Consumer Protection

 

 

1. Consumer A consumer is generally understood as a person who uses consumer goods or avails any service.
2. Consumer Protection It means protecting consumer from the clutches of fraud producers or sellers.
3. Who Can File a Complaint?
(i) A consumer
(ii) Any registered consumer association
(iii) The Central Government or any State Government
(iv) One or more consumers, on behalf of numerous consumers having the interest
(v) A legal heir or representative of a decreased consumer
4. Three Tier Judicial Machinery to Provide Protection to Consumers
(i) District forum
(ii) State commission
(iii) National commission
5. Consumer Rights
(i) Right to safety
(ii) Right to be informed
(iii) Right to choose
(iv) Right to be heard
(v) Right to seek redressal
(vi) Right to consumer education
6. Consumer Responsibilities
(i) Consumer must exercise his right
(ii) Consumer must be conscious
(iii) Filling complaints for the redressal of genuine grievances
(iv) Consumer must be quality cautious
(v) Do not be carried away by advertisement
(vi) Insist on cash memo
7. Ways and Means of Consumer Protections
(i) Self regulations by business
(ii) Business association
(iii) Consumer awareness
(iv) Consumer organisation
(v) Government
8. Relief Available
(i) Removal of defects from the goods
(ii) Replacement of the goods
(iii) Refund of the price paid
(iv) Compensation of loss or injury suffered
(v) Removal of deficiency in service
(vi) Discontinuance of unfair trade practices
(vii) Stopping the sale of hazardous goods
(viii) Withdrawal of hazardous goods from market
9. Rule of Consumer Organisations In India, several consumer organisations and non-governmental organisations have been set up for the protection and promotion of consumers interest. These associations are performing following functions
(i) Bringing out brochures, journals etc
(ii) Spreading consumer awareness
(iii) Collecting data of different product
(iv) Filing suits or complaints on behalf of customers
(v) Educating the consumer to help themselves
(vi) Educating women regarding consumerism
10 Rule of Press A part from publishing articles, columns etc newspapers have tried to provide protection to harassed consumers by including a consumer complaint column.
11. Rule of Universities and Press IGNOU has made a beginning by developing a complete syllabus which provides a framework for the universities to develop a curriculum for consumer education CBSE has published a teacher’s manual on consumer education.

NCERT Solutions 

 

Short Answer Type Questions

1. Explain the importance of consumer protection from the point of view of business.
Ans: A business can not survive without paying attention on protecting the consumers interest and adequately satisfying them. This is important because of the following reasons
(i) Long Term Interest of Business
Business firms should aim at long term profit maximisation through customer satisfaction. Satisfied customers not only lead to repeat sales but also provide good
feedback to prospective customers and thus help in increasing the customer base of business.
(ii) Business uses Society’s Resources
Business organisation uses resources which belong to the society, thus they have a responsibility to supply such products and render such services which are in public interest.
(iii) Social Responsibility
A business has social resposibility towards various interest groups. Business organisations make money by selling goods and providing services to consumers. Thus, consumers form an important group among the many stakeholders of business and like other stakeholders, their interest has to be well taken care of.
(iv) Moral Justification
The moral duty of any business is to take care of consumer’s interest and securing them from exploitation. Thus, a business must avoid insecure loss, exploitation and unfair trade practices like defective and unsafe products, adulteration, false and misleading advertising hoarding, black marketing etc.
(v) Government Intervention
A business engaging in any form of exploitation time trade practices would invite government intervention or action. Thus, it is advisable that business organisation voluntarily resort to such practices, where the customers need and interests will be taken care of.

2. Enumerate the various Acts passed by the Government of India which help in protecting the consumer’s interest?
Ans: The Indian legal framework consists of a number of regulations which provide protection to consumers. Some of these regulations are as under
(i) The Consumer Protection Act, 1986
The Act provides safeguards to consumers against defective goods, deficient services, unfair trade practices etc.
(ii) The Contract Act, 1982
The Act lays down the conditions in which the promises made by parties to a contract will be binding on each other.
(iii) The Sale of Goods Act, 1930
The Act provides some safeguards and reliefs to the buyers of the goods in case, the goods purchased do not comply with express or implied conditions or warranties.
(iv) The Essential Commodities Act, 1955
The Act aims at controlling, I (reduction, supply, distribution and price of essential commodities.
(v) The Agricultural Produce Act, 1937
The Act prescribes grade ctandards for agricultural commodities and livestock products.
(vi) The Prevention of Food Adulteration Act, 1954
The Act aims to check adulteration of foods articles and ensure their purity, so as to maiulain public health.
(vii)The Standards of Weights and Measures Act, 1976
It provides protection to consumers against the malpractice of under-weight or under-measure.
(viii) The Trade Marks Act, 1999
The Act prevents the use of fraudulent marks on products and thus provides protection to the consumers against such products.
(ix) The Competition Act, 2002
The Act provides protection to the consumers in case of practices adopted by business firms which hamper competition in the market.
(x) The Bureau of Indian Standard Act, 1986
The bureau has two major activities : formulation of quality standards for goods and their certification through the BIS certification scheme. The bureau has also set up a grievance cell, where consumers can make a complaint about quality of products carrying the ISI mark.

3. What are the responsibilities of a consumer?
Ans: A consumer should keep in mind the following responsibilities
while purchasing, using and consuming goods and services
(i) Be aware about various goods and services available in the market, so that an intelligent and wise choice can be made.
(ii) Buy only standardised goods as they provide quality assurance. Thus, look for ISI mark on electrical goods, FPO mark on food products and Hallmark on jewellary etc.
(iii) Learn about the risks associated with products and services.
(iv) Read labels carefully, so as to have information about prices, weight, manufacturing and expiry dates etc.
(v) Assert yourself to get a fair deal.
(vi) Be honest in your dealings. Choose only from legal goods and services.
(vii) Ask for a cash-memo on purchase of goods and services. This would serve as a proof of the purchase made.
(viii) File a complaint in an appropriate consumer forum in case of a shortcoming in the quality of goods purchased or services availed.
(ix) Form consumer societies which would play an active part in educating consumers and safeguarding their interests
(x) Respect the environment, avoid waste, littering and contributing to pollution.

4. Who can file a complaint in a consumer court?
Ans: A complaint can be made by
(i) Any consumer.
(ii) Any registered consumer’s association.
(iii) The Central Government or any State Government.
(iv) One or more consumers, on behalf of numerous consumers having the same interest.
(v) A legal heir or representative of a deceased consumer.

5. What kind of cases can be filed in a state commission?
Ans: A complaint can be made to the appropriate state commission when the value of the goods and services, along with compensation claim exceeds Rs.20 lakhs but does not exceed Rs 1 crore. The appeals against the orders of a District Forum can also be filed before the state commission.

6. Explain the role of consumer organisations and NGOs in
protecting and promoting consumers’ interest.
Ans: Consumer organisation and NGOs perform several functions for the protection and promotion of interest of consumers. In India, these
associations are performing lots of functions some of them are
(i) Educating the general public about consumer rights by organising training programmes, seminars and workshops.
(ii) Publishing periodicals and other publications to impart knowledge about consumer problems, legal reporting, reliefs available and other – matters of interest.
(iii) Carrying out comparative testing of consumer products in accredited laboratories to test relative qualities of competing brands and
publishing the test results for the benefit of consumers.
(iv) Encouraging consumers to strongly protest and take an action L against unscrupulous, exploitation and unfair trade practices of sellers.
(v) Providing legal assistance to consumers by providing aid, legal advice etc in seeking legal remedy.
(vi) Filing complaints in appropriate consumer courts on behalf of the consumers.
(vii) Taking an initiative in filing cases in consumer court in the interest of the general public, not for any individual.

