ajaykumarta-Unit 4 product & price

PRODUCT & PRICEUnit - 4

Discussion Questions1. What are the characteristics of a product, and

how do marketers classify products?

2. How can companies differentiate products?

3. How can a company build and manage its product mix and product lines?

4. How can companies use packaging, labeling, warranties, and guarantees as marketing tools?

5. How a product management organization will function?

6. What are strategies followed by a market leader to hold the position?

Suggested Readings1. Product Management - Donald R. Lehmann and

Russell S. Winer - 4ed.

2. New Product Management - Merle Crawford and

Anthony Di Benedetto - 9ed.

3. Product Management - S.A. Chunawalla - 7ed.

Introduction Marketing begins with the identification of

consumer needs & wants

A marketer can satisfy these needs & wants by

Offering Something for money

Offering is basically a product

A product can be a Good or Service Or an idea

Consumers buy for specific benefit & for their

satisfaction

PRODUCT PLANNINGNeed

s

Wants

It can be defined as set of attributes

assembled in a distinct & identifiable

form

Product Definition• In general, the product is defined as a "thing

produced by labor or effort”

• In marketing, a product is anything that can be

offered to a market that might satisfy a want or

need

Product Levels

Customer-value

Hierarchy

Potential Product(Future augmentations)

Core Benefit(Rest and sleep)

Basic Product(Bed, bathroom, towels)

Expected Product(Clean bed, fresh towels)

Augmented Product

(Free Internet; free breakfast)

Product and Services Differentiation

Difference between goods

& services

Product DifferentiationForm

Customization

Performance

Reliability

Features

Durability

Conformance

Repairability

Style

Services DifferentiationOrdering Ease

Delivery & Returns

Installation

Training

Maintenance & Repair

Customer Consulting

DesignFunctionalBenefits

AestheticBenefits

Design is the totality of features that affect how a product looks, feels, and functions to a consumer

important aspect of luxury products.

Product RelationshipsProduct Hierarchy

Product Systems/Mixes

Product Line Analysis

Product Line Length

Product Mix Pricing

Co-Branding

stretches from basic needs to particular items

a group of diverse but related items

Different customer requirements and lower production costs

tend to lengthen over time.

set of prices that maximizes profits

two or more well known brands are combined

Product HierarchyNeed Family

Product Family

Product Class

Product Line

Product Type

Item

Product Systems and Mixes

Product System

Product MixConsistenc

y

Group of diverse but related items that function in a

compatible manner

Product Concepts Product line – a group of closely related product items.

Product mix – all products that a firm sells.

Width – refers to how many different product lines the firm carries P & G - Five lines - Detergents, Toothpaste, Bar soap, diapers, paper tissue

Length – the total number of item in that mix (25)

Avg length of line obtained by dividing total length by no of lines (5)

Depth – refers to how many variants of each product are offered

Pantene comes in 4 variants in 3 different sizes, the depth of the product mix

becomes 4 X 3 = 12

Consistency – how closely the product lines are related in usage

Proctor & Gamble Product Mix

Detergents

Toothpaste

Bar Soap

Disposable Diapers

Paper Product

Ivory Snow

Gleem Ivory Pampers Charmin

Dreft Crest Camay Luvs Puffs

Tide Zest Bounty

CheerSafeguard

DashOil of Olay

Bold

Gain

Era

Product Mix Width

Product Line

Length

Product mix strategies• Manufactures and middlemen use several

strategies to manage their product mix

– Expansion of product mix – by increasing its

product lines or depth

– Contraction of product mix – during economic

slumps – eliminate low profit yielding products

– Altering existing products – redesigning

existing product than new one – packaging –

tetra pack

Product mix strategies• Positioning the product – image projected by

product- various strategies to position– Relation to competitors product - horlicks

– Relation to target market – J & J

– Relation to product class – tropicana

– Relation to Price and quality – big bazzar

• Trading up – offer prestige products to their existing product line to increase sales of their low priced products – enhance company image – Britania

• Trading down – add low priced items to their existing line – Marriott introduced holiday inn

Product Line Analysis

Sales and Profit

Market Profile

Managing Product Lines

large percentage of sales

monitored and protected

positioned against competitors

helpful in two key decision areas – product line length and product mix pricing.

