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PAN African e-Network Project

MFM

Fundamentals of Marketing Management

Semester - 1

Session - 4

Ms. Pooja Sehgal Tabeck

PRODUCT

• Product is anything that can be offered to a

market to satisfy a want or need, including

physical goods, services, experiences, events,

persons, places, properties, organizations,

information, and ideas.

• BUNDLE OF PHYSICAL,SERVICE AND

SYMBOLIC ATTRIBUTE DESIGNED TO

SATISFY A CUSTOMERS’ WANTS AND

NEEDS.

Components of the

Market Offering

Attractiveness

of the market

offering

Value-based prices

Product

features

and quality

Services

mix and

quality

Five Product Levels

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)

• Products are comprised of 5 levels. Each level adds more customer value. Here are the product levels using a hotel as an example.

• Core benefit: service or benefit the customer is really buying.

• Basic product: marketers turn core benefit into a basic product at this level.

• Expected product: attributes and conditions buyers expect when they purchase this product. Competition takes place at this level in developing countries.

• Augmented product: : attributes and conditions exceed customer expectations. Competition takes place at this level in developed countries..

• Potential product: various augmentations that could be incorporated in the future. Here is where companies search for new ways to satisfy customers and distinguish their offering.

CONSUMER GOODS -CLASSIFICATION

• Convenience Products

– Buy frequently & immediately

– Low priced

– Many purchase locations

• Includes:

– Staple goods

– Impulse goods

– Emergency goods


• SHOPPING PRODUCTS• Buy less frequently

• Gather product information

• Fewer purchase locations

• Compare for:

– Suitability & Quality

– Price & Style


• SPECIALITY PRODUCTS• Special purchase efforts

• Unique characteristics

• Brand identification

• Few purchase locations


• UNSOUGHT PRODUCTS

• New innovations

• Products consumers don’t want to think

about.

• Require much advertising &

• personal selling

MARKETING IMPACT OF CONSUMER

PRODUCT CLASSIFICATION SYSTEM

CONSUMER

FACTORS

CONVENIENCE SHOPPIN

G

SPECIALT

Y

PLANNING TIME

INVOLVED IN

PURCHASE

VERY LITTLE CONSIDERAB

LE

EXTENSIVE

PURCHASE

FREQUENCY

FREQUENT LESS

FREQUENT

INFREQUENT

IMPORTANCE OF

CONVENIENT

LOCATION

CRITICAL IMPORTANT UNIMPORTAN

T

COMPARISON OF

PRICE AND

QUALITY

VERY LITTLE CONSIDERAB

LE

EXTENSIVE

INDUSTRIAL GOODS -

CLASSIFICATION• MATERIALS & PARTS

• Goods that enter the manufacture’s product

directly.

• They fall into two classes :-. • Raw Materials

– FARM PRODUCTS

– NATURAL PRODUCTS

INDUSTRIAL GOODS -

CLASSIFICATION• MANUFACTURED MATERIALS & PARTS

– Component materials :- usually fabricated

further.

– Component parts :- enter the finished product

with no further change in form.– E.g. Tires are put on automobiles.

INDUSTRIAL GOODS -

CLASSIFICATION• CAPITAL ITEMS

– long lasting goods that facilitate developing

or managing the finished products.

– Two types of Capital items;-

• INSTALLATIONS:- consist of buildings and heavy

equipments

• EQUIPMENTS :- consist of portable factory

equipments and tools and office equipments.

• They are not part of finished products.

INDUSTRIAL GOODS -

CLASSIFICATION• SUPPLIES & BUSINESS SERVICES

– short term goods and services that facilitate

developing or managing the finished product.

• Maintenance & Repair items

• Operating supplies

• Maintenance & Repair Services

• Business Advisory Services

THE PRODUCT HIERARCHY

• NEED FAMILY :- The core need that underlies the existence of product family.

• PRODUCT FAMILY:- All the product classes that can satisfy a core need with reasonable effectiveness.

• PRODUCT CLASS:- A group of product within a product class that are closely related because they perform a similar function.