Long Answer Type Questions

1. Explain the rights and responsibilities of a consumer.
Ans: The Consumer Protection Act provides six rights to consumers. They are as follows
(i) Right to Safety
The consumer has a right to be protected against goods and services which are hazardous to life, e.g., sometimes we purchased the food items of low quality which causes severe
problems. Thus, in this case, we should purchased good quality and FPO labelled products.
(ii) Right to be Informed
The consumer has a right to have complete information about the product, which he intends to buy including its ingredients, date of manufacture, price , quantity, directions for use etc. Under the legal framework of India manufactures have to provide such information on the package and label of the product.
(iii) Right to Choose
The consumer has the freedom to choose from a variety of products. The marketers should offer a wide variety of products and allow the consumer to make a choice and choose the product which is most suitable. ‘
(iv) Right to be Heard
The consumer has a right to file a complaint and to be heard in case of dissatisfaction with a good or a service. It is because of this reason that many enlightened business firms have set up their own consumer service and grievance cells.
(v) Right to Seek Redressal
The Consumer Protection Act provides a number of reliefs to the consumer including replacement of the product, removal of defect in the product, compensation paid for any loss or injury suffered by the consumer etc.
(vi) Right to Consumer Education
The consumer has a right to acquire knowledge about products. He should be aware about his rights and the reliefs available to him in case of a product/service falling short of his expectations. Many consumer organisations and some enlightened businesses are taking an active part in educating consumers in this respect.
Consumer Responsibilities
A consumer must be aware about these responsibilities while purchasing, using and consuming goods and services
(i) Consumer must be aware of all their rights.
(ii) Consumer must be careful while purchasing a product.
(iii) He should file complaint for the redressal of genuine grievances.
(iv) Consumer must buy a standardised good.
(v) He should ask for a cash-memo on purchase of goods and services

2. What are various ways in which the objective of consumer protection can be achieved? Explain the role of consumer organisations and NGOs in this regard?
Ans: There are various ways in which the objective of consumer protection can be achieved
(i) Self Regulation by Business Socially responsible firms follow ethical standards and practices in dealing with their customers. Many firms have set up their customer service and grievance cells to redress the problems and grievances of their consumers.
(ii) Business Associations
The associations of trade, commerce and business like Federation of Indian Chambers of Commerce of India (FICCI) and Conference of Indian Industries (ClI) have laid down their code of conduct which lays down for their members the guidelines in their dealings with the customers.
(iii) Consumer Awareness
A consumer, who is well informed about his rights and the reliefs, would be in a position to raise his voice against any unfair trade practices or exploitation.
(iv) Consumer Organisations
Consumer organisations plays an important role in educating consumers about their rights and protecting them. These organisations can force business firms to avoid malpractices and exploitation of consumers.
(v) Government
The Government can protect the interests of the consumers by enacting various legislations. The legal framework in India encompasses various legislations which provide protection to consumer, the most important of these regulations is the Consumer Protection Act, 1986. The Act provides for a three-tier machinery at the District, State and National levels for redressal of consumer grievance.
Role of Consumer Orgs and NGOs
Consumer organisation and NGOs perform several functions for the protection and promotion of interest of consumers. In India, these
associations are performing lots of functions some of them are
(i) Educating the general public about consumer rights by organising training programmes, seminars and workshops.
(ii) Publishing periodicals and other publications to impart knowledge about consumer problems, legal reporting, reliefs available and other – matters of interest.
(iii) Carrying out comparative testing of consumer products in accredited laboratories to test relative qualities of competing brands and
publishing the test results for the benefit of consumers.
(iv) Encouraging consumers to strongly protest and take an action L against unscrupulous, exploitation and unfair trade practices of sellers.
(v) Providing legal assistance to consumers by providing aid, legal advice etc in seeking legal remedy.
(vi) Filing complaints in appropriate consumer courts on behalf of the consumers.
(vii) Taking an initiative in filing cases in consumer court in the interest of the general public, not for any individual.

3. Explain the redressal mechanism available to consumers under the Consumer Protection Act, 1986?
Ans: For the redressal of consumer grievances, the Consumer Protection Act provides for setting up of a three-tier enforcement machinery at the District, State and the National levels.
(i) District Forum A complaint can be made to the appropriate District Forum when the value of goods or services, along with the compensation claimed, does not exceed ? 20 lakhs. In case the aggrieved party is not satisfied with the order of the District Forum, he can appeal before the State Commission within 30 days.
(ii) State Commission A complaint can be made to the appropriate State Commission when the value of the goods or services, along with the compensation claimed, exceeds ? 20 lakhs but does not exceed Rs 1 crore. The appeals against the orders of District Forum can also be filed before the State Commission. In case the party is not satisfied with the order of the State Commission, he can appeal before the National Commission within 30 days of the passing of the order by State Commission.
(iii) National Commission A complaint can be made to the National Commission when the value of the goods or services, along with the compensation claimed exceeds Rs 1 crore. The appeals against the orders of a State Commission can also be filed before the National Commission. An order passed by the National Commission in a matter of its original justification is appealable before the supreme court. This means that only those appeals, where the value of goods + services in question, along with the compensation claimed, exceeded Rs. 1 crore and where the aggrieved party was not satisfied with the order of the National Commission, can be taken to the Supreme Court of India.

Case Problem

Now, filing complaint is just, a click away. Filing a complaint in a consumer court’s going to get a lot easier by the end of this year, virtually. No matter which part of the country you’re in, it’s going to happen at the click of a mouse.
The project, called Confonet (Computerisation and Computer Networking of Consumer Fora), is being executed on a turnkey basis by the National Informatics Centre (NIC).
“Online registration of complaints, the government hopes, will promote e-governance, transparency, efficiency and streamlining of consumer fora”, said an official in the consumer affairs ministry. Of Rs 48.64 Crore set aside for the project, the government has released ^ 30.56 crore so far, the official added.
“Besides software development and testing, networking and project implementation, integration and site preparation, it will include purchase of hardware for all the 583 District fora, 35 state commissions and the National Commission”, the official said.
At present, computer systems and system software have been delivered to 25 state commissions and 300 District fora — never mind (he fact that it’s sometimes a long wait before the hardware is finally unpacked and set up in some of the districts. Meanwhile, training of staff, sometimes in the classroom and sometimes through e-learning sessions, are in full swing.
“But just setting up an online complaint filing system won’t ensure a strong consumer protection movement in the country — for that we’re working on GenNext and the best way to do that is to go to schools”, the official said.
The government is, therefore, involving school children to form consumer clubs, so as to involve them in various consumer welfare activities.
Part of the funding for running the club is to come from various state governments, with an equally matching grant from the Centre. However, a number of state governments are yet to sanction the fund — some of these include Uttar Pradesh, Madhya Pradesh and Kerala.

1. What new measure is the ministry of consumer affairs taking to make filing a complaint easy?
Ans: Online registration of complaints has been initiated by the ministry of consumer affairs to make filing of complaint easy.

2. What roll can you as a student play to contribute to the cause of consumer protection?
Ans: A student can play an active role in bringing out an awareness campaign on ‘Consumer Protection’.
(i) Special assemblies can organised to show the display of consumer rights and responsibilities.
(ii) When school organises any exhibition the commerce students can put a stall and give demonstration on responsibilities of a consumer.
(iii) The Biology and Chemistry laboratories can be used for testing adulterated goods, (e.g., milk, paneer, spices etc).
(iv) Essay writing competitions, debate competition and quiz can be organised to promote the awareness on consumer protection.
(v) Encourage students to boycott goods/eatables which are adulterated or defective in school canteen.
(vi) To set up voluntary complaint centre for consumer guidance and counseling.

3. What scenario of consumer protection do you foresee j when the measures proposed in the above news report are implemented?
Ans: With the implementation of online registration, educated and technology friendly consumer will gain but in my opinion the unaware, ignorant and simple consumers who still are far away from e-governance would stand in need of the 3 forums working efficiently and effectively. Thus both the systems should work parallel, hand in hand to protect the interests of different types of consumers.

 

 

                                           Marketing

 