Product Line LengthLine modernization, featuring, and pruning

Line filling

Up-market stretch

Line stretching

Down-market stretch

Two-way

stretch

Line filling• A product line can be extended by adding

more items to the existing range.

Reasons:• Reaching for more profits• Trying to satisfy dealers who complain about

lost sales due to missing items in the line• Trying to utilize excess capacity• Trying to offer a full line of the production• Trying to plug holes in the positioning map

Line Stretching• Product lines tend to lengthen over the

years for different reasons like

manufacturing capacity, new market

opportunities, demand from sales force

etc.,

Line Stretching• Downward Line stretch

– Introducing new products with an objective – Company may attack upper end to get reputation– Lower end products due to competitor attack or to occupy

vacant slot– P&G introduces sachets– Car Manufacturers introducing E class, M class etc.,

• Upward Stretch – It is when company enters Upper market through Line

Extension

• Both-way stretch– From medium range they decide to target upper & low

end market for raising opportunities

Line stretching decisions

Line Pruning• Cutting down some of the non moving products

in markets contains unnecessary variants & pack sizes

• Due to shortage of current production capacity• Allocating budget to the products may setback

the new product development

Product Flanking• Basically offering same product in

different and price combinations to tap diverse market opportunities

Line Modernization• Modernization is carried out continuously as

competitors are constantly growing and coming

out with new products and ideas.

• In this process an Organization should not be too

early, if so, It can harm the existing product or

late so that competitors already have a hold in the

market.

Product Mix PricingProduct line pricing

Optional-feature pricing

Captive-product pricing

Two-part pricing

By-product pricing Product-bundling pricing

Develop product lines rather than single products price the main products high

offer optional products, features, and services fixed fee plus a variable usage

charge low price for the main products offer goods as a bundles and charges less

Factors influencing change in product mix• Changes in market demand

• Competitors actions and reactions

• Cost of production

• Quantity of production

• Changes in company desire

New Product Development

Process

Discussion Questions1.What challenges does a company face

in developing new products?

2.What are the main stages in developing new products?

3.What is the best way to manage the new-product development process?

4.What factors affect the rate of diffusion and consumer adoption of newly launched products?

5.What is the concept of product life cycle?

Introduction• Advance in science & technology have changed the

lifestyle of people & their food habits, standard of

living, social customs, expectations etc.,

• Consumers also looking for better comfortable & ease

to use & storage, aesthetic appeal & value for money

• For higher level of growth, firms beyond their product

lines, product positioning & branding decisions

• A new product or any product which is perceived by the

customer as being new.

Developing New Product New to the World’ Products

Android platforms

New Product Lines Companies enter with a new product in established market

Additions to Existing Product Lines

Products are introduced into market with slight variations

Improvements in or Revisions of Existing Products Improved version of existing products

Repositioning Existing product to new market or newer segment

Cost Reductions New products that provide Same benefits but lower cost

NEW PRODUCT DEVELOPMENT PROCESS

Other sources are scientists, resellers, marketing

personnel, researchers, sales people & engineers

Generating IdeasEmployees

Competitors

Crowd Sourcing

Lead Users

Creativity Techniques

Lateral Marketing

Mind Mapping

Attribute Listing

Morphological Analysis

Forced Relationships

attributes of an object, such as a screwdriver

several ideas and consider each in relationship to each of the others

Start with a problem

Reverse assumption analysis

Start with a thought

Idea Generation• BRAINSTORMING is a process, where a small group of

people are encouraged to came up with their ideas on a

specified problem.

• Whereas in SYNECTICS, the real problem is kept away

initially from the group & only a broader framework of the

problem is given to them.

• The group is encouraged to think in all possible

dimensions and slowly the problem will be made clear to

them, & their ideas would get refined.

• New ideas sometimes arise quite by accidently in labs or

in R&D centre

Idea Screening• The aim of screening is to reject the poor ideas as early as

possible because the costs of new product development keep

rising sharply with each successive development phase.

• Thus an idea committee is formed to classify the proposed ideas

into 3 categories, such as: promising, marginal & rejects.