THE PRODUCT HIERARCHY

• PRODUCT TYPE :- A group of items within a product line that share one of several possible form of product.

• ITEM:- A distinct unit within a brand or product line distinguishable by size, price, appearance or some other attribute.

• Item is also known as Stock keeping unit or product variant.

THE PRODUCT SYSTEM

• PRODUCT SYSTEM :- A group of diverse but related items that function in a compatible manner.

• PRODUCT MIX :- is the set of all products and items a particular seller offers for a sale.

Product mix is also known as product assortment.

Product Mix

Width - number of

different product

lines

Length - total

number of items

within the lines

Depth - number of

versions of each

product

Product Mix -

all the product

lines offered

PRODUCT LINE ANALYSIS

• Product-line managers do product line analysis on the basis of :-

• SALES & PROFIT :-company can classify its products into four types that yield different gross margins :-

• Core products

• Staples

• Specialties

• Convenience Products

PRODUCT LINE ANALYSIS

• On the basis of Market Profile

PRODUCT-LINE LENGTH

• A Company lengthens its product line in two

ways :-

• LINE STRETCHING:- occurs when company

lengthens its product line beyond its current

range.

• LINE MODERNIZATION,FEATURING &

PRUNING

LINE STRETCHING

• DOWN-MARKET STRETCH :- A company positioned in a middle market may want to introduce a lower-priced lines for any of three reasons :-

1. Company may notice strong growth opportunities

2. Company may wish to tie-up lower end competitors

3. The company find that the middle market is stagnating

LINE STRETCHING

• UP-MARKET STRETCH :- A company may

wish to enter the high end of market to achieve

more growth, to realize high margins ,or simply

to position themselves as full line

manufacturers.

• TWO-WAY STRETCH:- Company may serving

the middle market decide to stretch their line in

both the directions.

Line Stretching Decisions

High High High

NewProduct

Price PresentProduct

Price New Product

Price PresentProduct

New Product

PresentProduct

New ProductLow Low Low

Quality Quality Quality

Downward Stretch Upward Stretch Both-Way Stretch

Low Low Low HighHigh High

LINE

MODERNIZATION,FEATURING,PRUNING

• LINE MODERIZATION :- companies plan improvement to encourage customer migration to higher valued, higher-priced items.

• LINE FEATURING:-product line managers typically decide one or few items in the line to feature .

• LINE PRUNING :- Line pruning is just the opposite to line stretching and involves a deliberate decision to cut down the number of items in product line(s).

PRODUCT LIFE CYCLE

PRODUCT LIFE CYCLE

• The course of a product’s sale and profit

over it lifetime. It involves five distinct

stages: product development,

introduction ,growth, maturity, and decline.

• PLC portrayed as bell- shaped curve

Claims of Product Life Cycles

• Products have a limited life

• Product sales pass through distinct stages each

with different challenges and opportunities

• Profits rise and fall at different stages

• Products require different strategies in each life

cycle stage

Product Life Cycle

Product-Life Cycle Stages

• INTRODUCTION STAGE :-A period of slow

sales growth as the product is introduced in the

market.

• Profits are nonexistent because of heavy

expenses on product introduction.

• GROWTH STAGE :- A period of rapid market

acceptance and substantial profit improvement.

Product-Life Cycle Stages

• MATURITY STAGE :-A slow down in sales

growth because the product has achieved

acceptance by most potential buyers.

• Profits stabilize or decline because of increased

competition.

• DECLINE STAGE :- sales show a downward

drift and profits erode.

Product life Cycle patterns

Product-Life Cycle Patterns

• GROWTH-SLUM-MATURITY PATTERN

– Sales grow rapidly when the product is first

introduced and then fall to petrified level that is

sustained by late adopters buying the product first

time and early adapters replacing it.

– Example:- Kitchen appliances such as handheld

mixers


• CYCLE-RECYCLE PATTERN

– Often describes the sales of new drugs .

– The pharmaceutical company aggressively promoting

its new drug ,this produces the first PLC.