1. Market It refers to the ‘set of potential and actual buyers of a product or service’.
2. Customer It refers to the people or organisations that seek satisfaction of their needs and wants.
3. Marketer or Seller The marketer can be a person or organisation who make available the products or services and offer them to the customer with an intention of satisfying the customer with an intention of satisfying the customer needs and wants.
4. Marketing It is a social process by which individuals and groups obtain what they need and want through creating, offering and freely exchanging products and services of value with others.
According to JF Pyle, “Marketing is that phase of business activity through which the human wants are satisfied by the exchange of goods and services.”
5. Features of Marketing
(i) Need and want (ii) Creating a market offering
(iii) Customer value (iv) Exchange Mechanism
6. Marketing Management It means management of all the activities related to marketing or in other words we can say, it refers to planning, organising, directing and controlling the activities which result in exchange of goods and services. Marketing management involves following activities
(i) Choosing a target market
(ii) Growing customers in target market
7. Difference between Selling and Marketing The marketing and selling can be differentiated on the basis of
(i) Scope (ii) Objective (iii) Focus
(iv) Start and end (v) Efforts (vi) Supremacy
(vi Approach (viii) Demand
8. Marketing Management Philosophies
(i) Production concept
(ii) Product concept
(iii) Selling concept
(iv) Marketing concept
(v) Societal concept
9. Objectives of Marketing Management
(i) Creation of demand
(ii) Market share
(iii) Goodwill
(iv) Profitable sales volume through customer satisfaction
10. Functions of Marketing
(i) Gathering and analysing market information
(ii) Market planning
(iii) Product designing and development
(iv) Standardisation and grading
(v) Packaging and Labelling
(vi) Branding
(vii) Customer support services (viii) Pricing of products
(ix) Promotion and selling
(x) Physical distribution
(xi) Transportation
(xii) Storage and warehousing
11. Role of Marketing
(i) Role in firm (ii) Role in the economy
12. Marketing Mix The marketing mix refers to the ingredients or the tools or the variable which the marketeer mixes in order to interact with a particular market.
According to Philip Kotler, “Marketing mix are the set of – marketing tools that firm uses to pursue its marketing objectives in the target market.”
13. Elements of Marketing Mix
(i) Product (ii) Place
(iii) Price (iv) Promotion
14. Product The product element of the marketing mix signifies the tangible or intangible product offered to the customer which satisfies the need.
15. Classification of Product or Service Product or goods can be classified in two categories
(i) Consumer goods (ii) Industrial goods
16. Consumer Goods
(i) On the Basis of Durability
(a) Durable products
(b) Non-durable products
(c) Services
(ii) Classification Based on Consumers Buying Behaviour and Attitude
(a) Convenient goods
(b) Shopping goods
(c) Speciality goods
17. Industrial Product Industrial products are used as input or raw material to produce consumer goods, e.g., tools, machinery etc.
Features of industrial produced are
(i) Number of buyer
(ii) Channel of distribution
(iii) Geographical concentration
(iv) Derived demand
(v) Technical consideration
(vi) Reciprocal buying
(vii) Leasing
18. Types of Products Industrial goods are classified as
(i) Material and parts
(ii) Capital item
(iii) Supplies and business services
19. Product Mix It refers to important decisions related to the product such as quality of product, design of product packing of product etc.
(i) Branding A brand is the identification of a product. It can be in the form of a name, symbol or design etc.
(ii) Various Terms Related to Brand
(a) Brand (b) Brand name
(c) Brand mark (d) Trade mark
(iii) Advantages of Brand Name
(a) Helps in product differentiation
(b) Helps in advertising
(c) Differential pricing
(d) Easy introduction of new product
(iv) Advantages to Customer
(a) Helps in identification of product
(b) Ensures quality
(c) Status symbol
20. Packaging It can be defined as a set of tasks or activities which are concerned with designing, production of an appropriate wrapper, container or bag for the product.
(i) Level of Packaging There are three levels of packaging
(a) Primary packaging
(b) Secondary packaging
(c) Transportation packaging
(ii) Importance of Packaging
(a) Rising standard of health and sanitation
(b) Self service outlets
(c) Product differentiation
(d) Innovational opportunities
(iii) Functions of Packaging
(a) Protection (b) Identification (c) Convenience (d) Promotion
21. Labelling It means putting identification marks on the package
Functions of labels are as follows
(i) Describe the product and specify its contents
(ii) Identify the product
(iii) Helps in grading
(iv) Promotes sale
(v) Providing information required by law/legal requirement
22. Price Price is the value which a buyer passes on to the seller in lieu of the product or service provided.
23. Price Mix It refers to important decisions related to fixing the price of a commodity.
The factors kept in mind while fixing the price of a commodity or service
(i) Pricing objectives
(ii) Product cost
(iii) Extent of competition in the market
(iv) Customer’s demand and utility
(v) Government and legal regulation
(vi) Marketing methods used
24. Pricing Strategies There are two pricing strategies
(i) Price skimming
(ii) Penetration pricing
25. Place/Physical Distribution Place refers to the set of decisions that need to be taken in order to make the product available.
26. Place Mix It refers to important decisions related to physical distribution of goods and services. These decisions are deciding the channel of distribution, market for distribution.
27. Channels of Distribution

28. Functions of Distribution Channels
(i) Sorting/Granding (ii) Accumulation
(iii) Variety (iv) Packaging
(v) Promotion (vi) Negotiation
(vii) Risk taking
29. Types of Distribution Levels
(i) Zero Level Channel/Direct Channel


30. Factors Determining Choice of a Channel
(i) Product related factors
(ii) Competitive factors
(iii) Company related factors
(iv) Market related factors
(v) Environmental factors

32. Promotion Mix It refers to all the decisions related to promotion of sales of products and services.
Following are the tools or elements of promotion. They are also called elements of promotion mix.’
(i) Advertising (ii) Sales promotion
(iii) Personal selling (iv) Publicity
33. Advertising It can be defined as the paid form of non-personal presentation and promotion of ideas, good or services and by identified sponsor.
34. Advantages of Advertisement
(i) Reach
(ii) Choice
(iii) Legitimacy
(iv) Expressiveness
(v) Economy
(vi) Enhancing customer satisfaction
35. Disadvantages of Advertisement
(i) Less forceful
(ii) Less effective
(iii) Difficulty in media choice
(iv) Inflexibility
(v) Lack of feedback
36. Objections to Advertising
(i) Adds to cost
(ii) Undermines social values
(iii) Confuses the buyers
(iv) Encourages sale of inferior products
(v) Some advertisements are not appealing
37. Different Media Available for Advertising
(i) Newspapers (ii) Magazines
(iii) Television (iv) Radio
(v) Outdoor (vi) Internet
38. Sales Promotion It refers to short term use of incentives or other promotional activities that stimulate the customer to buy the product.
39. Sales Promotion Techniques for Customers
(i) Rebate (ii) Discount
(iii) Refunds (iv) Product combination
(v) Quantity gift (vi) Instant draws and assigned gift
(vii) Lucky draw (viii) Usable benefit
(ix) Full finance @ 0%
(x) Sampling (xi) Contents
40. Merits of Sales Promotion
(i) Attention attract
(ii) Useful in new product launch
(iii) Synergy in total promotion efforts
(iv) Aid to other promotion tools
41. Demerits of Sales Promotion
(i) Reflect crisis (ii) Spoil product image
42. Personal Selling Personal selling means selling personally. This involves face-to-face interaction between seller and buyer for the purpose of sale.

 

 

NCERT Solutions

 

Very Short Answer Type Questions

1. Explain the advantages of branding to marketers of goods and services.
Ans: Branding is an important function performed by a marketer. It has following advantages to the marketers
(i) Enables marking product differentiation.
(ii) Helps in advertising and display programmes.
(iii) Differential pricing.
(iv) Ease in introduction of new products.

2. List the characteristics of a good brand name.
Ans: Following are the characteristics of a good brand name
(i) It should be short, easy to pronounce, recognise and remember e.g., Bin, Vim.
(ii) It should suggest product’s qualities e.g., Genteel, Rasna.
(iii) It should be distinctive e.g., Zodiac.
(iv) It should be versatile to accomodate new products which are added to the product line e.g., Maggie, Videocon.
(v) It should be capable of being registered and protected legally.
(vi) Chosen name should have staying powers e.g., it should not get out of date.

3. What is the societal concept of marketing?
Ans: The societal concept of marketing means an extension of marketing concept. Apart from the consumer satisfaction, it pays attention to the social, ethical and ecological aspects of marketing.

4. List the characteristics of convenience products.
Ans: Following are the characteristics of convenience products
(i) These goods are purchased at convenient locations with least efforts and time.
(ii) They have regular and continuous demand.
(iii) They are purchased in small quantities and per unit price is low.
(iv) They are mostly branded and have standardised price.
(v) The competition is high as the supply is greater than the demand.
(vi) Sales promotion schemes play an important role in the marketing of such products.
 
5. Enlist the advantages of packaging of a consumer products.
Ans: Importance of Packaging
(i) Helps in raising the standard of health and sanitation.
(ii) Helps in self service outlets as consumer can easily decide on his own what to buy.
(iii) Innovational opportunity e.g., new types of packaging availability have made it easier to market the product.
(iv) Product Differentiation Packaging is one of the very important means creating product differentiation.
 