• Criteria

– Market Size

– Product Price

– Development Time & Costs

– Manufacturing Costs

– Rate of Return

• Drop Error & Go error

New Idea Spoilers

Concept to StrategyConcept Development

Business Analysis

Marketing Strategy Development

Concept DevelopmentConcept

B

Concept C

Concept A

Figur

e

20.4

Conjoint AnalysisDesign Elements

• Three package designs (A, B, C)

• Three brand names (ABC, XYZ, IJK)

• Three Prices (Rs.10, Rs.12, Rs.14)

• A possible Good Housekeeping seal

(yes, no)

• A possible money-back guarantee

(yes, no)

Respondents see different hypothetical offers formed by combining varying levels of the attributes, then rank the various offers

Figur

e

20.5Continuum of Evaluation for Products

Concept Testing• Concept testing of a new product idea refers to a more

detailed version of the idea.

• It involves describing the product concept through oral

or written description and the benefits to a small

number of potential customers, and make an assessment

of their responses regarding the product.

• The company can fix one or more concept, the more

clearly the concept is presented & resembles the final

product or helps consumers visualize the experience

with it, the more reliable its testing

Concept TestingProduct Dimensions1. Communicability and

Believability

2. Need level

3. Gap level

4. Perceived value

5. Purchase intention

6. User targets, purchase

occasions, frequency

Marketing Strategy Development

Marketing Mix

Target Market’s

• Size• Structure• Behavior

Marketing-mix strategy

Business Analysis• It is an assessment to determine the new

product’s potential contribution to the company’s

sales, costs, and profits and for this reason a

financial analysis is necessary.

• This stage will decide whether from financial as

well as marketing point of view, the project is

beneficial or not.

• Here management needs to prepare sales as well

as cost & profit projections to determine whether

they satisfy company objectives.

Development to CommercializationProduct Development

Commercialization

Market Testing

Product DevelopmentPhysical

Prototype

Alpha Testing(Internal)

Beta Testing(Customers)

Customer Tests

At this stage the company will determine whether the

product idea can be translated into technically &

commercially feasible product. Find a prototype that performs safely under normal use & conditions

200 Gillette employees tested the products & gave

feedback

Market Testing

Simulated Test

Marketing

Controlled Test Marketing

Sales-Wave Research

Test Markets

who initially try the product at no cost are reoffered it

qualified shoppers are asked about brand familiarity

Test Marketing• Test marketing is essentially a limited introduction in some

carefully selected geographic area that is viewed as representing the intended market.

• Test marketing is a sample launching of the entire marketing mix.

Companies use various testing methods. Some of the more popular ones are:

Sales-Wave – free samples for trial & advertisements & offers products for reduced price & who select the product again will be recorded

Controlled Test Marketing – placing the product in specific geographic area & tested helps to decide the promotion, price & responses

Simulated Test Marketing – firms try to identify the consumers other brand awareness, then the product is shown with advertisement & customers who select the product are interviewed, helps in advertising effect

Test Market – it is quite expensive where firm select a few cities representing the target market & product is launched like national launch of product

Commercialization

How?

To Whom?

When?

Where?

Commercialization• At this stage the company takes decision to go in for large scale

production & marketing of the new product.

• Various marketing strategies are employed by the company at this

stage, when it starts commercialization of a new product idea.

• The important factors to which strategists should focus here are:

• Market entry timing period.

• Whether to lunch the product in a single locality, a region, several

regions, nationally or internationally, i.e. geographic strategy.

• To whom the new product should target for i.e. targeting &

segmenting.

• Factors to be considered• Always start with the consumer. Do

consumers want/need this product?

• Assess the opportunity:– Size of the market—How big is the consumer need?– Competition—Have they entered? Are they likely to?– Estimate of your market share—Will this product

have a fast adoption rate?– Cost/ease of entry (capital investment and

manufacturing, branding, distribution, company skills, etc.)

New Product Launch

New Product Launch•Determine marketing strategy for new product (Think 4Ps)

• Price – set to reflect positioning (premium, popular, or

value) and drive profit

• Product – which attributes to offer (flavor, size, etc.)

• Promotion – how will you create awareness and trial of

product (advertising, coupons, sampling, product

demos, etc.)

• Placement – where will consumers buy product

(grocery, mass, drug, club, convenience, etc.)

New-Product Failures

Only 10% of new consumer products succeed in the long run.