– Later, sales declining and company gives the drug

another promotional push which produces a second

life cycle.


• SCALLOPED PATTERN

– Sales pass through a succession of life cycle based

on the characteristics of new-product characteristics,

uses or the users.

– Example :- sales of nylon show a scalloped pattern

because of many new uses- parachutes, hosiery,

shirts, automobile tiers

Style, Fashion, and Fad Life Cycles

Style Life Cycle

• A style is basic and distinctive mode of

expression appearing in the field of human

endeavor.

• A style can last of generations and go in and out

of vogue.

• Example :- Art ( Abstract, Realistic, surrealistic)

Fashion Life Cycle

• A fashion is currently accepted or popular style

in given field.

• Fashion pass through four stages:-– Distinctiveness

– Emulation

– Mass Fashion

– Decline

• The length of particular Fashion life cycle

depends upon extent to which fashion meets a

genuine need of society.

Fad Life Cycle

• Fads are the fashion that come quickly into

public view, adopted with great zeal, peak early

and decline very fast.

• Their acceptance cycle is short and they tend to

attract only a limited following who are searching

for excitement or want to distinguish themselves

from others.

Marketing Strategies :Introduction stage of

PLC

• Profits are negative or low and promotional

expenses are their highest ratio to sales

because of the need to

– Inform potential consumers

– Introduce product trial

– Secure distribution in retail outlets

Sources of pioneer advantage

• Early users will recall the brand name

• Producers advantage: economies of scale,

Technological leadership, patents, barriers to entry

Inventor

Market pioneer

Product pioneer

Marketing strategies: Growth stage

• Improve product quality

• Add new models and flanker products

• Enter new market Segments

• Increase distribution coverage

• Lower prices

• Advertising

Marketing strategies: Maturity stage

• The maturity stage divided into 3 stages:-

• Growth Maturity Stage :- the sale growth rate

starts to decline.

• There are no distribution channel to fill.

• New Competitive forces emerge.


• Stable Maturity Stage :- the sale flatten on per

capita basis because of market saturation.

• Most potential customers have tried the product.

• Future sales are governed by population growth

and replacement demand..


• Decaying Maturity Stage :- the absolute level of

sales start o decline ,and customers begin to

switching to other products.

• The sales slowdown creates overcapacity in the

industry, which leads to intensified competition.

• Competitors scrambled to find niches.


Few giants firms will dominate the industry

through:-

• Quality Leaders

• Service Leaders

• Cost Leaders

• These leaders serve the whole market and

make their profits through high volumes and low

cost.


Three potential ways to change the course for

brand are market, product and marketing

program modifications at maturity stage.

• MARKET MODIFICATION

• PRODUCT MODIFCATION

• MARKETING PROGRAM MODIFICATION


MARKET MODIFICATION:- A company might try

to expand the market for its mature brand by

working with factors that make up sales volume.

Sale Volume= Number of Brand users* usage rate

per user


WAYS TO INCREASE SALES VOLUME

• Convert nonusers

• Enter new market segments

• Attract competitors’ customers

• Have consumers use the product on more

occasions

• Have consumers use more of the product on

each occasion

• Have consumers use the product in new ways


PRODUCT MODIFICATION:- A manager also try

to stimulate sales by following:-

1. Quality Improvement :- aims at increasing the

product’s functional performance.

• A manufacturer can often overtake its

competitor by launching a new and improved

product.

• This strategy is effective if buyers accept the

claim of marketers.


PRODUCT MODIFICATION

2. Feature Improvement :- Marketer aims at adding

new features ,such as size, weight, materials,

additives and accessories.

• Adding new features build the company’s image

as innovator and win the loyalty of market

segments.

• They provide an opportunity for free publicity

and generate sale force and distributor

enthusiasm.


PRODUCT MODIFICATION

3. Style Improvement :- aims at increasing the

products esthetic appeal.

• A style strategy might give a product a unique

market identity.


MARKETING PROGRAM MODIFICATION

• PRICE :- Would a price cut attract new buyers?