6. What are the limitations of a advertising as a promotional tool? Enlist.
Ans: Following are the limitations of advertising
(i) Less forceful (ii) Lack of feedback
(iii) Inflexibility (iv) Low effectiveness

7. List five shopping products purchased by you or your family during the last few months.
Ans: (i) Curtains (ii) Shirts
(iii) Cosmetics (iv) Travelling bags
(v) Hand bags

Short Answer Type Questions

1. What is marketing? What functions does it play with process of exchange of goods and services? Explain.
Ans: Marketing is a total system of business activities designed to plan, price, promote and distribute want satisfying goods and services to present and potential customers. Marketing is concerned with exchange of goods and services from producer to consumers which involves many activities.
(i) Gathering and Analysing Market Information
This is done to identify the needs of the customers and take various decisions for the successful marketing of the products and services.
(ii) Marketing Planning
Another important activity or area of work of a marketer is to develop appropriate marketing plans, so that the marketing objective of the organisation can be achieved.
(iii) Product Designing and Development
The design of the product contributes to make the product attractive to the target customers.
A good design can improve performance of a product and also give it a competitive advantage in the market.
(i) Standardisation and Grading
Standardisation refers to producing goods of predetermined specification which helps in achieving uniformity and consistency in the output which reduces the need for inspection, testing and evaluation of the products.
Grading is the process of classification of products into different groups, on the basis of its features such as quality, size etc. It ensures that goods belong to a particular quality helps in realising higher prices for high quality output.
(ii) Packaging and Labelling
Packaging refers to designing the package for the products. Labelling refers to designing the label to be put on the package. Packaging provides protection to the product and also helps in its promotion. Labelling helps in self service.
(iii) Branding
Brand names help in creating product differentiations i.e., how the product can be distinguished from its competitors.
(iv) Customer Support Service
Marketing management relates to developing customer support service such as after sales services, handling customer complaints. All these aim at provides customer satisfaction which is a key to marketing^success.
(viii) Pricing of Product
Price is an important factor affecting the success or failure of a product in the market. The marketers have to analyse properly the factors determining the price of a product.
(ix) Promotion
Promotion of products and services involves informing the customers about the firm’s product, its features etc and persuading them to purchase these products. It includes four method advertising, sales promotion, personal selling and publicity.
(x) Physical Distribution
The important decisions areas under physical distribution include managing inventory, storage, warehousing and transportation of goods from one place to the other.
(xi) Transportation Transportation involves physical movement of goods from one place to another. A marketer has to perform this function very efficiently keeping in mind the nature of product, cost, location of target market etc.
(xii) Storage or Warehousing
In order to maintain smooth flow of products in the market, there is a need for proper storage of the products. Further, there is a need for storage of adequate stock of goods to protect against unavoidable delays in delivery or to meet ‘out contingencies in the demand. Wholesalers and retailers are playing an important role.

2. Distinguish between production concept of marketing.

 
3. Product is a bundle of utilities. Do you agree? Comment.
Ans: Yes, product is a bundle of utilities, which is purchased because of its capability to provide satisfaction of certain need. A buyer buys a product or service for what it does or service for what it does for her or the benefits it provides. There can be three types of benefits, it provides to a customer (i) functional benefits (ii) psychological benefits and (iii) social benefits, e.g., the purchase of a motorcycle provides functional utility of transportation, but at the same time satisfies the need for prestige and esteem and provides social benefit by the way of acceptance from a group, by riding it.

4. What are industrial products? How are they different from consumer products? Explain.
Ans: Industrial products are those products, which are used as inputs in providing other products e.g., raw material, engines, tools, lubricants etc.
The difference between consumer products and industrial products is based on their ultimate use and nature of purchases.




5. Distinguish between convenience product and shopping product.

 


6. Products is a mixture of tangible and intangible attributes. Discuss.
Ans: In marketing, product is a mixture of tangible and intagible attributes which are capable of being exchanged for a value, with ability to satisfy customer needs. Beside physical objects, include services, ideas, persons and places in the concept of product. Thus, product may be defined as anything that can be offered in a market to satisfy a want or need. It is offered for attention, acquisition, use or consumption.


7. Describe the functions of labelling in the marketing of products.
Ans: Label on a product provides detailed information about the product, its contents, methods of use etc. The various functions performed by a label are as follows
(i) Describe the Product and Specify its Contents
One of the most important functions of labels is that it describes the product, its usage, cautions in use etc and specify its contents.
(ii) Identification of the Product or Brand
A label helps in identifying the product or brand e.g., we can easily pick our favourite soap from a number of packages only because of its label.
(iii) Grading of Products
Labels help grading the products into different categories. Sometimes, marketers assign different grades to indicate features or quality of the product e.g., different type of tea is sold by some brands under Yellow, Red and Green label categories.
(iv) Help in Promotion of Products
An important function of label is to aid in promotion of the products. A carefully designed label can attract the customer to purchase. So, many labels provide promotional messages, some show discount or other schemes etc.
(v) Providing Information Required by Law Another important function of labelling is to provide information required by law. e.g., the statutory warning on the package of cigarette or pan masala – ‘Smoking is injurious to health’ or ‘Chewing tobacco causes cancer.’

8. Discuss the role of intermediaries in the distribution of consumer non-durable products.
Ans: The term channels of distribution refers the facilitate to the movement of goods and services and their title between the point of production and point of consumption, by performing a variety of marketing activities. Following are the functions performed by the channels of distribution
(i) Accumulation
It aims at holding the stock to match between the consumer demand and supply condition, warehousing helps in maintaining continuous flow of goods and services.
(ii) Promotion
The marketing channels also help in promoting the demand for the product by displaying demonstrating and participating in various promotional activities organised by the producers.
(iii) Negotiating
The marketing channels are the intermediaries between the producers and the consumers. They attempt to reach final agreement on price and other terms of the offer, so that transfer of ownership is properly affected.
(iv) Risk Taking
Risk taking is the basic responsibility of the intermediaries. It may arise out of physical deteriorations, changes in price levels, natural calamities, change in fashion etc. These are unaviodable as they hold sufficiently large and variety of inventories till the sale of stock.
(v) Grading/Sorting
Grading is the process whereby they sort the products on the basis of different sizes, qualities, moisture contents and so on. It helps us realising the time value for the product and at the same time ultimate consumer feels satisfied with the uniform quality of the product.
(vi) Packaging
The products are packed in the small tradable lots for the convenience of the consumer.
(vii) Assembling/Assortment
Marketing channels aim at satisfying the needs of the customers. The products desired by the consumer may not be available in the market. They procure such goods from different sources, assemble or assort them as per the requirements of the consumers.

9. Explain the factors determining choice of channels of distribution.
Ans: The choice of channels depend on various factors, which are discussed as follows
(i) Product Related Factors The important product related considerations is deciding the channels. It includes whether the ‘ product is an industrial product or a consumer product. Industrial product require shorter channel and consumer products require longer channel.
(ii) Company Characteristics
The important company characteristics affecting the choice of channels of distribution include the financial strength of the company and the degree of control it wants to hold on other channel member. Direct selling involves lot of foods to be invested in fixed assets say starting own retail outlets or engaging large number of sales force. Similarly if the management want to have greater control on the channel number, short channels are used but if the management do not want more control over the middlemen, it can go in for longer channel or large number of intermediaries.
(iii) Competitive Factors
The choice of channel is also affected by what the competitor has selected as its channel. Sometimes, firm may decide to go for the same channel and sometimes absolutely opposite.
(iv) Market Factors
Important market factors affecting the choice of channel of distribution include size of market, geographical concentration of potential buyers and quantity purchased.
(v) Environmental Factors
Sometimes environmental factors also helps in deciding the channel of distribution, e.g., in a depressed economy, marketers use shorter channels to distribute their goods in an economical way

10. Explain briefly the components of physical distribution.
Ans: The main components of physical distribution are as follows’
(i) Order Processing
If a firm takes more time to process the order, then the consumer remains dissatisfied. Therefore, order processing has to made faster by using information technology.
(ii) Inventory Control
Inventories ensure the availability of the product as and when consumer demand arises. There are various factors which influence a firm decision regarding the level of inventory e.g., degree of accuracy of sales forecast, cost of blocking of the working capital etc.
(iii) Warehousing
It refers to the storage of goods from the time of production to the time of consumption. Warehousing is important as it creates time utility.
(iv) Transportation
It creates place utility. It refers to the carrying of raw materials or finished goods from one place to another. The most important thing to be kept in mind is that the value addition by transportation should be greater than the cost of transportation

11. Define advertising, what are its main features? Explain.
Ans: Advertising is defined as the impersonal form of communication which is paid form by the marketer to promote some goods or services. It is commonly use as the promotional tool of the company. The important features of advertising are as follows
(i) Paid Form Advertising is a paid form of communication which means the sponsor has to bear the cost of communication with the prospects.
(ii) Impersonality There is no direct face to face contact between the prospect and advertiser. It is therefore, referred as the impersonal method of promotion.
(iii) Identified Sponsor Advertising is undertaken by some identified individual or company, who makes the advertising efforts and also bears the cost of it.

12. Discuss the role of ‘Sales Promotion’ as an element of promotion mix.
Ans: Sales promotion includes those marketing activities other than personal selling, advertising and publicity that stimulate consumer purchasing and dealer effectiveness, such as display, shows and exhibitions, demonstrations and various non-current selling efforts not in the ordinary routine. The main objectives of sales promotion activities are
(i) Creation of demand for the product.
(ii) Educating the consumers about new products or new uses of the old product.
(iii) Building the brand loyalty for the product among the consumers.
Long Answer Type Questions

1. Define Marketing. How is it different from selling? Discuss.
Ans: Marketing is a total system of business activities designed to plan, price, promote and distribute want, satisfying goods and services to present and potential customers.