Why Customers Switch Products

Pricing

Response to Failure

Ethical Issues

Competition

Service Failure

Reasons for New-Product FailuresDon’t fulfill a real need or want

Overestimation of market size

Pushed despite poor marketing research findings Design problems that

compromise functionality

Why do most products fail?

Technical problems

Reasons for New-Product Failures

Product Design Problems

Why do most products fail?

Fault pricing

Product Incorrectly Positioned

Competitive Actions

Costs of Product Development

Reasons for New-Product FailuresWhy do most products fail?

Inadequate promotion

Development costs go over budget

Poor planning

Poor packing

The Consumer-Adoption ProcessStages in the Adoption Process

New product introductions and their

adoption, particularly in case of new-to-the-

world products often takes a very long time.

Customers are sometimes suspicious, even

skeptical about adopting new products.

New to world products bring changes in use

& consumption of consumers

Recent trend is Internet Shopping, 3G, 4G

etc.,

The Consumer-Adoption ProcessOther Influencing Factors

• Time of Adoption

• Personal Influence

• Innovation

Characteristics

• Organizations

Readiness

Time of Adoption

Innovators

Early Adopters

Early Majority

Late Majority

Laggards

technology enthusiasts

opinion leaders

benefits are proven

technology shy

tradition-bound

Innovation Characteristics

Communicability

Relative Advantage Compatibility

Complexity

Divisibilitydegree to which the innovation matches

degree to which the innovation appears degree to which the

innovation can be tried

degree to which the benefits of use are describable

which the innovation is difficult to understand

Product Life-Cycle

Definitions product life cycle is the course of a product’s sales

and profits over time.

product life cycle(PLC) deals with the life of a product

in the market with respect to business or commercial

costs and sales measures.

The five stages of each product lifecycle are product

development, introduction, growth, maturity and

decline.

Product Life-Cycle Stages

Introduction

Figur

e

11.4 Sales and Profit Life Cycles

Product Life-Cycle Strategies• Products have a limited

life

• Sales pass through stages

• Profits rise, then fall

• Different strategies needed

Slow sales growth, negative profits

PLC: Introduction StageMarketing Strategies:

1.Create awareness

2.Induce product trial

3.Secure retail

distribution.

Which is more profitable over 5 years?• 6 months late, but on budget?• On time, but 50% over budget?

Speed to Market

Order of Market EntryFirst Mover Advantage

• Brand name association

• Define product class

• Customer inertia

• Producer advantages Imitator Advantage

InventorProduct pioneerMarket pioneer

Pioneer Advantage

Technology availableTime & Cost saved

PLC: Growth StageRapid sales growth; New

competitorsMarketing Strategies:

1.Improve product quality; add new features

2.Add new models and flanker products

3.Enter new market segments

4.Focus advertising on preferences

5.Increase distribution coverage

6.Lower price; Attract price-sensitive buyers

PLC: Maturity StageGrowth slows; Weak competitors

exitMarketing Objectives:

1.Maximize profit

2.Defend market share

Marketing Strategies

3.Market Modification

4.Product modification

5.Quality improvement

PLC: Decline StageSlow sales growth, negative

profits

Product Options:

1.Rejuvenate

2.Harvest

3.Divest

CHARACTERISTICS OF THE PLCIntroduction

Growth Maturity Decline

Characteristics

Sales Low Rapidly rising Peak Declining

Costs/customer High Average Low Low

Profits Negative Rising High Declining

Customers Innovators

Early Adopters

Middle majority Laggards

Competitors Few Increasing Stable number Declining

DEFINED“A name, term, sign, symbol, or design, or a

combination of them, intended to identify the

goods or services of one seller or group of

sellers and to differentiate them from those of

competitors.”

- American Marketing Association

Rs. 50Rs. 250

Scope of BrandingCreating difference between products

Brand

Types of Brand• There are several brand options that include

manufacturer brand (also called national brand),

private brand (also called distributor, reseller,

store, or house brand), or a licensed brand.• Manufacturer brands are initiated by

manufacturers and identify the producer. • Private brands is that they are resellers initiated

brands.• Licensed brand is a relatively new trend and

involves licensing of trademarks – allows approved manufacturers to use its trademark

Developing Brand Elements

Easy to recall

Descriptive

Persuasive

What was the name of that cookie I like?

