in an email promotion. Any response is a positive indicator of a prospective purchaser. This variety of direct marketing is often called direct response marketing.

Over the years direct marketing has developed a bad reputation for cluttering up people’s mail boxes with junk mail or generating spam in email inboxes. Many companies engage in opt-in or permission marketing, which limits their mailing or emailing to only those willing to receive it. Companies select communication channels they consider most effective for a particular market. For instance, a new gym may find more success distributing flyers, while a new grocery store prefers to mail promotional coupons to the residents of nearby neighborhoods.

Targeting in Direct Marketing

The most effective direct marketing campaigns use lists of targeted prospects in order to send their messages only to the likeliest prospects. The lists might target families who have recently had a baby, or new homeowners, or recent retirees with products or services that they are most likely to need.

Catalogs are a form of direct marketing with a history that dates back to the latter half of the 19th century. In modern times, catalogs are usually sent only to consumers who have indicated an interest in a previous purchase of a similar product.

The Advantages and Disadvantages of Direct Marketing

A direct marketing pitch that is delivered to the widest possible audience is probably the least effective. That is, the company may gain a few customers while merely annoying all of the other recipients. Junk mail, spam email, and texting all are forms of direct marketing that many people can’t get rid of fast enough.

Many companies engage in opt-in or permission marketing, which limits their mailing or emailing to people who have indicated a willingness to receive it. Lists of opt-in subscribers are particularly valuable as they indicate a real interest in the products or services being advertised.

Who Uses Direct Marketing

Despite its drawbacks, direct marketing has its appeal, particularly to companies on a shoestring budget who can’t afford to pay for television or internet advertising campaigns.

Direct marketing is the preferred advertising strategy for small local businesses, which can distribute hundreds of flyers, coupons, or menus for less than it would cost them to place an ad or make a commercial.

By its nature, the effectiveness of a direct marketing campaign is easier to measure than other types of advertising. This is because they often contain a call to action. The company an measure its success by how many consumers make the call, return the card, use the coupon, or click on the link.

• Direct marketing relies on distribution to individual consumers rather than advertising in mass media.
• The call to action is a common factor in much of direct marketing.
• The effectiveness of direct marketing is easier to measure than media advertising.

Advertising is one of the widely used techniques of promotion, wherein modes like television, radio, newspapers, internet, etc. are used for creating demand or interest of the customers towards the product or services offered by the company. On the other hand, personal selling is the verbal communication of the message, to one or more customers, so as to create sales.

Both advertising and personal selling are two major elements of promotion mix, which is employed by the organization to reach communication objectives. Advertising differs from personal selling, in the fact that the former is a monolog activity, but the latter is dialogue.

Advertising

Advertising can be defined as the act of drawing the attention of the target audience, towards a product or service. It is an impersonal, paid message, delivered to the general public with the sole aim of creating demand for the product and thus increasing sales. It has a great role to play in marketing, to make people aware of the product.

The sponsors of the advertisement, have full control over it. The advertising message is aired through various channels like radio, television, magazines, newspapers, posters, billboards, websites, blogs, apps, text messages, social networks, e-mail, etc.

Advertising aims at creating such an image in the minds of the audience, that they are instigated to purchase that product. The greatest advantage of advertising is its range, i.e. it reaches a large number of people in one go.

Personal Selling

Personal Selling, as the name signifies, is a promotional tool, where companies use sales force, to increase sales of product and services.

Under personal selling, there is a face to face meeting between the clients or customers and the sales representative, wherein the representatives visit customers personally, so as to transact a sale, by offering and inducing them to make a purchase. Personal Selling involves developing a strong relationship with customers, discovering their needs and providing them such products, which satisfy their needs.

The process requires huge workforce to cover the entire market. Moreover, proper training is also an important requirement of this process, to deal with different types of customers and instigating them to buy the product.

