chap 3

CHAPTER 3

MARKETING THEORY

1. The heart of price formation under competition is the supply and demand analysis. There is probably no more overworked and misunderstood phrase in economics than the law of supply and demand. To some it is a form of magic or divine guidance invoked to explain away any major problem or dilemma. To others it is something that can be used or ignored, depending upon the desires of the moment. It is to these fundamental ideas of supply and demand that we shall now apply ourselves.

2. Demand. Demand is a schedule of a different quantity of a commodity that buyers will purchase at different prices at a given time and place. The law of demand merely formalizes the logical relationship between quantities taken and prices. The lower the price, the more will be purchased; and conversely, the higher the price, the less will be purchased.

3. Supply. Supply is a schedule of differing quantities that will be offered for sale at different prices at a given time and place. The law of supply is simply the logical relationship that exists in these circumstances. The higher the price, the more will be offered for sale; the lower the price, the less will be offered for sale. Whereas demand indicates the relationship between quantity and price from the buyer’s viewpoint, supply indicates a similar relationship from the sellers’ viewpoint.

4. Demand is characterized by the following;

4.1 When the price of certain product increase, the quantity demanded is decreased and vice versa.

4.2 This will reflect the price of certain commodities where a buyer/consumer will purchase that product at certain time, place, price and the factors of how promotion affects the buying pattern.

4.3 Most of agricultural products are substitute, complementary, inferior in nature so there is a tendency where a customer has choices to buy.

4.6 The demand curve is negative or directly proportional to price and quantities demanded.

4.5 Demand can be categorized as;

i. Effective demand. Effective demand is a desire of the consumer for the commodity to be purchase on his/her purchasing power.

ii. Derived demand. Derived demand is the level of demand for the final products that made from commodity goods.

iii. Reservation demand. Sellers of products may reserve part of their supplies for their own use or for later sale. The rate of release of a stock of farm products to the market depends upon the farmer’s desire to hold stocks, and his alternative, that of using farm products on-farm, for example, in livestock feeding.

5. Demand schedule. The price of the product will affect the demand and supply. Changes of price and quantities fall along the same demand curve.

Price Demand Supply
RM1.00 20 30
RM0.90 25 28
RM0.80 30 26


Price (RM)

1.00

0.90

0.80

0 26 28 30 Quantity

Demand curve

6. Supply. When price increased the quantities of supply will increase and vice versa. It refers to the seller point of view because most sellers want profit maximization in their product they want to sell. The price and quantity is directly proportional to price. Supply curve is always positive.

Price (RM)

1.00

0.90

0.80

0 26 28 30 Quantity

Supply curve







7. Price Equilibrium. Price equilibrium is where price of certain commodities will equalized to quantities demanded and supplied.


Price(RM)/Kg

DD (kg)
SS (kg)
Market Outcome
4.00 3000 5600 Price floor
3.75 3400 5500 SS>DD
3.50 3800 5400 Buyers market
3.00 5000 5000 Price equilibrium
2.75 5700 4750 Price ceiling
2.50 6400 4400 DD>SS
2.25 7200 4000 Sellers market


SS/DD

Price
Quantity
Market Conditions
DD>SS Increased Decreased Black market, inflation, ration
SS>DD Decreased Increased Dumping, auction, sales, deflation
DD=SS Price equal to quantity Price determination/Equilibrium


8. Government stabilization program for pricing of products.

8.1 Price pegging. Price pegging is the process of fixing the price of products that is agricultural products usually primary products regardless of its demand and supply in the market. Price pegging consists of minimum or floor prices that is above equilibrium and maximum or ceiling prices which is below equilibrium prices.

8.2 Subsidies. Subsidy is a price guarantee to raise the farm prices and to protect the farmer income.

Price (RM)

P2


P1


0 Q Q1 Quantity


P2 = RM6.00, P1 = RM5.00, Q = 5 units, Q1 = 7 units.

No subsidy – the price is at P2 and quantity of demand is at Q, where A is the price equilibrium.

Therefore total revenue is at P2 X Q;
= P2 X Q
= RM6.00 X 5 units
= RM30.00.