Brand Element Choice CriteriaMemorable - Easily Recognized, Easily Recalled

Meaningful - Descriptive, Persuasive

Likable - Fun and Interesting

Transferable - Across Geographical Boundaries

Adaptable - Flexible, Updateable

Protectable - Legally Protected, Competitively Protected

Brand Builders

Defensive

Brand Elementswhich the function is

described literally in brand name

URLsBrand Names

Use a new term for the real word Use catchy phrases

Logos

Symbols

Fonts

shapes

Slogans

Slogans are short phrases that are descriptive or persuasive in nature

Jingles

These are musical slogans that help in reminding by repetition.

Packaging

It helps to identify the brand,information through labelling,allows protection

Characters

Characters can also be used as brand elements.

Secondary Associations

Brand

Geographic Regions

Other Brands

Characters

Spokespeople

Sporting Events

Brand Equity“Brand equity is defined in terms of marketing effects uniquely attributed

to the brands – for example, when certain outcomes result from the

marketing of a product or service because of its brand name that would

not occur if the same product or service did not have the name.”

-Kevin Lane Keller

Managing Brand EquityBrand

Revitalizationunderstand what the sources of brand equity were to begin with

Expanding Brand Awareness

by identifying additional or new usage opportunities of the brand.

Improving Brand Imageby repositioning the Brand in the market

Entering New Markets

by venturing into new markets and exploring the possibility of establishing the brand in completely different arenas

how the brand makes products superior unique brand associations should exist in consumers’ minds.

Managing Brand EquityBrand Reinforcement

Maintaining Brand Consistency

to continuously improve the brand to build and sustain

Protecting Sources of Brand Equity

Fortifying versus Leveraging

strengths of the brand should be leveraged upon and the weaknesses should be fortified

Fine-tuning the Supporting Marketing Program

Branding Strategies

• Product Branding Strategy• Line Branding Strategy

- products share a common concept

• Umbrella Branding Strategy

• Double Branding Strategy

• Endorsement Branding

Strategy

Means of Differentiation Employees

Channels

Image

Services

Packaging & Labelling

Definition• An activity of designing & producing the container for a

product.

• More than merely containing the product.

• Also referred to as the 5th P in the marketing mix.

• Packaging is the science, art and technology of enclosing

or protecting products for distribution, storage, sale, and

use.

• Today, good package design is regarded as an essential

part of successful business practice Potent tool to

differentiate products from their competitors

PURPOSES OF PACKAGING• Physical protection

• Barrier protection

• Containment or agglomeration

• Information transmission

• Marketing

• Security

• Convenience

• Portion control

Labelling

• A label may be a part of package or it may be a tag attached to the product.

• The labels perform a descriptive function relating to – a product’s source, – its contents, – important features and benefits, – use instructions, – cautions or warnings, – storage instructions, – batch number, – date of manufacture, and – date of expiry.

Universal product code

• Which consists of unique lines that identifies a product

• The data’s are regarding the price, manufacturer & retailer code used for inventory

• Also called as Bar code • Which is done by bar code scanner &

computer

Developments in Packaging• Package design starts with the identification

of all the requirements: structural design, marketing, shelf life, quality assurance, logistics, legal, regulatory, graphic design, end-use, environmental, etc.

• The traditional “three R’s” of reduce, reuse, and recycle

Pricing Strategies

Marketing MixProduct Price

PromotionPlace

Revenue Producer

Cost

Cost

Cost

Significance & Importance of price• Only element that generates revenues for the company

• Adopting the right pricing strategy helps a company achieve its

objectives

• Price represents the value that exchanged in an marketing

transaction

• Some marketers do not give adequate importance to pricing due to

certain reasons

• The sale of a product have an impact on pricing mechanism

• The management of a company must establish a process to ensure

that all the relevant factors are taken into consideration

Pricing concept• Pricing exercise begins with an understanding of corporate

mission, target markets & marketing objectives

• Pricing decision should also involve the other items in

product line, promotional decisions, & distribution

channels

• There are two types of pricing decisions

• New product pricing

• Adjusting prices of existing products

• The price reflects the buyers interest & satisfaction of the

product

Changing Price EnvironmentInstant Price Comparisons

I’ll pay Rs.235.00

Name Your Own Price

Get Products Free

Buyers

Changing Price EnvironmentRs 29.99 Rs 19.99 Rs 24.99Sellers

Monitor Customers

Selective Pricing

Negotiate Prices

How Companies Price

Pricing Department

Small Business Owner

Product-line Managers (w/guidance)

