9 Factors affecting Marketing Decisions

Rajwant Kaur

1. Learning outcome:

After completing this module, the students will be able to:

Understand the term marketing decisions
Explain the external factors affecting marketing decisions
Describe the factors affecting marketing mix decisions

2. Introduction

In today’s cut throat competition, marketers cannot take decisions at their own. The due consideration is to be made of various factors present in the environment in which it works. As every organisation is affected by internal and external environment, so marketing decisions will be more effective if these are taken by considering various factors whether internal or external which may limit the efficiency of various marketing decisions taken. It will help in identifying target market and serving it with profitable marketing mix.

3. Marketing decisions

Marketing manager is responsible for effectively performing various marketing activities. However, the major task of marketing manager is to identify the target market and develop a marketing mix for the target market. Once, target market is decided, he has to take decisions regarding product, price, distribution and promotion. He has to evolve marketing mix in relation to the existing internal and external environment. Decisions regarding the marketing mix will affect the survival and growth of the firm. So these decisions should be taken after a thorough study of the environment and considering positive and negative impact of various factors prevailing in the environment. Marketing decisions should be modified according to changing environment so as to ensure firm’s long term survival and success.

4. Factors affecting marketing decisions

The discussion regarding various factors impinging on marketing decisions has been carried out in two stages. In first stage, the macro and micro environment has been taken into consideration and effect on marketing decisions has been discussed. These factors affect firm’s decisions regarding market segmentation, target market and marketing mix. In the second stage, the external and internal factors affecting specific marketing decisions i.e product, price, distribution and promotion have been discussed.

4.1 Factors of marketing environment affecting marketing decisions in general

There are various external factors which affect marketing decisions. These are described below:

Demographic factors

Demand for products and services changes with change in age mix. Growing population reflects flourishing markets particularly for baby products. If a baby boom is anticipated, market will offer tremendous potential for baby products. But when there is decline in birth rate and death rate, many firms specialized in baby products will have to adjust their marketing plans and take decisions accordingly

Increase in educational levels make people more knowledgeable and aware of products and services. Therefore, marketers have to take marketing decisions for the target markets accordingly.

Economic factors

Nature and health of the economy has impact on marketing decisions. High economic growth results in increased levels of employment and income which cause marketing boom in many industries. Recession or depression limits the purchase of durable or luxury goods due to reduction in consumer spending. Consumer buying habits are drastically changed due to inflation as their purchasing power is affected. Many purchases are either postponed or eliminated. Attractive interest rates on deposits lead to more savings and reduce consumer spending. Liberal credit by banks at affordable rates increases purchasing power of customers and expansion rate of organisations. This provides for tremendous growth of market for consumer durables. Thus, product planning, price fixing and promotion decisions should be based on important economic indexes.

Social and Cultural factors

Social and cultural factors influence the marketing decisions. These factors include values, life styles, attitudes, norms and customs that characterize the society in which the organisation operates. Marketing executives, while taking decision, should focus on various aspects of social environment i.e. (i) changes in life style and social values (emphasis on quality goods, increasing preference for recreational activities) (ii) concern for social issues (socially responsible marketing policies, safety of products, pollution control) (iii) growing consumerism (customer-oriented marketing). Societal marketing concept demands not only consumer welfare but also citizen welfare. Marketers have to assure quality of life to people i.e. environment free from pollution.

Political and Legal factors

Marketing decisions are influenced by custom duties, import-export policies, political interests etc. Philosophy of the political parties in power affects business practices. A pro-business attitude of the government enables firms to enter into new arrangements or expand market base. Legislations controlling and protecting physical environment, marketing competition and consumer interests cannot be ignored by marketers. Anti pollution laws, laws to control marketing and Consumer Protection Act influence marketing decisions. Organisations cannot indulge in unfair trade practices, like price discriminations, false advertising, deceptive sales promotion tools. Marketers have to be more sensitive towards consumer interests otherwise reputation of their organisation will be at stake.