With subsidy – to encourage farmers to produce at Q1, the government will guarantee them at price P2. At P2 only Q is demanded so Q1 is the amount bought by the government. Therefore ATQ1 is the subsidy;

= P2 X Q1
= RM6.00 X 7 units
= RM42.00
Subsidy at Q1 = RM42.00 – RM30.00
= RM12.00 OR
= RM 6.00 X (7-5)
= RM12.00

9. Price floor. Price floor is a legalized price imposed above the equilibrium. It is sometimes used to support farm prices and income of farmers. Price floor can cause significant resource allocation problems in the long run because it can increase productive capacity and output in the long run. Price floor can be seen as buyers market because the long effects of production such as dumping, auction, cheap sales, and deflation.

10. Price ceiling. Price ceiling is legally set price below the equilibrium price. It is a maximum price where sellers cannot set the price above the equilibrium. It is the seller market and in the long run production may cause unfavorable to the market and lead to black market, rationing, and inflation.

11. Change in demand and change in supply. The demand and supply curves show the responses of buyers and sellers to a change in price, everything else being equal. For example, when prices rise, producers are given a profit incentive to increase production and therefore the quantity supplied to the market. Consumers, on the other hand, receive a signal to reduce their consumption of that product. Thus, a change in price results in a change in the quantity supplied and demanded. Many factors can cause shifts in consumer demand curves. Generally, such factors contribute to change in demand can be grouped as follows;

11.1 A change in number of buyers (providing per capita purchasing power and other factors remain unchanged). Such changes may occur from either population growth or the extension of the market served by the product.

11.2 A change in the incomes or purchasing power of people. We have seen from our previous discussion of consumers’ buying pattern that income changes may be either positively or negatively related to demand changes, depending upon the particular product.

11.3 A change in the tastes and preferences for particular products. We have seen that these may be a result of many factors, such as religion, habit, or personal desires.

11.4 A change in the relative prices of products that are substitutes for each other. Most consumer goods have a substitute to some extent, and the price we will pay for a given amount of one product will depend to some extent upon what we would have to pay for the possible substitutes.

11.5 A change in the expectation of buyers as to the future levels of prices. In most instances there is some flexibility in the timing of purchases. Therefore, whether consumers will hurry into buying or wait a while will be affected by their evaluation of future price levels.

12. Factors contribute to the change in supply;

12.1 In the short run period there may be a change in the various factors that would induce sellers to offer their available stock of goods at a different schedule of prices. These would include such factors as costs of storage, the sellers’ need for cash, and the general expectations as to the future situation, and changes in cost (land, labor, machinery, e.t.c.)

12.2 In the intermediate and long-run periods, there may be a change in the costs of production of the commodity. This may be caused by changes in costs of needed inputs or in the technology of the production of the commodity itself. It may also be caused by changes in the costs of producing other commodities that compete for the same resources. For example, a technological change that increased the feed conversion rate for poultry and lowered their costs of production would increase the supply of poultry. At the same time, if there were no similar changes in cattle production, the supply of cattle would decrease, because poultry and cattle are farm enterprises that compete with each other for the same resources of production.

13. The elasticity of demand. The law of demand states that as prices go down, the quantities purchased will increase. The law of supply states that as prices go down, the quantities offered for sale will decrease. But how much will the quantities respond to change in price? The relationship of the changes in quantity to the changes in price is the concept of price elasticity.

14. The elasticity of demand measures the sensitivity of the quantities demanded to the changes in the price determination or the ratio of the proportionate change in quantity demanded for the particular goods to a proportionate in a specified determinant of demand.

Edd = Changes in quantity X Original price
Original quantity Changes in price

% Changes in Qty = New quantity – Old quantity X 100%
Old quantity

% Changes in Price = New price – Old price X 100%
Old price

OR

Edd = % changes in quantities
% changes in price

15. Types of elasticity. Elasticity can be mathematically calculated. When so presented, unit elasticity is 1; an elastic demand is something more than 1; and inelastic demand is something less than 1.

16. Factors influencing elasticity. The necessity for the product and degree of substitutability of one product for another is the basic determinant of the elasticity of demand for a particular commodity. Substitutability may arise from any number of causes. There may be absolute physical need for a particular product and not another. Social, psychological, or religious factors may affect substitutability evaluations in individual minds. And of course the level of income itself will affect how substitutable one product is for another. Time is a very important factor in supply-elasticity analysis. Generally as the time period under consideration lengthens, the supply curve tends to be more elastic. For example, the supply curve for cattle for the Hari Raya Qurban is nearly perfectly inelastic.