Select Final Price

Setting the Price

1

Price Method

Competitor Analysis

2

3

4

5

6

Estimate Costs

Determine Demand

Pricing Objective

Selecting the Pricing ObjectiveSurvival

Maximum Current Profit

Maximum Market Share

Maximum Market Skimming

Product-Quality Leadership

Other ObjectivesNonprofit and public organizations may have other pricing objectives

Determining Demand– Way to analyze demand curve are – Past sales analysis, volumes sold etc.,– Usually P - D & vice versa– Classic demand curve shows products will be sold at

different prices keeping the other factors constant– But in some cases like share markets price decreases,

demand also decreases & petrol– Status reflecting products P increases Demand increases,

prestige products after a certain level the demand decreases

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Determination of demand• If there is little or no change in demand, it is said to be price

inelastic.• If there is significant change in demand, then it is said to be

price elastic.

Pric

e

Rs 15

Rs 10

100 105

Rs 15

Rs 10

50 150

(a) Inelastic Demand (b) Elastic Demand

Quantity Demanded per Period Quantity Demanded per Period

Estimating CostsDemand Price Ceiling

Price Floor

Costs

Price

Profit

Break Even Analysis (BEA)• The point at which cost of making a product is equal to the

revenue generated from selling that product

• BEA = Total fixed cost (Unit price – Average variable cost)

Analyzing Competitors’ Offers

“A”“B”

Worth to Customer

Costs Reaction

Price

Selecting a Pricing MethodPricing Methods

• Promotional• Psychological• Target-return• Perceived-Value• Value• Going-rate• Auction-type

New Product Pricing• Base price Recover the product cost quickly

• Need to analyze about competitors move, strength of entry

campaign, impact on primary demand

• Price skimming – generates much cash flows in absence of

competitors

• Penetration pricing - when entering into the competition to

capture high market share

• Low unit production decrease price added advantage

• Some marketers initially adapt skim and then to penetrate

Psychological pricing• Consumers generally judge product quality by price

• Price will be more apparent when we see goods like perfume

and higher-end products

• If no other information is available to the customers then price

becomes a major factor in judging the quality

• Prices ending with 9 have a significant impact on the psychology

of customers

• When products cannot be differentiated on basis of features

and other aspects

• Odd even pricing is basically a psychological way of pricing

Promotional pricing Loss Leader Pricing

– Retail outlets use mainly to sell the volumes of routinely

purchasing product

– Compensates for the lower margin products

• Superficial Pricing

– Setting artificially high price & offering at a highly reduced

price

• Special Event Pricing

– Seasonal or special occasions price cuts

Selection of pricing methodTarget return pricing – ROI, the leaders in the industry will adapt

• TRP = unit cost + (Desired cost* Invested Capital/ Unit sales) cost 2oo,

invested 1,00,000 sells 500 & 15% ROI

Competition based pricing – Going rate pricing, simply follows

prevailing pricing patterns in the market

Demand Based pricing – considering the level of demand. The

marketers need to estimate the different product price the customers

will demand

Selection of pricing methodProduct Range pricing – prices are determined based on other

products in the same range

• Optional additional items

• Captive product Pricing – Gillette

Perceived-Value Pricing – price of the product on basis of customers

perceived value in minds

• Marketers shows the brand image through advertising, sales promotion

etc., to enhance the value.

Perceived-Value PricingCustomer’s perceived-value

• Performance• Warranty • Customer support • Reputation

Selection of pricing methodTwo-Part Pricing – charge a fixed price for basic service &

variable usage rate – BSNL

Discount Policies – price that sellers gives to buyers

• Cumulative & Non-Cumulative quantity discounts

• Seasonal discounts

Bid Pricing – more suitable for industrial products, price will

be quoted in a sealed cover. Government organizations

Auction PricingEnglish auction

(ascending bids)

Dutch auction (descending bids)

Sealed-bid auction

Adapting the PriceGeographic Pricing

Price Discounts and Allowances

Promotional Pricing

Differentiated Pricing

Dealing with Price Changes

Competitor Moves

Raising Prices

Cutting Prices