Technological factors

Technological forces lead to changes in life styles and buying patterns of consumers. Marketing executives have to take decisions by relating changing values, life-style patterns and changing technology to market opportunities for profitable sales in particular market segments and firm’s sustainability.

Ecological factors

The marketing system of an organisation has now to satisfy not only consumer wants but also societal wants of clean environment which may be adversely affected by its activities. Economical and efficient use of energy and natural resources must be reflected in marketing decisions.

Competition

Competitors significantly affect the firm’s marketing decisions regarding selection of target markets, marketing channels, suppliers and marketing mix. Marketing decisions are taken to outmanoeuvre the opponent and assuring survival in competitive environment. Marketers must anticipate the competitors’ moves and be prepared to deal with them.

Customer Demand

Today’s marketing begins and ends with the customers. Firstly customers (markets) are identified and then marketing programmes for target markets in the form of appropriate marketing mix are developed. Marketers should focus on making customer happy. In today’s scenario, marketing decisions should respond to customer needs and desires in all respects.

4.2 Factors of environment affecting specific marketing decisions

Various factors that affect product, price, distribution and promotion decisions are described as below:

4.2.1 Product : Product is one of the important components of marketing mix. It is the starting point of all marketing operations. Marketing managers are required to take crucial decisions regarding the product of the company so that it will be accepted by the target market.

Product decisions extend to decisions regarding product design, product line, branding, packaging, labeling and after sales services. Product design decision is influenced by production capacity, available capital, use, external appearance required and service requirements.

Depending upon the market demand, a firm can go for simplification or diversification. For successful diversification strategy, a firm must carry out self appraisal i.e. determining its strengths and weaknesses in terms of personnel, production, markets, policies, costs and profits. The availability of required manpower, funds, production capacities, market demand and competition will affect the diversification decisions of the firm. A firm cannot go for diversification when it has insufficient funds or cost involved in new project is more than the likely revenue to be earned. Government regulations are to be followed while labelling the product. Decision regarding after sales services, warranties or guarantees will be influenced by the demand of customers, cost involved and services provided by competitors. If there is huge demand for after sales services, a firm can capture more market by offering after sales services. It can also offer long warranty period to increase sales.

Product packaging decisions will be affected by requirements of consumers and retailers. Consumers’ considerations may be like ease of storage or possibility of re-use whereas retailers’ consideration can be ease of handling, ease of promotion, ease of price marking etc. Packaging decisions are also affected by nature of product, advertising value, legal requirements, protection requirements of product and cost involved. Sometimes a costly package is opted when a firm wants to have better protection of its product.

Branding decisions should be taken carefully. Brand name should be easy to spell. It should not infringe any other manufacturer’s right to use such brand name.

Apart from the above mentioned variables, marketing decisions are also influenced by firm’s societal objectives like optimum use of society’s scarce resources; better quality of life; long term satisfaction to the consumers; safety to users; complete fulfilment of government regulations regarding composition; and eco- friendly concern.

4.2.2 Price Decisions

Pricing decision is important as price of the product affects producers, sellers and consumers. However, this decision is influenced by various internal and external factors which have been described as follows :

I. Internal factors: Internal factors affecting pricing decisions include cost of production, pricing objectives, product life cycle, marketing mix, pricing policies and product differentiation. A brief explanation of these factors is given as follows:

Pricing Objectives : Every pricing decision is influenced by pricing objectives of the company which may be price stability, sales maximization, profit maximization, meeting competition or earning a target rate of return. Prices should be fixed in such a way that pricing objectives are achieved as far as possible.
Cost of Production : Cost is an important consideration while fixing the price of product. Both cost and price have a close relationship. Many companies use cost plus method. While some companies use demand or competition based method for price fixation. Whatever may be the method of pricing, the aim should be to cover the cost of production and make some surplus. Therefore, product cost should be given due consideration at the time of determining its price.
Product life cycle: Every product passes through different stages i.e. introduction, growth, maturity and decline. Each stage of product life cycle has a great influence on pricing decisions. Prices should be consciously decided during each stage to achieve marketing objectives.
Marketing Mix : Pricing decisions are affected by other elements of marketing mix. For effective results, price decisions should be coordinated with product, place and promotion decisions. For example, a firm wishing to increase price may add new features to the product or increase promotional expenditure.
Pricing Policies : Pricing decisions are required to be taken as per the pricing policies of the organization.
Product differentiation: A firm can set higher price for its unique product, better quality or attractive package. Customers are willing to pay more price for highly differentiated product.

II. External Factors : These are the factors which are beyond the control of company but have significant influence on its pricing decisions. Some of the important external factors are described below :

Competition : Competition affects the pricing decisions of management. Prices are fixed high, low or same as that of competitors’ price depending upon the nature and intensity of competition.
Economic conditions : Inflationary or deflationary conditions prevailing in the economy affect the pricing decisions. During inflation, high prices are fixed to meet the rising costs.
Government regulations: Government regulations influence the pricing decisions of a firm. The firm has to set prices within the framework of government regulations. In case prices are fixed by government, it has no choice than to accept it. The Government has framed laws to restrict monopoly and unnecessary price hikes. Thus a firm cannot fix higher prices at its own.
Distribution Channel : The use of intermediaries (wholesalers, retailers, distributor, sole agent) for distribution of goods is an important factor that influences pricing decisions. Longer the channel of distribution (distributor, wholesaler, retailer), higher will be the price and vice-versa. But it does not mean that shorter distribution channel should be used so as to fix low price of product. Rather a sound channel management is required.
Image of the company : Market image of an organisation or company in terms of reliability, quality, durability, after sale services, product mix and technology affects its pricing decisions. An organisation enjoying better image among customers can fix higher price.
Consumer behaviour : Buying pattern of consumer has impact on pricing decision of an organisation. If consumers buy the product frequently, lower price may be fixed. It will result in more sales and high overall profit.
Suppliers : The price of product is directly affected by suppliers of raw materials or various fabricated parts. If suppliers raise the price, the manufacturers are forced to raise the price of final product.
Elasticity of demand : Price elasticity of demand has considerable influence on pricing decision. If the demand of product is elastic, then a firm has to fix lower price. On the contrary, if demand is inelastic, higher price may be fixed.

Further, it is important to mention here that the decisions regarding pricing method, pricing policies and strategies will be greatly affected by the pricing objectives of the company/firm. The decision regarding terms of delivery i.e., quantity, time, place and conditions of delivery will depend upon the intention of parties but subject to the provisions of prevailing Act. Credit terms are also required to be determined by keeping in mind the nature of product, cost involved, credit facilities provided by bank and competitors’ terms. Further, decisions regarding resale price maintenance will be taken by considering prevailing trade customs and trends of industry.

4.2.3 Distribution Decisions

Distribution means using external and/or internal sources for effective movement of goods and services and performing various activities. Distribution functions can be categorized as demand-oriented functions and supply oriented functions. Demand-oriented functions refer to operations of distribution channels such as distributors, wholesalers or retailers whereas supply-oriented functions refer to physical product movement with a view to ensure quick, economic and safe transfer of goods to buyers. Supply-oriented functions constitute the physical distribution system of the organisation and it includes order processing, maintaining inventory, packaging, product handling, transportation and warehousing.