The difference between advertising and personal selling, are as follows:

1. Advertising alludes to paid form of communication, which commercializes product or service, offered by an identified sponsor, to increase sales. On the other hand, a form of promotion, wherein the sales personnel sells the product to customers, by directly visiting them, is known as personal selling.
2. While advertising is a one-way communication, wherein the message is transmitted to the customers, personal selling is a two-way communication, wherein the message is transmitted to customers, as well as feedback is provided simultaneously.
3. Advertising is a non-personal form of communication the message reaches the target audience after it is being aired. On the contrary, personal selling, as the name suggest involves salesman visit to customer’s place individually, which is a personal form of communication.
4. Advertising uses pull strategy, which draws public attention and persuades them to buy the product. As against, personal selling uses push strategy, which induces them to buy the product.
5. In advertising, the flexibility is missing, as the message is standardized and cannot be changed according to customers. In contrast, personal selling uses customized messages.
6. Advertising uses mass media, like radio, television, hoardings, the internet, blogs, apps, newspaper, etc. On the flip side, in personal selling, salesman delivers the message, personally to the target audience.
7. Advertising conveys a message to end number of individual in less time. As against this, personal selling conveys the message to a few customers only in relatively high time.
8. There is a lack of feedback in advertising, whereas, in personal selling, feedback is always present.

There are hundreds of advertisements, that we go through almost every day, that are used for commercial or social purposes. These are messages, which reach us through various mediums, though we do not recognize them they are present.

Personal selling involves direct contact between the seller and buyer. It is one of the best technique used for business customers.

Sales promotion is an important tool of promotion which supplements personal selling and advertising efforts. According to American Marketing Association, “Sales promotion includes those marketing activities, other than personal selling, advertising, and publicity, that stimulate consumer purchasing and dealer effectiveness, such as displays, shows and expositions, demonstration, and various non-recurrent selling efforts not in the ordinary routine.”

Sales promotion includes techniques like free samples, premium on sale, sales and dealer incentives, contests, fairs and exhibitions, public relations activities, etc. Sales promotions are those activities, other than advertising and personal selling that stimulate market demand for products. The basic purpose is to stimulate on the spot buying by prospective customers through short-term incentives. These incentives are essentially temporary and non-recurring in nature.

Sales promotion is different from personal selling which is persuasion of customers by the sales persons to buy certain products. It is also different from advertising. Except for advertising through direct mail, advertising deals with media owned and controlled by the firm itself.

Usually, sales promotion deals with non-recurring and non-routine methods in contrast to personal selling or advertising. As a matter of fact, sales promotion activities aim at supplementing and co-ordinating personal selling and advertising.

Sales promotion includes activities of non-routine nature to promote sales, e.g., distribution of samples, discount coupons, contests, display of goods, fairs and exhibitions, etc. But it does not include advertisement, publicity and personal selling.   

Techniques of Slaes Promotion

1. Distribution of Samples

Many big businessmen distribute free samples of their products to the selected people in order to popularise their products. Distribution of samples is popular in case of books, drugs, cosmetics, perfumes and other similar products. As the distribution of samples is very costly, this system is confined to those products of small value which have often repeated sales.

2. Rebate or Price-Off Offer

In order to increase sale, many producers introduce price off offer to the customers. Under this, the product is offered at a price lower than the normal price. For example, during off season (winter), ceiling fans, coolers and refrigerators may be offered at 20 to 30% off price.

Rebate offer is given for a limited period only, for example, Coca cola offered 2 litre bottle at Rs. 35 only during winter 2009. Khadi Gram Udyog offers rebates on Khadi cloth and readymades to coincide with the month of Gandhi Jayanti every year.

3. Partial Refund

A firm may use the strategy of refunding a part of the price paid by the customer on the production of some proof of purchase of its product. For instance, the buyer of two cakes of a branded soap may be refunded Rs. 5 on returning the empty packages to the dealer.

4. Discount Coupons

A discount coupon is a certificate that entitles its holder to a specified saving on the purchase of a specified product. Coupons may be issued by the manufacturers either directly by mail through sales-force or through the dealers. The coupons are also issued through newspapers and magazines. The holders of coupons can go to the retailers and get the product at a cheaper price.

The retailers are reimbursed by the manufacturer for the value of coupon redeemed and also paid a small percentage to cover handling cost. But many retailers do not patronise this method because it involves financial and accounting problems for them.

5. Packaged Premium

Under this, the seller offers premium to the buyer by way of supplying a gift along with the product or inside the product package. Premium on sales helps the salesman to make effective presentation, stimulate sale in a particular area, lead to enlistment of new customers and have the way for introducing new brands in the market. Premiums are generally given in the case of customer convenience goods such as packed tea leaves, blades, tooth-pastes and toilet soaps.