17. Commodities with inelastic demands are often those which fall into the classification of necessities and which have few substitutes. Consumers want them and are relatively insensitive to price changes. Commodities with elastic demands are often those whose use is not directed by necessity or habit and which have several close substitutes. Consumer response for such products is more sensitive to price changes.

18. Factors influencing price determination;

18.1 Price that can be controlled and planned (internal factors).

i. Objective of the firm.
ii. Role of price in the marketing strategies.
iii. Organizational structure.
iv. Characteristics and image of product.
v. Cost of production.
vi. Profit motives.
vii. Objectives through promotion.
viii. Status quo.

18.2 Environmental factors that cannot be control (external factors).

i. Legislation and law.
ii. Marketing ethics.
iii. Economy factor.
iv. Competitiveness.
v. Price decision.
vi. Demand.
vii. Supplier.
viii. Life cycle of industry.

19. Approaches used for price determination of product.

19.1 Demand.

Price – RM Quantity demand Quantity supply
30.00 1 7
25.00 3 5
20.00 5 3
15.00 7 1

As price increase, quantities demanded will decrease. This refers to the customer willingness to purchase such commodities when the price is low. As price of commodities increase the quantity will increase and this refers to the supplier of that particular commodities. It is because at this stage the supplier will maximized its profit maximization.

19.2 Non-price orientation. The firms will maximize profit through various means such as;

i. Advertising.
ii. Sales promotion.
iii. Changes in packaging.
iv. Location of production.
v. Festive seasons.

19.3. Cost.

i. Average. An additional price will be added to the cost per unit on every production for the purposes of price determination.

Examples; Giat Sdn. Bhd. produces tomato pastes. The total costs involves is RM250.00, and the fixed cost is RM100.00. The management forecast 250 units sold. If the management forecast a profit 15% of the sales, what will be the selling price of the tomato paste?

Answers;

Total costs = RM250.00
Sales forecast = 250 units

Cost/unit = Total costs .
Forecast units

= RM250
250 units

= RM1.00
Forecast profit = 15%
Forecast price sales = 115% x RM1.00
= RM1.15

Therefore profit = RM0.15 X 250 units
= RM37.50

19.4 Return on investment.

Example; Awang manufacturer Sdn. Bhd. Forecast sales of 5000 bottles of juices for the periods of six months. Fixed cost is RM5000 and variable cost is RM1.20 per bottle. Total investment is RM15000. Return on investment is 20% of the total investment. How much will be its price?

Answer;
Return on investment = RM15000 X 20%
= RM3000

Fixed cost + ROI = RM5000 + RM3000
= RM8000

Price per unit = RM8,000
5000 units

Price per unit for 20% ROI = VC + Price per unit
= RM1.20 + RM1.60
= RM2.80

19.5 Mark-up. Mark-up is an addition to the total cost for production based upon percentages of the selling price. The additional cost or mark-up cost is added to avoid losses such as overhead and profit accumulation of the marketing channel. The mark-up costs is in the form of money or percentages.

Examples 1; Production cost for Abu Jerok is RM2.00 and 50% is added on the production cost. How much will be the new production cost? Before answer the question, we have to look the aspects of marketing channel.

Producer: Farm level where products are produced.

Processor: People who process the agricultural goods from raw to finished or unfinished, to change the physical appearance of the raw products.

Middlemen: Middlemen is an organization or individuals who specializes certain marketing channels such as storing, financing or transportation.

Retailer: Retailer is a marketing middlemen that sells goods to consumer.





How to find the mark-up (MU) in terms of % (percentage)

Processor:

(Selling price of producer X MU% of processor)

Middlemen:

Selling price of processor
100% - MU%

Retailer:

Selling price of middlemen
100% - MU%



Selling price for processor is calculated as;

i. Cost at the producer level is RM2.00.
ii. Cost at factories (processor)

Production cost X (100% + increased or decreased of %-i.e. 50% increased)
= RM2.00 X 150% = RM3.00

iii. Middlemen and retailer.

Selling price of middlemen = Selling price processor
100% - % mark-up

Selling price for retailer = Selling price middlemen
100% - % mark-up

OR

Selling price of middlemen = selling price of manufacturer + RM mark-up.
Selling price of retailer = selling price of middlemen + RM mark-up.

Example; The production cost of watermelon juice-juicy is:

Producer level is RM2.00, processor forecast an increase of 80%, middlemen seen 20% mark-up and retailer optimist RM3.00. What will be the selling price of watermelon juice-juicy at the processor, middlemen and retailer.