(A) Factors affecting physical distribution system

Physical distribution system varies from firm to firm or within the firm from time to time. There are numerous factors which influence this system. Some of them are described briefly as under:

Liquidity Position : Physical distribution is affected by firm’s liquidity position. A firm which is facing cash crunch will opt for holding low level of inventory and faster transportation. Shortage of funds may also necessitate firm to opt for centralized dispatching. Such firms may also opt for less sophisticated material handling system.
Size of market : Market size influences physical distribution system. Distribution facilities tend to be focused in markets with high consumer density. Similarly distribution facilities are dispersed when there is large but scattered market.
Product : The choice of physical distribution is also governed by product. Highly perishable goods require to be dispatched quickly to the markets but it may involve high transportation cost. There are lot of transportation and handling concerns of perishable and fragile products. Further, product cost may influence inventory decisions. Low inventory is usually preferred for high value products. However large inventory can be kept for goods of small value. Product line also influences inventory decisions. Wide range of products is difficult to handle in warehouse.
Distribution Channels : Physical distribution decisions are influenced by distribution channels used by the organisation. Direct selling will lead to larger inventory, small order handling and decentralized warehousing. However, an organisation will have distribution cost economies when it uses services of wholesalers. It can avail advantages of bulk deliveries, low inventory and less warehousing cost.
Availability of facilities: Facilities also govern the decision regarding physical distribution system. Sometimes handling equipment, mode of transport and space of warehouse are not available in desired shape, at desired time and in desired size. The company may have to compromise on these facilities.

(B) Factors affecting distribution channel selection

The physical movement of goods and services is facilitated by middlemen i.e. distributors, selling agents, wholesalers and retailers. They are called as channels of distribution. The decision regarding the selection of channel will depend on various factors which are described as follows:

Product

Product features like type, value and usage play a significant role in designing and selecting a channel. Custom made products require direct distribution to industrial user or consumer. Perishable goods require special handling and storage. A shorter and controlled channel can be used for distribution of such goods. Durable and standardized goods will require longer channel. Bulky products will tend to benefit from shorter channel. Expensive products need specialized channel system with showroom and financial strength.

Market

For consumer market, longer distribution channel will be preferred whereas in business market a shorter channel will be desirable. If the market size is small, direct selling will tend to benefit. However, large market may require longer distribution channel.

The geographically concentrated markets may be approached through direct selling. Widely scattered markets will need longer distribution channel.

Middlemen

Financial strength, infrastructural facilities, image and services of intermediaries are important considerations to make a right decision for distribution channel.

Competitors

Channel design strategies are influenced by the preferences of competitor for distribution system. A company may adopt the similar channels or avoid the channels dominated by rivals and make use of exclusive distribution system.

Marketing Environment

The prevailing environment may influence the preference for distribution channel. A company will prefer shorter and cheaper channel during recession. However, a long channel may be used during boom period. Technical innovations also affect the pattern of channels. For instance, the cold storage facilities have made possible the distribution of dairy products or other perishable goods at distant places and enabled the companies to use middlemen.

4.2.4 Promotion Decisions

Promotion is a process of marketing communication which attempts to inform, persuade and remind its target markets, through personal and impersonal means, about company and its brand. Promotion mix consists of a group of communication tools which marketing executives use to communicate with their target audience. Advertising, sales promotion, personal selling, public relations are important elements of promotion mix. Choosing a right advertising media (like television, radio, print, outdoor) is a difficult task. Media selection decisions are influenced by (i) communication requirements (ii) advertising budget (iii) nature of the product (iv) extent of competition (v) geographical area coverage requirements (vi) literacy level of target group (vii) cost of media and services provided.

The marketer tries to create a most favourable blend of all promotion elements to influence buyer’s behaviour and his process of decision making. Therefore, he takes decision regarding promotion mix.

Factors affecting promotion mix

There are various promotion tools available. A company/firm should take decision to use an appropriate tool by considering following factors:

Nature of Product: Personal selling is best suited to sell industrial products. Industrial goods can be promoted through sales engineer or journals. Specialty products should be promoted through selective media like journals, personal selling. Convenience products are mass selling consumer goods that can be promoted through radio, newspaper or television.
Target Market : Sex, age and background of target market will determine the use of promotion tool. Toys or cosmetics can be promoted through television. A convenience product targeted at rural market would require the use of customer education. In such markets, advertising supported by personal selling will help in boosting the sales.
Stages in Product Life Cycle : Promotional strategy will be influenced by product’s stage in life cycle. During the introductory stage, there is need to create awareness and knowledge about product. Product displays and publicity supported by advertising can be relied upon to promote such product. The purpose of promotion will be different when product reaches growth stage. Public relations and sales promotion can be used along with advertising. For product at maturity stage, firms can focus on consumer sales promotion and trade promotion only. In declining stage, only sales promotion techniques can be resorted to.
Availability of Funds : The new entrants may lack funds to use advertising, personal selling, or sales promotion tools. They can go for publicity to create awareness among customers. If established firms do not face any financial crunch they can adopt any promotion tool.
Type of buying decisions: Promotional tool is determined by the type of buying decisions. Complex decisions require assurance and conviction. Personal selling is best suited in such cases. Simple routine nature buying decisions require reminder communication to maintain brand recall. Consumer sales promotions should be used to keep customer interested in brand.
Push and Pull Strategy : Push strategy aims at assisting dealers in increasing sales whereas the purpose of pull strategy is to encourage customers or end users. A company that wants to use pull strategy should use advertising or sales promotion. But a company which is opting push strategy must go for personal selling. However, a company can use a combination of different promotion tools when push and pull strategy is followed by it.

Summary

Marketing manager has to take decisions regarding target market and marketing mix. There are various factors present in micro and macro environment that affect marketing decisions such as demographic factors, economic factors, social factors, political and legal factors, technological factors, competition and customer demand. These factors affect manager’s decisions regarding market segmentation, target market and marketing mix. There are various external and internal factors which affect specific marketing decision i.e. product, price, distribution and promotion. Product design decision is influenced by production capacity, available capital, use, external appearance required and service requirements. The availability of required manpower, funds, production capacities, market demand and competition affect the diversification decisions of the firm. Decision regarding after sales services or guarantees are influenced by the demand of customers, cost involved and services provided by competitors. Packaging decisions are affected by nature of product, advertising value, legal requirements, protection requirements of product and cost involved.

Pricing decisions are affected by various factors like pricing objectives, cost of production, product life cycle, marketing mix, product differentiation, competition, economic conditions, government regulations, distribution channel etc. There are numerous factors which influence the physical distribution system such as liquidity position of company, size of market, product, distribution channels and availability of facilities. Distribution channel decisions are affected by product, market, middlemen, competitors and marketing environment. However, promotion decisions are influenced by nature of product, stages of product life cycle, age and background of target market, type of buying decisions and availability of funds. The marketers should give due consideration to each factor, study pros and cons associated with each factor and then take rational marketing decisions.

Learn More

Few important sources to learn more about factors affecting Marketing Decisions :

Bearden, Ingram, Laforge (1995). Marketing: Principles and Perspectives, Irwin Inc.
Gandhi,C J (1998). Marketing- A Managerial Introduction, Tata McGraw Hill, New Delhi
Kotler, Philip (2002). Framework for Marketing Management, Pearson Education (Singapore) Pte. Ltd., Indian Branch, Delhi.
Kotler, Philip; Keller, Kevin; Koshey, Abraham; and Jha Mithileshwar, (2009). Marketing Management: South Asian Perspective. 13th Edition. Pearson Education, New Delhi.
Mohan, Manendra (1999). Advertising Management: Concepts and Cases, Tata McGraw-Hill Publishing Company Limited, New Delhi.
Sherlekar,A.S.(1996). Marketing Management, Himalaya Publishing House, Mumbai.

Points to Ponder

Marketing manager has to take decisions regarding target market and marketing mix.
There are various factors present in micro and macro environment that affect marketing decisions.
Marketing decisions should be modified according to changing environment so as to ensure firm’s long term survival and success.
There are various external and internal factors which affect specific marketing decision i.e. regarding product, price, distribution and promotion.
The marketers should give due consideration to each factor, study pros and cons associated with each factor and then take rational marketing decisions.