 

2. What is the marketing concept? How does it help in the effective marketing of goods and services?
Ans: Orientation of marketing implies that focus on the satisfaction of customers need, is the key to the success of any organisation in the market. All the decisions in the firm are taken from the point of view of the customers, e.g., What product will be produced, with what features and at what price shall it be sold or where shall it be made available for sale will depend on what do the customer wants.
Marketing concept helps in effective marketing of goods and services by using the following
(i) Identification of market or customer who are chosen as the target of
(ii) Understanding needs and wants of customers in the target market.
(iii) Development of products or services for satisfying needs of the target market.
(iv) Satisfying needs of target market better than the competitors.
(v) Doing all this at a profit.

3. What is marketing mix? What are its main elements? Explain.
Ans: Marketing mix refers to the combination of four basic elements known as four P’s — Product, Price, Promotion and Place.
Product Mix
(i)Product mix basically concerns with the features related to a product e.g., range, quality, size, labelling, packaging, branding etc. All products must satisfy consumer needs and expectations. It aims at providing good quality products at fair prices.
(ii)Price Mix
It includes decisions relating to price determination, discounts and allowances credit terms. It covers pricing objectives and pricing policies. Price should cover not only cost of production and selling expenses but also a reasonable profit margin. The price policy adopted by the enterprise should not only be cost based but also demand based and competition based.
(iii) Place Mix
Place mix links the seller and buyer. The choice of channels of distribution and transport are the two major issues here. There are various factors which help in deciding the channel e.g., the time and the place, where the goods have to reach or transportation.
It is the nature of goods, place of destination, cost and availability etc.
(iv) Promotion Mix
It refers to all marketing activities to increase the volume of sales of the product of an enterprise. It consists of means of marketing communication with a view to informing and persuading the prospective buyers to buy a certain product. It includes advertising, personal selling, publicity and sales promotion.

4. How does branding help in creating product differentiation? Does it help in marketing of goods and services? Explain.
Ans: Branding helps a firm in distinguishing its products from that of its competitors. This helps the firm to secure and control the market for its products. If products were sold by generic names, it would be very difficult for the marketers to distinguish their products from its competitors. Thus, most marketers give a name to their product, which helps in identifying and distinguishing their products from their competitors product. This process of giving a name or a sign or a symbol etc to a product is called Branding.

5. What are the factors affecting determination of the price of a product or service? Explain.
Ans: There are number of factors which affect the fixation of the price of a product. Some of the important factors in this regard are discussed as below
(i) Product Cost The cost sets the minimum level or the floor price at which the product may be sold. There are broadly three types of cost—fixed costs, variable costs and semi variable cost. Total cost is the sum of all these three. Generally, all firms try to cover all their costs, atleast in the long Sun. In addition, they aim at earning a margin of profit over and above the costs.
(ii) The Utility and Demand The utility provided by the product and the intensity of demand of the buyer sets the upper limit of price, which a buyer would be prepared to pay. Infact the price must reflect the interest of both the parties to the transaction — the buyer and the seller. The buyer may be ready to pay up to the point, where the utility from the product is atleast equal to the sacrifice made in terms of the price paid. The seller would, however, try to cover the costs. According to the law of demand, consumers generally purchase more units at a low price than at a high price.
(iii) The Extent of Competition in the Market
The price is also affected by the nature and degree of competition. The price will tend to reach the upper limit in case there is less degree of competition while under free competition, the price will tend to be set at the lowest level.
(iv) Government and Legal Regulations
In order to profit the interest of public against unfair practices in the field of price fixing, Government can intervene and regulate the price of commodities. Government can declare a product as essential product and regulate its price.
(v) Pricing Objectives
Pricing objectives are another important factor affecting the fixation of the price of a product or a service. Apart from price maximisation, the pricing objectives of a firm may include.
(a)Obtaining Market Share Leadership If a firm objective is to obtain larger share of the market, it will keep the price of its products at lower level, so that greater number of people are attracted to purchase the products.
(b)Surviving in a Competitive Market If a firm is facing difficulties surviving in the market because of intense competition or introduction of a more efficient substitute by a competitor.
(c) Attaining Product Quality Leadership In this case, normally higher prices are charged to cover high quality and high cost of R & D (Research and Development).
(vi) Marketing Methods used Price Fixation
Price is also affected by other elements of marketing such as distribution system, quality of salesmen employed, quality and amount of advertising, sales promotion efforts, the type of packaging, product differentiation, credit facility and customer service provided.

6. What do you mean by ‘Channels of distribution’? What functions do they play in the distribution of goods and services? Explain.
Ans: People, institutions, merchants and functionaries, who take part in the distribution of goods and services are called ‘Channels of Distribution’. Channels of distribution are set of firms and individuals that take title or assist in transferring title, to particular goods or services as it moves from the producers to the consumers.
Channels of distribution smoothen the flow of goods by creating possession, place and time utilities. They facilitate movement of goods by overcoming various barriers The important function performed by middlemen are
(i) Sorting Middlemen procure supplies of goods from a variety of sources, which is often not of the same quality, nature and size. These goods are sorted into homogeneous groups on the basis of the size or quality.
(ii) Accumulation This function involves accumulation of goods into larger homogeneous stock, which help in maintaining continuous flow of supply.
(iii) Allocation Allocation involves breaking homogeneous stock into smaller, marketable lots to sell them to different types of buyers.
(iv) Assorting Middlemen build assortment of products for resale. There is usually a difference between the product lines made by manufacturers and the assortment or combinations desired by the users. Middlemen produce variety of goods from different sources and delivers them in combinations, desired by customers.
(v) Product Promotion Middlemen also participate in some sales promotion activities, such as demonstration, special display, contests etc. to increase the sale of products.
(vi) Negotiation Channels operate with manufacturers on the one hand and customer on the other. They negotiate the price, quality, guarantee and other related matters with customers, so that transfer of ownership is properly affected.
(vii) Risk Taking In the process of distribution of goods, the merchant middlemen take title of the goods and thereby assume risks on account of price and demand fluctuations, spoilage, destinations etc.

7. Explain the major activities involved in the physical distribution of products.
Ans: Physical distribution covers all the activities required to physically move goods from manufacturer to the customers. Important activities involved in the physical distribution include transportation, warehousing, material handling and inventory control.
(i) Order Processing
In a typical buyer-seller relationship order placement is the first step. Products flow from the manufacturers to customers via channel members while orders flow from customers to manufacturers. Therefore, a good speedy and accurate system of order processing becomes a necessity.
(ii) Transportation
Transportation is the means of carrying goods and raw materials from the point of production to the point of sale. It is one of the major element in the physical distribution of goods. It is important because unless the good are physically made available, the sale can not be completed.
(iii) Warehousing
Warehousing refers to the act of storing and assorting products in order to create time utility in them. The basic purpose of warehousing activities is to arrange placement of goods and provide facilities to store them. The need for warehousing arises because there may be difference between the time, a product is produced and the time it is required for consumption. Generally, the efficiency of a firm in serving its customers will depend on, where these warehouses are located and where are these to be delivered.
(iv) Inventory Control
A very important decision in respect of inventory is deciding about the level of inventory. Higher the level of inventory, higher will be the level of service to customers but the cost of carrying the inventory will also be high because lot of capital would be tied up in the stock. The decision regarding level of inventory involves prediction about the demand for the product. A correct estimate of the demand helps to hold inventory and cost level down to a minimum. The major factors determining inventory levels include.
(a) Firm’s policy regarding the level of customer service. Higher the level of service, greater will be the need to keep more inventories.
(b) Degree of accuracy of the sales forecast. In case more accurate estimates are available, the need for keeping very high level of inventory can be minimised.
(c) Responsiveness of the distribution system i.e., ability of the system to transmit inventory needs back to the factory and get products to the market.
(d) Cost of inventory, which includes holding cost, such as cost of warehousing, tied up capital etc and the manufacturing cost

8. ‘Expenditure on advertising is a social waste’ Do you agree? Discuss.
Ans: The opponents of advertising say that the expenditure on advertising is a social waste as it adds to the cost, multiplies the needs of the people and undermines social values. The proponents, however argue that advertising is very useful as it increases the reach, brings the per unit cost of production down and adds to the growth of the economy.
Following are the points of criticism
(i) Adds to Cost
The opponents of advertising argue that advertising unnecessarily adds to the cost of product, which is ultimately passed on to the buyers in the form of high prices. It is line that advertisement of a product cost lots of money but it helps to increase the demand for the product as large number of potential buyers come to know about the availability of the products, its features etc and are persuaded to buy it. This increases the demand and therefore the
– production. As a result, the per unit cost of production comes down as the total cost is divided by larger number of units.
(ii) Undermines Social Values
Advertising undermines social values and promotes materialism. It breeds discontentment among people as they come to know about new products and feel dissatisfied with
their present state of affairs. This criticism is not entirely time. Advertisement in fact helps buyer by informing them about the new products which may be improvement over the existing products.
(iii) Confuses the Buyers
Another criticism against advertisements is that so many products are being advertised which makes similar claims that the buyer gets confused as to which one is true and which are should be relied upon, e.g., there are so many brands of soaps, shampoos, cars, TVs, cell phones etc which are advertised. The supporters of advertisement, however argued that we are all rational human beings who make our decisions for purchase of products on factors, such as price, style, size, etc. Thus the buyers can clear their confusion by analysing the information provided on the advertisements and other sources before taking a decision to purchase a product.
(iv) Encourages Sale of Inferior Product
Advertising does not distinguish between superior and inferior products and persuade people to purchase even the inferiors products. The desired level of quality will depend on the economic states and preferences of the target customers. Advertisements sell products of a given quality and the buyers will buy, if it suits their requirements.
(v) Some Advertisements are in Bad Taste
Another criticism against advertising is that some advertisements are in bad taste. They show something which is not approved by some people. Some advertisement spoil the relationship between employer and employee, husband and wife etc.
From the above discussion, we have learnt that through advertisements are crticised but still they have their own advantages. It is not a social waste, rather it adds value to the social cause by giving a boost to production and generating employment.