6. Container Premium

Several firms use container premium to push the sale of their products. For instance, Taj Mahal tea leaves, Ariel detergent powder, Bournvita, Kissan jams, etc. are made available in special containers which could be reused in kitchens after the product has been consumed. The reusable containers for packaging often have special appeal to the consumers who don’t have to pay anything extra for the product.

7. Contests

There may be consumers’ contests, salesman’s contests and dealers’ contests. Contests for salesman and dealers are intended for inducing them to devote greater efforts or for obtaining new sales idea in the task of sales promotion.

Contests for consumers may centre around writing a slogan on the product. Such slogan centres around the questions as to the liking of a customer for the product, or formulation of new advertising idea for the product. Such contests are held through radio, T.V., newspapers, magazines, etc.

8. Public Relations

Public relations activities strive for creating a good image of the enterprise in the eyes of the customers and the society. These activities are not aimed at immediate demand creation. It is very common that big business enterprises convey their greetings and thanks to the people through newspapers and other media.

9. Free Gift

The customer does not get any benefit at the time of purchase, rather he gets it through mail. For this he has to send the proof of purchase (e.g., cash memo and wrapper) to the manufacturer to claim the gift which might be a diary or book or any other item. The gift is sent by the manufacturer by mail or through courier.

10. Exchange Offer

It means exchange of an old product with the new one after payment of the exchange price fixed by the manufacturer. Such offers are very common these days in case of electric irons, TVs, refrigerators, scooters, gas stoves, washing machines, etc.

11. Product Combination or Gift

It refers to giving a free gift on purchase of a product. Generally, the free gift is related to the product but it is not necessary. For example, Mug free with Bournvita, Toothbrush free with Toothpaste, DVD free with TV, Vacuum cleaner free Fridge, etc.

12. Instant Draws and Assured Gifts

Some sectors offer instant draws and assured gifts to their customers when they make purchases. The scheme may be like – “Scratch a card (or burst a cracker) and instantly win a car, A.C., fridge, T.V., computer or electric iron on the purchase of a T.V.”

13. Full Finance @ 0%

Manufacturers of durables like bikes, T.V., A.C., etc. offer easy financing schemes even at 0% rate of interest e.g., “Pay Rs. 10,000 in cash and Rs. 30,000 in 12 equal instalments of 2,500 each by post-dated cheques and get a bike on the spot.” This tool of promotion misleads the customers and so should be avoided by the marketers.

Objectives of Sales Promotion

(i) It improves the performance of middlemen and acts as a supplement to advertising and personal selling.

(ii) It motivates sales force to give desire emphasis on new accounts, latent accounts, new products and new territories.

(iii) It increases sales and makes sales of slow moving products faster and stabilize fluctuating sales pattern.

(iv)It attracts channel members to participate in manufacturer promotion effort.

(v) Motivating the dealers to buy high volumes of products and push more of the brands that are on promotion.

(vi) Supporting and supplementing the advertising and personal selling efforts.

(vii) Making consumers to switch brands in favour of firm.

(viii) To overcome the seasonal fluctuation of products.

(ix) Inducing retailers to promote the brand by local advertising and POP display.

(x) Sales promotions motivate the salesmen to sell more and to sell the full line of products.

(xi) To reduce the perception of risk associated with the purchase of a product.

Need and Importance of Sales Promotion

Sales promotion acts as a bridge between advertising and personal selling. Due to the adversity of markets, the importance of sales promotion has increased tremendously. Sales promotion helps remove the consumer’s dissatisfaction about a particular product, manufacturer, and create brand-image in the minds of the consumers and the users.

Sales promotional devices are the only promotional devices available at the point-of-purchase. An advertising medium reaches the prospects at their homes, offices, etc. and may soon be forgotten. The sales promotional devices at the point-of-purchase stimulate the customers to make purchase promptly on the spot.

Business firms use promotional tools to achieve the following benefits:

(i) Attracting Attention

The first aim of sales promotion is to attract the attention of the prospective buyers and inform them about the availability, characteristics and uses of a particular product.

(ii) Highlighting Utility of Product

Promotion helps in letting the people know about the utility of the new products. It also tells them how the concerned products will be helpful in satisfying their specific demands.