Answer: Percentages & money form

RM RM
Producer 2.00
Processor (RM2.00 X 180%) 3.60

Middlemen (20% mark-up)

= RM3.60 4.50
(100% - 20%)

Retailer
(mark-up is RM3.00) = RM3.00 + 4.50 7.50

Finding; Profit margin for;

Processor RM (3.60 – 2.00 = 1.60)
Middlemen RM (4.50 – 3.60 = 0.90)
Retailer RM (7.50 – 4.50 = 3.00)

Example; Mark-up (money form)

Marketing channel Price level
(RM) Mark-up (RM)
Profit margin
(RM) Sales volume
(unit) Net profit
(RM)

Producer

1.00
0
-
-
-

Processor

1.00 + 0.50 = 1.50
0.50
0.50
100
50.00

Middlemen

1.50 + 0.30 = 1.80
0.30
0.30
80
24.00

Retailer

1.80 + 0.45 = 2.25
0.45
0.45
70
31.50

Example 2; Given the following information of ZH Enterprise:

Production per month (PM) 20,000 units
Cost of Production per month (CPM) RM40,000.00
Total sales per month (TSM) RM50,000.00
Wholesaler mark-up 20%
Retailer mark-up 10%





% mark-up of processor = TSM – CPM X 100%
CPM

= 50,000 – 40,000 X 100%
40,000

= 25%

Processor sale price = TSM
PM

= 50,000
20,000

= RM2.50 per bottle

Wholesaler sale price = Processor sale price
100% - 20%

= 2.50
0.80

= RM3.12 per bottle

Retailer sale price = wholesaler sale price
100% - 10%

= 3.12
0.90

= RM3.46 per bottle



20. The differences of profit margin differ from one level to another level of the marketing channels;

20.1 Processor has to sell the product to the middlemen because it produces at large quantities of food. The availability of storage facilities will reduce the burden of storing the finished product.

20.2 Middlemen will store the product that has been collected from the processor. Short period of time for storage is necessary and later will be sent at the retailer for further storage.

20.3 Retailer profit margin is higher as compared to the producer and the middlemen and the processor because of high risk accumulated in holding the product especially the storage problems.



21. Competition. Competition is a situation in which people or organizations compete with each other for something that not everyone can have/or everyone are willing to have. In the competitive environment, basically marketer will use the pricing strategy in the two conditions as shown below;

21.1 Below market price:

i. Price penetration.

a. Selling price is cheaper so that it will penetrate in the market and for the customer attention.

b. Consumer is sensitive to price change.

c. Many consumers willing to purchase products if the price is low.

d. Cost per unit of production will decline when total sales increase.

e. There is a possibility of competition in the market.

ii. Price blockage or barrier.

a. To stop the competitors from competing the market.

b. Willing to tag the price below the production cost.

c. The firm has a strong financial status.

d. Is not willing to share technologies if the technologies are cheap and accessible.

e. High risk if there is other competitor that has the overhead cost is low.

21.2 Above the market price:

i. Skimming strategy.

a. Product is differentiated from other competitors.

b. Purpose is to maximized profits.

c. Maximized profit is focus on introduction stages of the product life cycle.

d. Focused on high income level of consumers.

e. Most products are quality and very exclusive.


ii. Premium strategy.

a. Firm’s targeted their products are of high quality.

b. High price.

c. Better quality and branded.

d. High image product.

22. Factor considered in pricing strategy in the competitive market.

22.1 Forecasting. Does the firm exactly release a new product in the market, and acceptance of the product to consumer in the market?

22.2 Price determination in the market. The producer will determined the price and types of promotional approaches for price determination.

22.3 Competition. Types of competition in the market will reflect the price of the products. Such competition is;

i. Perfect competition.
ii. Monopoly.
iii. Oligopoly.
iv. Imperfect competition.

22.4 Government policy. The government plays an important role in making the legislation especially when consumer needs and preferences are needed. Few areas have been explored for the benefits of the manufacturer and the consumer such as by placing the date of manufactured goods, halal, price, ingredients and geographical concern of the targeted consumer.

22.5 Price determination by other producer. Price determination by producer rely on the demand (price and non-price), competition (above and below equilibrium price), and acceptance of the product by consumer.

22.6 Price flexibility in the market. The producer will determine the price. Types of promotional approaches for price determination are considered. The producer will fixed the price of the product and besides that promotion has to accommodate the new product in the market. Taste and preference of the consumer has to be taken into consideration.