9. Distinguish between advertising and personal selling.

 

Application Type Questions

1. As marketing manager of a big hotel located at an important tourist destination, what societal concerns would be facted by you and what steps would you plan to take care of these concerns? Discuss.
Ans: 
The societal marketing concept holds that the task of any organisation is to identify the needs and wants of the target market and deliver the desired satisfaction in an effective and efficient manner, so that the long term well-being of the consumers and the society is taken care of. In case any business activity encourages pollution, deforestation, storage of resources, population explosion, then its benefits can not be justified. As marketing manager of a big hotel located at an important tourist destination certain care need to be taken regarding environment.
(i) Proper drainage facility
(ii) In-built plant for re-cycling the waste
(iii) Solar geysers to be used
(iv) Rain water harvesting
(v) proper maintainance of greenery-lawns, parks, gardens
(vi) CNG based vehicles to be used to provide transport facility to the guests.

2. Suppose you are the marketing Vice President of an insurance company, planning to design a new mediclaim policy for senior citizens. What information would you like lo collect to perform this task and how will, you collect such information? Discuss.
Ans: The following information about the senior citizens should be collected
(i) Age of the senior citizen
(ii) Their source of income
(iii) Medical background
(iv) Present working states
There are various sources of collecting the above information – personal visits, questionnaires, medical reports from nursing homes, doctor clinics eta.

3. What shopping products have been purchased by you/your family in the last six months? Make a list and specify what factors influenced the purchase of each of these products.
Ans: The following shopping goods were purchased by my family
(i) Clothes Price, fashion, occasion for which they were bought.
(ii) Refrigerator Brand, price, features, books, durability.
(iii) Shoes Size, price, brand , material used.
(iv) Furniture (study table) Design, quality, finishing, comfort level, cost.

4. What information is generally placed on the package of a food product? Design a label for one of the food product of your choice.
Ans: The following information is normally placed on the package of good product
(i) Name of the product
(ii) Brand name
(iii) Veg/Non-veg sign (green/red dot)
(iv) Price
(v) Manufacturing date and date of expiry
(vi) Ingredients
(vii) Net weight
(viii) Directions for use
(ix) FPO mark
(x) Preservatives used

5. For buyers of consumer durable products, what ‘customer care services’ would you plan as a manager of a firm marketing new brand of motorcycle. Discuss.
Ans: For marketing motorcycles, the following customer care services can be planned
(i) Specified period warranties
(ii) Easy monthly instalments
(iii) Exchange offer
(iv) 0% finance scheme
(v) Free servicing

 

Case Problem

Nokia takes four-lane road to consumers.
NEW DELHI After having grabbed a king size 79% share of the 15,000 crore mobile handset market in India, Nokia India has found a new way of connecting people.
The mobile handset manufacturer has embarked upon a brand new retail strategy that is based on a classification of its consumers into four major groups that separates people in terms of usage, income level and lifestyle.
The classification is based on an extensive survey— the Nokia Segmentation Study —that was carried over two years involving 42,000 consumers from 16 countries. It studied the impact lifestyle choices and attitudes have on the mobile devices consumers buy and how they use them.
The strategy, which was announced globally in June last year, is being unfolded in India now. While the nitty-gritty of the new strategy is still being worked out, it is likely that the company would follow separate marketing strategies for the four different segments. The advertising campaigns could be different for the segments.
Nokia’s entire product portfolio has now been re-aligned towards these four groups to address the specific needs of each. The first of these segments Live, aimed a first time users whose basic need is to stay in touch with voice as the main driver, would have basic handsets low on features and price.
“These may be functional phones but the target group for these phones range from SEC C (low socio-economic class) to SEC A1+ (very high socio-economic class) markets”, says Nokia India marketing head Devinder Kishore. The second segment Connect looks at more evolved users who look for more functionality and features and connectivity. Accordingly, phones in this segment would have GPRS, camera and music capabilities.
The next two categories, Achieve and Explore, are aimed at high-end users and have Nokia’s top-end handsets, e.g., Achieve segment looks at enterprise users who need to have business functionalities in their phones. Nokia’s new E-series has been put under this segment with handsets having QWERTY keyboards and full Internet capabilities.
Aimed at high-end lifestyle users, Explore would be the most prominent segment for the company in the coming years. Says Nokia India multimedia business director Vineet Taneja, “This segment would see the most vibrant growth in the coming year. It will look at five different areas—applications, imaging, mobile, TV, music and gaming. We are fast developing (the ecosystem to support Ihese areas.”
Nokia acquired music solution and content provider LoudEye and GPS solution provider Gate5. It is all slated to launch its most high-profile handset, which boasts of having a 5 mega pixel camera and GPS capabilities apart from iPod quality music, in February.
Says Taneja, “There is increasing demand for convergence and multiple functionalities in high-end handsets. The N-series will try to address that”. Nokia feels that the new platform strategy wherein different handsets are launched under a platform, like the N-Series, will become a status and style statement and drive numbers.

1. Identify the four market segments that Nokia plans to address as per the news report above.
Ans: Live, Connect, Achieve and Explore.

2. What is the basis of classification of the market used by the company?
Ans: SEC Socio-Economic Class, usage and lifestyle

3. What do you mean by realignment of product portfolio? Illustrate this from the case above.
Ans: It means that whatever product Nokia is planning to develop now, it will be according to the needs of the consumers. The four different handsets are Live, Connect, Achieve and Explore, being planned keeping the needs of four different types of users.

4. Identify the points that can be highlighted in marketing campaigns for each segment.
Ans: The points that can be highlighted in marketing campaigns for each segment can be
(i) Latest model (ii) Reasonable price
(iii) Better performance (iv) Advanced technology
(v) Consumer friendly.

5. What are the different considerations in the mind of consumers of each segment while purchasing mobile phones as given in the above case?
Ans: Different considerations in the mind of each segment while purchasing mobile phones are
(i) The first of these segments Live, aimed at first time users whose basic need is to stay in touch with voice as the main driver. So, here price of the phone is the main consideration.
(ii) The second segment connect looks at more evolved users who look for more functionality and features and connectivity. So, here the features of the phone as well as an economic price tag are considered.
(iii) The next two categories, Achieve and Explore, are aimed at high-end users. So, here the uniqueness of the handset and its business functionalities are the main points considered by the consumer.

 

 

                                      Financial Market

 

 Points to remember

1. Financial Market Financial market is a link between surplus and deficit units or in other words financial market brings together lenders and borrowers.
2. Functions of Financial Markets
(i) Mobilisation of savings and channelising them into most productive use
(ii) Facilitates price discovery
(iii) Provides liquidity to financial assets
(iv) Reduces the cost of transaction
3. Classification of Financial Market There are two segment of financial market
(i) Money Market It is a market for short term funds meant for dealing in monetary assets whose period of maturity is less than one year.
(a) Features of Money Market
Market for short term
No fixed geographical location
Major institutions involved in money market are RBI Commercial Banks, LIC, GIC etc.
Common instruments of money market are call money, treasury bill, CP, CD, commercial bill etc.
(b) Instruments of Money Market
Call money
Treasury bills (T Bills)
Commercial bills
Commercial Paper (CP)
Certificate of Deposits (CD)
(iii) Capital Market It is a market for medium and long term funds. It includes all the organisations, institutions and instruments that provides long term and medium term funds.
According to VK Bhalla, “Capital market can be defined as the mechanism which channellises saving into investment or productive use. Capital market allocates the capital resources amongst alternative uses. It intermediates flow of savings of those who save a part of their income from those who want to invest it in productive assets”
(a) Features of Capital Market
Link between savers and investment opportunities
Deals in long term investment
Utilises intermediaries
Determinant of capital formation
Government rules and regulations
(b) Types of Capital Markets The main components of
capital market are
Primary Market
(New Issue Market) In this market, securities are sold for the first time, i.e., new securities are issued from the company.
Methods of Floatation
The securities may be issued in primary market by the following methods
Public issue though prospectus
Offer for sale
Private placement
Right issue (for existing companies)
e-IPOs
Secondary Market (Stock Exchange)
The secondary market is the market for the sale and purchase of previously issued or second hand securities.
4. Stock Exchange
It defines as “an organisation or body of individuals, whether incorporated or not established for the purpose of assisting, regulating and controlling of business in buying, selling and dealing in securities.”
5. Types of Operators in Stock Exchange
(i) Brokers (ii) Jobbers
(iii) Bulls (iv) Bears
(v) Stag
6. Functions of Stock Exchange/Secondary Market
(i) Economic barometer
(ii) Pricing of securities
(iii) Safety of transactions
(iv) Contributes to economic growth
(v) Spreading of equity cult
(vi) Poviding scope for speculation
(vii) Liquidity
(viii) Better allocation of capital
(ix) Promotes the habits of savings and investment