(iii) Stimulation of Demand of New Product

Promotional activities are used to create interest in the new product and to persuade people to buy the same. This helps in launching the new product.

(iv) Product Differentiation

Promotion helps in differentiating a particular product of the firm from the competing products of other firms. A firm can also use data revealing how its product compares with the other products.

(v) Synergy in Promotional Activities

Sales promotion activities supplement personal selling and advertising efforts of the firm. They add to the overall effectiveness of the firm’s promotional activities.

(vi) Stabilisation of Sales Volume

In the modern age of competition, it is an important purpose of promotion to help in stabilising sales volume by reassuring the customers about the quality and price of the product. It is possible that a customer using a particular brand, may buy another because the other brand is promoted in an effective manner.

(vii) Performance Appraisal or Marketing Control

The management of a company can keep an effective check on the results achieved through sales promotion schemes, because it is in a position to analyse the costs incurred and the benefits derived.

There are many bases on which advertising may be classified. It may be categorized according to media, type of products, type of appeals and so on. There is no streamlined methodology to differentiate different kinds of advertising.

Advertisements are a good way for a company to increase awareness of its name, phone number, and or brands.

Since the advent of the early form of advertising, advertising communication objectives have diversified considerably, and different forms of advertising can be identified while using the same media.

1. Display Ads

This includes digital and newspaper advertising. Digital ads are the updated version of newspaper advertising; it’s the same concept but in 21st-century form. It means buying ad space on sites that are of interest to your target demographic. You can create text ads, which essentially look just like traditional print media ads, the floating banner above the site’s contact and even wallpaper with your product or service on the site background.

The major difference between display ads and the ads you find in newspapers is the use of search engine optimization techniques to reach your target audiences more effectively when they search for you. These types of advertisements are typically also Pay Per Click, which means you bid on keywords most associated with your service or products and pay for your results to be at the top of the search engine search. The another one is Cost Per Thousand, which means to pay a flat rate to show up in search results 1,000 times.

2. Social Media Ads

Pinterest, Instagram, Facebook and pretty much all social media sites offer relatively inexpensive advertising. Paid social media ads are the kind of advertisement that focuses on reaching your target audience with how much you pay adjusted to how many see it and engage with it. Organic social media ads are the kind of advertisement that generates lots of word-of-mouth. Say you post something to your business Facebook page that offers a free product if followers click Like and tag a friend — that is the type of advertisement that is free to post and makes people aware of what you have to offer.

3. Newspapers and Magazines

These kinds of advertisements are traditional yet no less effective. Combining this type of advertisement between local, statewide and national print media is a great marketing campaign strategy. Plenty of people still reach for their morning newspaper or love to settle down with a hard copy of a magazine. Also, most print media now has a digital presence and can combine these types of advertisements with its virtual version.

4. Outdoor Advertising

Now that billboards have gone digital it’s a huge way to make an effective statement. Transit ads are another kind of advertisement that falls under the outdoors umbrella — feature your product or service on buses, taxis, bike messenger services and pedicabs. Promoting this way gives you excellent brand recognition as these types of advertisements are seen everywhere daily and make your offering hard to forget.

5. Radio and Podcasts

Verbal promotion is a type of advertisement that can be repeated often as part of radio or podcast shows. You can have a traditional type of ad recorded to be played or there is also the chance of sponsorship. Narrow down the types of podcasts your target audience subscribes to or the station they most listen to for creating the kind of advertisement customers like and remember.

6. Direct Mail and Personal Sales

Direct mail, or the art of sending a compelling sales letter by snail mail to your target audience, can offer a healthy return on investment for small businesses. The starting point is to identify your target market, then send an enticing offer out to all of those prospects. Measuring the responses helps you to see which type of customers are responding to this format, so you can use even more precision targeting with your next mail shot.

In a similar vein, direct or personal sales is still a big area of advertising, especially for small businesses. A good salesperson can use his or her skills to persuade a customer to buy a product. If the salesperson is especially effective, the customer will continue to spread the word about your product through recommendations and referrals.

7. Video Ads

This type of advertisement engages with your target customers on a digital level. Create a short video and post it on your social media or pay to have it run on sites like YouTube, Hulu and blogs. A video ad can be created by experts from an agency or even done by your in-house team — even if that team is comprised of just yourself.