23. Price discovery. Price discovery is the process by which buyers and sellers arrive at a specific price for a given lot of product in a given location. The supply and demand price target must be “discovered” and applied to each transaction in the marketplace. Five systems of price discovery for farm products have been identified;

23.1 Individual, decentralized negotiation. In this system, each farmer bargains individually with buyers of farm products until a price is established. “Private treaty” negotiations are quite common in agriculture. The resulting fairness of prices depends upon the information, trading skills, and relative bargaining power of buyers and sellers. Consequently, prices discovered in this way tend to vary widely for different transactions.

23.2 Organized, central markets shift the locus of price discovery from the farm gate to a central marketplace. All buyers and sellers and their supplies and demands are represented in the central market. Terminal markets and auctions are examples.

23.3 Formula pricing systems. Formula pricing systems evolved in attempts to secure the benefits of central market price discovery without physically routing all produce through central markets. Prices are adjusted, again by formula, for transport costs and quality differences. Formula pricing can reduce transaction and bargaining costs.

23.4 Bargained prices. Bargained prices are common in fruits, vegetables, nuts, and milk. Bargaining implies collective pricing on the part of farmers. The collective bargaining process used in labor is frequently cited as the process model for farmers to follow in order to discover farm prices.

23.5 Administered pricing systems. Administered pricing systems are those in which the government becomes a third party in the price discovery process. Price supports, price ceilings, and supply control programs are the techniques of administered pricing.

24. Market structure. Market is a place where the exchanges of product or service occur between the buyer and the seller. Markets are nothing more than a collection of buyers and sellers striking deal. Buyers do not buy unless they will be better off. Sellers do not sell unless it makes them better off. The formation of the market structure depends on various aspects of the products offered in the market;

24.1 Types of products offered either homogeneous or heterogeneous.

24.2 Number of industries either one or more industries in the market.

24.3 Price forces either price discrimination, non-price competition, or price leadership. Price leadership is a procedure by which all competitors in the industry will follow the pricing practices of one or more dominant firms.

25. Market can be categorized as;

25.1 Perfect competition.
25.2 Monopoly.
25.3 Oligopoly.

26. Big firms are not necessarily oligopoly but they are frequently are. Small firms are sometimes oligopoly. Oligopoly is a matter of market share rather than absolute size.

27. Characteristics of market structure in a simplified form.

Characteristics Perfect competition Monopoly Oligopoly
Consumer Many Many Many
Sellers Many One More than one
Entry Easy Difficult Difficult
Exist Easy Easy Easy
Product Homogeneous (substitutes) Heterogeneous (no substitutes) Homogeneous (substitutes)
Price Price taker Price discrimination Depend on each

Promotion Present Very few Present

28. Market power. Market power refers to the ability to influence the markets such as behavior, results, prices, demand, supply, products, quality, functions and ways to increase and achieve the goals of the organization. There are three forms of market power;

28.1 Horizontal power. Horizontal power refers to the influence that similar marketing agencies have over one another. Example, large retailers and food processors may be able to influence the pricing and output decisions of smaller firms.

28.2 Vertical power. Vertical power relates to the influence that vertically related firms in the marketing channel have over one another.

28.3 Conglomerate power. Conglomerate power is the influence that a firm might have in the food industry by virtue of its connection to non-food industry.

29. Bargaining power. Bargaining power refers to the relative strength of buyers and sellers in influencing the terms of exchange in a transaction. There are three forms of bargaining power;

29.1 Opponent pain bargaining power is concerned with the influence of a buyer or seller in a negotiation gained through the ability to threaten or make opponents worse off. Most people associate bargaining power with this form.

29.2 Opponent gain bargaining power represents an alternative to opponent pain tactics. This power stems from the advantages that one market party can offer to the other in exchange for accepting terms. For example, farm marketing associations may be able to perform certain market activities that increase the efficiency of food processors. Quality control, full-supply contracts, delivery services, and improved scheduling of production are examples of such activities.

29.3 In another type of bargaining power, a buyer and seller may agree to terms which secure a gain from third parties either consumer, other market agencies, farmers, or the government. In this situation, the two parties to the negotiation cooperate to secure gains (higher prices, government subsidies, protection from imports, and the like) from other sources.

30. Sources of market power.

30.1 Sizes, number, and market concentration. The sizes of firms competing in the market will influence the market power. The larger firms will be strong enough as compare to smaller firms. Concentration of market will also influence the market power either the vertical, horizontal or the conglomerate.