8. Some Benefits of on Line Stock Exchange
(i) Demutualisation (ii) Dematerialisation
9. All India Level Stock Exchange India has two All India level stock exchanges. These are
(i) National Stock Exchange of India (NSEI)
(ii) Over The Counter Exchange of India (OTCEI)
10. Common Features of NSEI and OTCEI
(i) Nation wide coverage
(ii) Ringless
(ii) Screen based trading
(iv) Transparency
(v) Incorporated entities backed by financial institutions
11. NSEI It was recognised in 1992 and started working in 1994.
It launched the capital market segment in November 1994 and option segment in June 2000 for various derivative instruments.
Objectives and Nature of NSEI are as follows
(i) Securities traded – Capital market + Money market
(ii) Payment and delivery in 15 days time period
12. OTCEI The OTCEI was incorporated in 1990. The trading started in this exchange in 1992. This exchange is established on the lines of NASDAQ the OTC exchange in USA.
Objectives and Nature of OTCEI are as follows
(i) Compulsory market makers to provide liquidity
(ii) Settlement period of OTCEI is one week
13. Securities Exchange Board of India (SEBI) It was set up in 1998 to regulate the functions of securities market. SEBI promotes orderly and healthy development in the stock market.
(i) Objectives of SEBI
(a) Protect the interest of investors.
(b) Promote and develop stock exchange dealings.
(c) Regulate the dealings.
(ii) Functions of SEBI
(a) Protective Functions
■ It checks price rigging.
■ It prohibits insider trading.
■ SEBI prohibits fraudulent and unfair trade practices.
(b) Developmental Functions
■ SEBI promotes training of intermediaries of the securities market.
■ SEBI has permitted internet trading through registered stock brokers.
(c) Regulatory Functions
■ SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters etc.
■ SEBI registers and regulates the working of mutual, funds etc.
■ SEBI regulate take over of the companies.
■ SEBI conducts enquiries and audit of stock exchanges.-

NCERT Solutions

 

Short Answer Type Questions

1. What are the functions of a Financial Market?
Ans: Financial market plays an important role in the allocation of scarce resources in an economy by performing the following four important functions
(i) Mobilisation of Savings and Channelising Them into the Most Productive Uses
A financial market facilitates the transfer of savings from savers to investors. It gives choice to the saver of different investments and thus, it helps to channelise surplus funds into the most productive use.
(ii) Facilitate Price Discovery
In a financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.
(iii) Provide Liquidity to Financial Assets
Financial markets facilitate easy purchase and sale of financial assets. Flolders of assets can readily sell their financial assets through the mechanism of financial market.
(iv) Reduce the Cost of Transactions
Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would have to spend to try or otherwise find each other.

2. “Money Market is essentially a Market for short term funds.” Discuss.
Ans: The money market is a market for short term funds which deals in monetary assets whose period of maturity is upto one year. These assets are close substitutes for money. It is a market where low risk, unsecured and short term debt instruments that are highly liquid are issued and actively traded everyday. It enables the raising of short term funds for earning returns. The major participants in the market are the Reserve Bank of India, Commercial Bank, Non-Banking Finance Companies, State Governments, Large Corporate Houses and Mutual Funds.

3. What is a Treasury Bill?
Ans: A treasury bill is an instrument of short term borrowing by the Government of India Maturing in less than one year. They are also known as Zero Coupon Bonds issued by the RBI on behalf of the Central Government to meet its short term requirement of funds. ‘Treasury bills are issued in the form of a promissory note. They are highly liquid and have assured yield and negligible risk of default. They are issued at a price which is lower than their face value and repaid at par treasury bills are available for a minimum amount of Rs. 25,000.

4. Distinguish between Capital Market and Money Market.
Ans: Difference between Capital and Money Market


5. What are the functions of a Stock Exchange?
Ans: The efficient functioning of a stock exchange creates a conducive climate for an active and growing primary market following are the important functions of a stock exchange
(i) Providing Liquidity and Marketability to Existing Securities
The basic function of a stock exchange is the creation of a continuous market where securities are bought and sold. It gives investors the chance to disinvest and reinvest. This provides both liquidity and easy marketability to the existing securities in the market.
(ii) Pricing of Securities
Share prices on a stock exchange are determined by the forces of demand and supply. A stock exchange is a mechanism of constant valuation through which the prices of securities are determined. Such a valuation provides important instant information to both buyers and sellers in the market.
(iii) Safety of Transactions
The membership of a stock exchange is well-regulated and its dealings are well defined according to the existing legal framework which ensures that the investing public gets a safe and fair deal on the market.
(iv) Contributes to Economic Growth
A stock exchange is a market in which existing securities are resold or traded. This process of disinvestment and reinvestment saving get channelised into productive investment avenues. This leads to capital formation and economic growth.
(v) Spreading of Equity Cult
The stock exchange plays vital role in ensuring wider share ownership by regulating new issues, better trading practices and taking effective steps in educating the public about investments.
(vi) Providing Scope for Speculation
The stock exchange provides sufficient scope within the provisions of law for speculative activity in a restricted and controlled manner.

6. What are the objectives of the SEBI?
Ans: The overall objective of SEBI is to protect the interest of investors, promote the development and regulate the securities in market. This may be elaborated as follows
(i) To regulate stock exchanges and the securities industry to promote their orderly functioning.
(ii) To protect the rights and interests of investors, particularly individual investors to guide and educate them.
(iii) To prevent trading malpractices and achieve a balance between self-regulation by the securities and its statutory regulation.
(iv) To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant bankers etc with a view to making them competitive and professional.

7. State the objectives of the NSE.
Ans: NSE was setup with the following objectives
(i) Establishing a nationwide trading facility for all types of securities.
(ii) Through an appropriate communication network, ensuring equal access to investors.
(iii) Through electronic trading system, provides a fair, efficient and transparents security market.
(iv) It enables shorter settlement cycles and book entry settlements.
(v) Meeting international benchmarks and standards.
8. What is the OTCEI?
Ans: The OTCEI is a company incorporated under the Companies Act, 1956. It was set up to provide small and medium companies an access to the capital market for raising finance in a cost effective manner. It is fully computerised, transparent, single window exchange which commenced trading in 1992. This exchange is established on the lines of NASDAG the OTC exchange in USA. If has been promoted by UTI, ICICI, IDBI, IFCI, LIC, GIC, SBI capital markets and can bank financial services.
It is a negotiated market place that exists any where as opposed to the auction market place, represented by the activity on securities exchange. Thus, in the OTC exchange, trading takes place when a buyer or seller walks up to an OTCEI counter, taps on the computer screen, finds quotes and effects a purchase or sale depending on whether the prices meet their target.

Long Answer Type Questions

1. Explain the various money Market Instruments.
Ans: Money Market Instruments
(i) Treasury Bill
A treasury bill is an instrument of short term borrowing by the Government of India maturing in less than one year. They are also known as Zero Coupon Bonds issued by Reserve Bank of India on behalf of the Central Government to meet its short term requirements of funds. They are issued in the form of a promissory note. They are highly liquid and issued at a price which is lower than their face value and repaid at par. Treasury bills are available for a minimum amount of Rs.25,000.
(ii) Commercial Paper
Commercial paper is a short term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short term funds at lower rates of interest than market rates. It usually has a maturity period of 15 days
to one year. The issuance of commercial paper is an alternative to bank borrowing for large companies that are generally considered to be finally strong. It is sold at discount and redeemed at par.
(iii) Call Money
Call money is a short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. Commercial Banks have to maintain a minimum cash balance known as cash reserve ratio. Call money is a method by which banks borrow from each other.
(iv) Certificate of Deposit
Certificates of deposit are unsecured, negotiable, short term instruments in bearer form, issued by Commercial Banks and development financial institutions. They can be issued to individuals, corporations and companies during periods of tight liquidity when the deposit growth of banks is slow but the demand for credit is high. They help to mobilise a large amount of money for short periods.
(v) A Commercial Bill
A commercial bill is a bill of exchange used to finance the working capital requirements of business firms. It is a short term negotiable, self-liquidating instrument which is used to finance the credit sales of firms, when goods are sold on credit, the buyer becomes liable to make payment on a specific date in future.