8. Product Placement

This kind of advertisement is seen more and more. If you pay for a podcast host to mention using your product or pay a television show to feature a character talking about or using your service, that is product placement. You can also talk to popular YouTube channel hosts about this type of advertisement.

9. Event Marketing

Paying to sponsor a sports team or a charity benefit falls under event marketing. These types of advertisements mean a large cross-section of people hear your brand name and associate it with that event. Many companies also look to conventions for this sort of niche advertisement.

10. Email Marketing

A kind of advertisement that is focused on your existing customers, email marketing involves them signing up for promotional sales or newsletters focused on your brand. Email marketing is an updated customer loyalty promotion and works very well when you treat customers as insiders with VIP knowledge.

There are as many ways to utilize types of advertising as there are kinds of advertising. By diversifying your approaches in both traditional and digital worlds as well as focusing on your core target market while getting the word out about your brand to the people at large, you can grow by leaps and bounds.

Advertising is a means of communication with the users of a product or service. Advertisements are messages paid for by those who send them and are intended to inform or influence people who receive them, as defined by the Advertising Association of the UK.

Advertising is always present, though people may not be aware of it. In today’s world, advertising uses every possible media to get its message through. It does this via television, print (newspapers, magazines, journals etc), radio, press, internet, direct selling, hoardings, mailers, contests, sponsorships, posters, clothes, events, colours, sounds, visuals and even people (endorsements).

The advertising industry is made of companies that advertise, agencies that create the advertisements, media that carries the ads, and a host of people like copy editors, visualizers, brand managers, researchers, creative heads and designers who take it the last mile to the customer or receiver. A company that needs to advertise itself and/or its products hires an advertising agency. The company briefs the agency on the brand, its imagery, the ideals and values behind it, the target segments and so on. The agencies convert the ideas and concepts to create the visuals, text, layouts and themes to communicate with the user. After approval from the client, the ads go on air, as per the bookings done by the agency’s media buying unit.

Functions of Advertising

Advertising has become an essential marketing activity in the modern era of large-scale production and severe competition in the market.

It performs the following functions:

(i) Promotion of Sales

Advertising promotes the sale of goods and services by informing and persuading the people to buy them. A good advertising campaign helps in winning customers and generating revenues.

(ii) Introduction of New Products

Advertising helps in the introduction of new products in the market. A business enterprise can introduce itself and its products to the public through advertising. Advertising enables quick publicity in the market.

(iii) Support to Production System

Advertising facilitates large-scale production. The business firm knows that it will be able to sell on a large-scale with the help of advertising. Mass production will reduce the cost of production per unit by making possible the economical use of various factors of production.

(iv) Increasing Standard of Living

Advertising educates the people about the products and their uses. It is advertising which has helped people in adopting new ways of life and giving up old habits. It has contributed a lot towards the betterment of the standard of living of the society.

(v) Public Image

Advertising builds up the reputation of the advertiser. Advertising enables a business firm to communicate its achievements and its efforts to satisfy the customers’ needs to the public. This increases the goodwill and reputation of the firm.

(vi) Support to Media

Advertising sustains press. Advertising provides an important source of revenue to the publishers of newspapers and magazines and the producers of T.V. programmes.

6 MAIN CRITICISMS AGAINST ADVERTISING

(i) Increased Price of The Product

Advertising increases the cost of the product as the expenses on it form the part of the total cost of the product. The increased prices are borne by the consumers. But it cannot be denied that advertising leads to large scale production which considerably reduces the total and per unit cost of production. The consumer may pay less rather than higher.

(ii) Multiplication of Needs

Advertising creates artificial demand for the product and induces people to buy those products which are not needed by them. On account of its repetition, it allures and creates a desire in the minds of the people to possess an article not required by them.

(iii) Deceptive

Sometimes advertising is used as an instrument of cheating. In order to impress upon the people false statements are given with regard to different virtues of a product. Fraudulent means and deceptive practice are resorted to by various traders in order to sell their products. All these things adversely affect the public confidence in the advertising.

(iv) It Leads to Monopoly

Advertising sometimes leads to monopoly in a particular brand of a product. By investing large sums in advertising of his brand, a big producer eliminates small producers of the same product from the market and creates brand monopoly. This leads to exploitation of consumers.