30.2 Supply control. The supplier produced the product either large or small control affect the market power. In times of large quantities, there must be a control of production. It’s sometimes difficult to market the product provided if there is no proper storage space, transportation and also the price fluctuation of the products.

30.3 Product diversification. Firm has the advantageous if they produced kinds of products as compare to firm’s only produce homogeneous products.

30.4 Controlling strategic resources and decisions. Controlled products such as brands name, consumer loyalty products, or prices will have a better advantageous over the other firm only mono products.

30.5 Financial strength. It is good for firm who has a good, strong financial strength. It is easy to operate and expand its product strength.

30.6 Unequal information. Firm with greater market information is superior as compare to smaller firm with lesser market information.

31. Promotion. Promotion is a form of communication used by firms to send messages, influenced or informed customers of the products, services or images of the firm.

32. Process of communication in marketing.


Encoding

SENDER MESSAGES MEDIA TARGET MARKET
(Marketer) (appeals, humor, abrasive, (Newspaper, (individual, family,
agony, sex) magazines, radio, corporate, industry)
television, outdoor
internet, alternative)


feedback
Decoding


33. The goals and tasks of promotion. People communicate with one another for many reasons. Promotion seeks to modify behavior and thoughts in some way. Promotion can perform one or more of three tasks below;

33.1 Informing. People typically will not buy a product or service or service or support a non-profit organization until they know its purpose and its benefits to them. Informative promotion seeks to convert an existing need into a want or to stimulate interest in a new product. It is generally more prevalent during the early stages of the product life cycle.

33.2 Persuading. Persuasive promotion is designed to stimulate a purchase or an action. Persuasion normally becomes the main promotion goal when the product enters the growth stage of its life cycle.

33.3 Reminding. Reminder promotion is used to keep the product and brand name in the public’s mind. This type of promotion prevails during the maturity stage of the life cycle.


34. Product Life Cycle Diagram;





34.1 Introductory stage. The introductory stage is the first stage of the product life cycle in which the full-scale launch of a new product into the marketplace occurs.

34.2 Growth stage. The second stage of the product life cycle when sales typically grow at an increasing rate, many competitors enter the market, large companies may start acquiring small pioneering firms, and profits are healthy.

34.3 Maturity stage. The third stage of the product life cycle during which sales increase at a decreasing rate.

34.4 Decline stage. The fourth stage of the product life cycle, characterized by a long-run drop in sales.

35. The form of marketing communication mix. A company’s total marketing communication mix, also called promotion mix consists of the specific blend of advertising, sales promotion, public relations, personal selling, and direct-marketing tools that the company uses to pursue its advertising and marketing objectives. Definitions of the five major promotion tools follow;

35.1 Advertising. Any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor.

35.2 Sales promotion. Short-term incentives to encourage the purchase or sale of a product or service. This includes coupons, premium, sampling, contest and sweepstake, loyalty marketing program, and point of purchase displays.

35.3 Public relations. Building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories, and events.

35.4 Personal selling. Personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships.

35.5 Direct marketing. Direct connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships-the use of telephone, mail, fax, email, the internet, and other tools to communicate directly with specific consumers.

36. Factors need to consider in the selection of promotional approach;

36.1 Target market. For targeted vast locations of market, advertising and publicity is essential. For market which is only limited in nature, direct selling is appropriate.

36.2 Promotional budget. The comparison of large amount and limited amount of budget is used to cover such areas so as it may reached effectively.

36.3 Product characteristics. Technical product in nature is much better to use direct selling as compared to ordinary products which is advertising is more applicable.

36.4 Existing technique or media used. Type of media used and the technique applied to make the product information reach to the target market.

36.5 Policy and objectives of organization. Policy and objective of the organization refers to the management decision in the selection of communication strategy (promotion mix strategy). Marketers can choose from two basic promotion mix strategies;

i. Push strategy. Push strategy involves pushing the product through marketing channels/agencies. The producer or wholesaler directs its marketing activities (primarily personal selling and trade promotion) toward channel members to induce them to carry the product and to promote it to final consumers.

ii. Pull strategy. The producer directs its marketing activities (primarily advertising and consumer promotion) toward final consumers to induce them to buy the product. If the pull strategy is effective, consumers will then demand the product from channel members, who will in turn demand it from producers.