2. What are the methods of floatation in Primary Market?
Ans: The primary market is also known as the new issues market. It deals with new securities being issued for the first time. There are various methods of floating new issues in the primary market
(i) Offer Through Prospectus
This involves inviting subscription from the public through issue of prospectus. A prospectus makes a direct appeal to investors to raise capital, through an advertisement in newspapers and magazines. The issues may be under written and also required to be listed on at least one stock exchange. The contents of the prospectus have to be in accordance with the provisions of the Companies Act and SEBI disclosure and investor protection guidelines.
(ii) Offer for Sale
Under this method securities are not issued directly to the public but offered for sale through intermediaries like issuing houses or stock brokers. In this case, company sells securities enblock at an agreed price to brokers who, in turn, resell them to the investing public.
(iii) Private Placement
Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue. Access to the primary market can be expensive on account of various mandatory and non-mandatory expenses.
(iv) Rights Issue
This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholder are offered the ‘right’ to buy new shares in proportion to the number of shares they already possess.
(v) e-IPOs
A company proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an agreement with the stock exchange. This is called an Initial Public Offer (IPO). SEBI registered broker’s have to be appointed for the purpose of accepting applications and placing orders with the company the issuer company should appoint a registrar to the issue having electronic connectivity with the exchange. The issuer company can apply for listing of its securities on any exchange other than the exchange through which it has offered its securities. The lead manager co-ordinates all the activities amongst intermediaries connected with the issue.

3. Explain the Capital Market reforms in India.
Ans: The National Stock Exchange is the latest, most modern and technology driven exchange. NSE has setup a nationwide fully automated screen based trading system. The NSE was setup by leading financial institutions, banks, insurance companies and others financial intermediaries. It is managed by professionals, who do not directly or indirectly trade on the exchange. The trading rights are with the trading members who offer their services to the investors. The Board of NSE comprises senior executives from promoter institutions and eminent professionals, without having any representation from trading members.
Objectives of NSE
(i) Establishing a nationwide trading facility for all types of securities.
(ii) Ensuring equal access to investors all over the country through an appropriate communication network.
(iii) Providing a fair, efficient and transparent securities market using electronic trading system.
(iv) Enabling shorter settlement cycles and book entry settlements.
(v) Meeting international bench marks and standards..
Within a span of 10 year, NST was able to achieve its objectives for which it was set up. It has been playing a leading role as a change agent in transforming the Indian capital market.

4. Explain the objectives and functions of SEBI.
Ans: Objectives of SEBI
Functions of SEBI
Keeping in mind the emerging nature of the securities market in India, SEBI was entrusted with the twin task of both regulation and development of the securities market. It has certain functions
Regulatory Functions
(i) Registration of brokers and sub-brokers and other players in the market.
(ii) Registration of collective investment schemes and mutual funds.
(iii) Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and the business in stock exchanges and any other securities market.
(iv) Regulation of takenover bids by companies.
(v) Calling for information by undertaking inspection conducting enquiries and audits of stock exchanges and intermediaries.
(vi) Levying for or other charges for carrying out the purposes of the act.
(vii) Performing and exercising such power under Securities Contracts Act, 1956, as may be delegated by the Government of India.
Development Functions
(i) Training of intermediaries of the securities market.
(ii) Conducting research and publishing information useful to all market segments.
(iii) Undertaking measures to develop the capital markets by adopting a flexible approach.
Protective Functions
(i) Prohibition of fraudulent and unfair trade practice like making misleading statements, manipulations, price rigging etc.
(ii) Controlling insider trading and imposing penalties for such practices.
(iii) Undertaking steps for investor protection.
(iv) Promotion of fair practices and code of conduct in securities market

5. Explain the various segments of NSE.
Ans: NSE provides trading in the following two segments
(i) Whole Sale Debt Market Segment This segment provides a trading platform for a wide range of fixed income securities that include central government securities, treasury bills, state development loans, bonds issued by public sector undertakings, floating rate bonds, zero coupon bonds, index bonds, commercial paper, certificate of deposit, corporate debentures and mutual funds.
(ii) Capital Market Segment The capital market segment of NSE provides efficient and transparent platform for trading in equity, preference, debentures, exchange traded funds as well as retail government securities.

 

Case Problems

1. ‘R’ Limited is a real estate company which was formed in 1950. In about 56 years of its existence the company has managed to carve out a niche for itself in this sector. Lately, this sector is witnessing a boom due to the fact, that the Indian economy is on the rise. The incomes of middle class are rising. More people can afford to buy homes for themselves due lo easy availability of loans and accompanying tax concessions.
To expand its business in India and abroad the company is weight various options to raise money through equity offerings in India. Whether to tap equity or debt, market whether to raise money from domestic market or international market or combination of both? When their to raise the necessary finance from money market or capital market. It is also planning to list itself in New York Stock Exchange to raise money through ADR’s. To make its offerings attractive it is planning to offer host of financial plans products to its stakeholders and investors and also expand it’s listing at NSE after complying with the regulations of SEBI.

1. What benefits will the company derive from listing at NSE?
Ans: Following are the benefits the company can derive from listing at NSE
(i) NSE provides nationwide trading facility for all types of facilities.
(ii) The liquidity and best available prices for the securities are ensured by the processing speed of the exchange.
(iii) The NSE network is used to disseminate information and company announcements across the country.
(iv) Enabling shorter settlement cycles and book entry settlement.

2. What are the regulations of SEBI that the company must comply with?
Ans: Following are the regulations of the SEBI for new issue that the company must comply with
(i) Prospectus has to be attached with every application.
(ii) Objective of the issue and cost of project should be mentioned in the prospectus.
(iii) Company’s management, past history and present business of the firm should be highlighted in the prospectus.
(iv) Subscription list for public issue should be kept open for a minimum of 3 days and maximum of 10 days.
(v) Collections agents are not allowed to collect application money in cash.
(vi) Issue should make adequate disclosure regarding the terms and conditions of redemption, security conversion and other relevant features of the new instrument so that an investor can make reasonable determination of risks, returns, safety and liquidity of the instrument. The disclore shall be vetted by SEBI in this regard.

3. How does the SEBI exercise control over ‘R’ Limited in the interest of investors?
Ans: SEBI will exercise control over ‘FT limited by
(i) Prohibiting fraudulent and unfair trade practices in the securities market unfair trade practices include price rigging, making misleading statements.
(ii) Prohibiting insider trading i.e., restricts the persons having access to price sensitive information about the company to take undue advantage of it.
(iii) Examing that adequate disclosure about the terms and conditions of redemption, security conversion and other relevant features of the new instrument at the time of issue is made so that an investor can make reasonable determination of risks, returns, safety and liquidity of the instrument


1. What do you mean by a stock index? How is it calculated?
Ans: Stock index refers to the index used to capture the movement of the stock market. It is a barometer which measures overall market trend through a set of stocks which are representatives of the market. An ideal index must represent changes in the prices of securities and also show the price movement of different classes of shares. Most of the stock market uses the following 3 methods of calculating index.
(i) Price Weighted Index An index reflecting the sum of the prices of the sample share in a certain year/month/week/day with reference to a base year.
(ii) Equal Weighted Index An index reflecting the simple arithmetic average of the price relatives of a sample of shares in a certain period with reference to base year.
(iii) Value Weighted Index It is an index reflecting the aggregate market capitalisation of the sample shares in certain period in relation to base year.

2. What conclusions can you draw from the various movements of NSE stock indices?
Ans: There is a downward swing in the stock market. While comparing the previous and current index of NSE we can say that there is a depression in the market as index is down for all the sectors.

3. What factors affect the movement of stock indices? Elaborate on the nature of these factors.
Ans: The fall in the domestic market, as given in the above table, can significantly be attributed to the market sentiments of world market. We can see the world indices and NSE indices are moving in the same direction.

4. What relationship do you see between the movement of indices in world markets and NSE indices?
Ans: There is direct relation between NSE indices and world market indices. As there is negative trend in world index, it brings negative trend in NSE index also.

5. Give details of all the indices mentioned above, you can find information on the web or business magazines.
Ans: Answer to this question is based on reader’s evaluation.
The above figures are taken from the website of National Stock Exchange of India. They illustrate the movement of NSE stock indices as well as world stock indices on the date indicated.