But in reality this argument does not hold good. The monopoly powers are temporarily acquired by the manufacturers as they face strong competition by the rival producers of the same product. In the words of Marry Hepner “advertisement stimulates competition. It often enables the small businessmen to compete with large concerns as well as to start new business”.

(v) Harmful For the Society

Sometimes advertisements are un-ethical and objectionable. Most often, these carry indecent language and virtually nude photographs in order to attract the customers. This adversely affects the social values.

(vi) Wastage of Precious National Resources

A serious drawback levied against the advertisement is that it destroys the utility of certain products before their normal life. The latest and improved model of a product leads to the elimination of old ones. For instance, in the U.S.A., people like to possess the latest models of cars and discarding the old ones which are still in useable conditions. This leads to wastage of national resources.

Objective of Advertising

1. To introduce a new product by creating interest for it among the prospective customers.
2. To support personal selling programme. Advertising may be used to open customers’ doors for salesmen.
3. To reach people inaccessible to salesmen.
4. To enter a new market or attract a new group of customers.
5. To fight competition in the market and to increase the sales.
6. To enhance the goodwill of the enterprise by promising better quality products and services.

Significance of Advertising

Advertising helps in spreading information about the advertising firm, its products, qualities and place of availability of its products and so on. It helps to create a non-personal link between the advertiser and the receivers of the message.

The significance of advertising has increased in the modern era of large scale production and tough competition in the market. Advertising is needed not only to the manufacturers and traders but also to the customers and the society. The benefits of advertising to different parties are discussed in the following paragraphs.

Benefits to Manufacturers and Traders

It pays to advertise. Advertising has become indispensable for the manufacturers and distributors because of the following advantages:

(i) Advertising helps in introducing new products. A business enterprise can introduce itself and its products to the public through advertising.

(ii) Advertising develops new taste among the public and stimulates them to purchase the new product through effective communication.

(iii) Advertising assists to increase the sale of existing products by entering into new markets and attracting new customers.

(iv) Advertising helps in creating steady demand of the products. For instance, a drink may be advertised during summer as a product necessary to fight tiredness caused by heat and during winter as an essential thing to resist cold.

(v) Advertising helps in meeting the forces of competition in the market. If a product is not advertised continuously, the competitors may snatch its market through increased advertisements. Therefore, in certain cases, advertising is necessary to remain in the market.

(vi) Advertising is used to increase the goodwill of the firm by promising improved quality to the customers.

(vii) Advertising increases the morale of the employees of the firm. The salesmen feel happier because their task becomes easier if the product is advertised and known to the public.

(viii) Advertising facilitates mass production of goods which enables the manufacturer to achieve lower cost per unit of product. Distribution costs are also lowered when the manufacturer sells the product directly to the customers. Advertising also facilitates distribution of the product through the retailers who are encouraged to deal in the advertised products.

Benefits to Customers

(i) Advertising helps the customers to know about the existence of various products and their prices. They can choose from the various products to satisfy their wants. Thus, they cannot be exploited by the sellers.

(ii) Advertising educates the people about new products and their diverse uses.

(iii) Advertising increases the utility of existing products for many people adding to the amount of satisfaction which they are already enjoying.

(iv) Advertising induces the manufacturers to improve the quality of their products through research and development. This ensures supply of better quality products to the customers.

Benefits to Society

(i) Advertising provides employment to persons engaged in writing, designing and issuing advertisements, and also those who act as models. Increased employment brings additional income with the people which stimulate more demand. Employment is further generated to meet the increased demand.

(ii) Advertising promotes the standard of living of the people by increasing the variety and quality in consumption as a result of sustained research and development activities by the manufacturers.

(iii) Advertising educates the people about the various uses of different products and this increases their knowledge. Advertising also helps in finding customers in the international market which is essential for earning foreign exchange.

(iv) Advertising sustains the press, and other media. It provides an important source of income to the press, radio and television network. The customers are also benefitted because they get newspapers and magazines at cheaper rates. The publishers of newspapers and magazines are benefitted because of increased circulation of their publications. Lastly, advertising also encourages commercial art.

Promotion is a type of communication between the buyer and the seller. The seller tries to persuade the buyer to purchase their goods or services through promotions. It helps in making the people aware of a product, service or a company. It also helps to improve the public image of a company. This method of marketing may also create interest in the minds of buyers and can also generate loyal customers.

Promotions in marketing are generally the fourth and final P of the marketing mix. This is because before promotions, the product, price and place (distribution) should be ready. Promotions in marketing generally use integrated marketing communication. Integrated marketing communication is the use of different media vehicles to get the message of the brand from the company to the consumer.

So, if you are a jewelry brand, you will use TV commercials and other ATL media to promote your own products. Whereas if you are a small time brand, you will use print media or Internet and Out of home media to promote your brand. Thus, depending on the segmentation, targeting and positioning you are planning, your promotions can be planned.

Methods of Promotion

1. Advertising

Advertising means to advertise a product, service or a company with the help of television, radio or social media. It helps in spreading awareness about the company, product or service. Advertising is communicated through various mass media, including traditional media such as newspapers, magazines, television, radio, outdoor advertising or direct mail; and new media such as search results, blogs, social media, websites or text messages.

2. Direct Marketing

Direct marketing is a form of advertising where organizations communicate directly to customers through a variety of media including cell phone text messaging, email, websites, online adverts, database marketing, fliers, catalog distribution, promotional letters and targeted television, newspaper and magazine advertisements as well as outdoor advertising. Among practitioners, it is also known as a direct response.

3. Sales Promotion

Sales promotion uses both media and non-media marketing communications for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability.

4. Personal Selling

The sale of a product depends on the selling of a product. Personal Selling is a method where companies send their agents to the consumer to sell the products personally. Here, the feedback is immediate and they also build a trust with the customer which is very important.

5. Public Relation

Public relation or PR is the practice of managing the spread of information between an individual or an organization (such as a business, government agency, or a nonprofit organization) and the public. A successful PR campaign can be really beneficial to the brand of the organization.

The effect of promotions in marketing is:

(a) Awareness

The first and foremost role of promotions in marketing is to create Awareness. Whenever a new product is launched, or a company introduces a new scheme, awareness needs to be created. Thus, companies use promotions in the marketing mix which are ATL and BTL to promote the product.

(b) Brand building

The idiom “A brand is a promise” is one of the most commonly used ones in the world of marketing. However, a brand comprises both – The product as well as the marketing communications from the company to the customer. Thus brands like Apple and Coca cola are at the top of the brand equity table, because of their promotions and marketing communication efforts throughout the last few decades.

(c) Positioning

When you talk about premium cars, which is the product that comes in mind? Is it BMW, AUDI, FERRARI or any other? All these companies are trying to get the top positioning in your mind and similarly in other customers mind. The type of promotions from a company directly contribute to the positioning of the brand in the mind of the customer.

(d) Acceptance

A customer is more likely to accept a product, if he has heard the brand or the companies name. Thus, along with awareness, promotions also increase the acceptance of the product in the market. But, in some cases, how much ever promotions you do, if the product is not proper, the market will never accept the same. Thus, promotions in marketing has its own limitations.

(e) Targeting of customers

The promotions of a company help the company target their desired customer. For example – pepsi targets youngsters, Adidas targets healthy and sport loving people, so on and so forth. Thus, segmentation targeting and positioning can all be achieved with the right promotions.

(f) Brand recall

There are many objectives of promotions, one of the most common one being brand recall. Many brands over a time become so common in the market, that they might not need brand recall ads. On the other hand, sectors like pharmaceuticals, which have high competition and a line of generic products, regularly need to release promotions which promote the brand recall in the market. Thus, promotions in marketing can help the recall of your brand in the customers market, thereby promoting the sales and the brand equity of the product.

(g) Acquire new customers

The ultimate aim of promotions, or of any activity in marketing for that matter, is to attract new customers, convert them towards the company and gain better profit margins for the company. With ATL and BTL activities working simultaneously, and a proper marketing communication plan in place, it becomes easier for the company to acquire more customers.

Thus, there are many roles which are played by promotions in marketing. It is therefore no surprise, that many people are involved in promotions for the organization. In house marketing managers, executives, branding department, outsourced agencies are all involved in media buying and selling activities. These activities, on a whole, contribute to achieve the right promotions mix for the organization.