• DISTRIBUTION:- Can company obtain more

product support and display in existing outlets?

• ADVERTISING :- Should we increase

advertising expenditure ?

• SALES PROMOTION:- Should the company

step up sales promotion-trade deals, price-offs,

coupons, rebate


MARKETING PROGRAM MODIFICATION

• PERSONAL SELLING :- Should we increase the

number of quality of salespeople ?Should we

change the basis for sales force specialization?

• SERVICES;- Can the company speed up

delivery? Can we extend more technical

assistance to customers?

Marketing strategies: Decline stage

Reasons for Sales Decline

– Technological Advances

– Shifts in Consumer tastes

– Increased Competition

• Sales Decline leads to:-

– Overcapacity

– Price Cutting

– Profit Erosion

Marketing strategies: Decline stage

• Harvesting :- gradually reducing a product or

business cost while trying to maintain sales

• Divesting:- Company can sell it another firm.

• Liquidate the brand.

• Decide on how much inventory to maintain for

past customers.

CRITIQUE OF PLC CONCEPT

• PLC patterns are too variable in shape and

duration.

• A product may appear mature when it actually

has reach to plateau.

• PLC pattern is the self-fulfilling result of

marketing strategies.

Marketing Evolution

• Market evolve through four stages :-

• Emergence

• Growth

• Maturity• Market fragmentation

• Market Consolidation

• Decline

PRICING

Price = Cost + Profit

Price is all around us. You pay rent for your apartment, tuition for

your education, and a fee to your dentist or physician. The airline,

railways, taxi and bus companies charge you a fare; the local

utilities call their price a rate; and the local bank charges you

interest for the money you borrow. You have to pay a toll when you

drive on the bridge and the insurance company charges you a

premium. The guest lecturer is paid an honorarium and the

government official takes a bribe to pass a file which was his job

anyway. Your lawyer asks for a retainer and you are paid a salary,

while the salesman has to make do with a commission and the

worker is paid wages.

Price brings in the revenues

• This is the only element in the marketing mix that brings in the revenues. All the rest are costs

• Price communicates the value positioning of the product.

Price Quality Strategies

Premium High value Super Value

Strategy

Overcharging

strategy

Medium value Good value

Rip off False economy Economy

Price

qual

ity

Pricing policy

• Selecting the pricing objective

• Determining demand

• Estimating costs

• Analyzing competitors – costs, prices, offers

• Selecting a pricing method

• Selecting the final price

The pricing objective

• Survival

• Maximum current profit

• Maximum market share – penetration pricing

• Maximum market skimming

• Product quality leadership

Determining Demand

• Price sensitivity

• Price elasticity of demand

What is price elasticity?

• This determines the changes in demand with unit change in price

• 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.

Selecting A Pricing methods

• Markup pricing

• Target return pricing

• Perceived value pricing

• Value pricing

• Going rate pricing

• Sealed bid pricing

Perceived –value pricing

attribute Standard

offer

Premium

offer

Added value

Quality Impurities less

than ten parts

Impurities less

than one part1.50

Delivery Within two weeks Within one week .15

System Supply chemical

only

Supply total

system.80

Innovation Little R&D High level 2.00

Service Through home

office

Locally available .25

Retraining Train initially Retrain on

request.40

Price 100 105 5.00

SETTING THE FINAL PRICE

• Psychological pricing

• Influence of other marketing –mix elements

• Company pricing policies

• Impact of price on other parties

Psychological pricing

• It is used to lessen the impact of the actual pricing in the consumers mind

• It is used as a surrogate to indicate the product quality or esteem

Promotional Pricing

• Loss leader pricing

• Special event pricing

• Cash rebate

• Low interest financing

• Longer payment terms

• Warranties and service contracts

• Psychological discounting

Discriminatory Pricing

• Customer segment

• Product form

• Image pricing

• Location pricing

• Time pricing

Preconditions

• Market must be segmentable

• The lower price segment should not be able to resell the product to the higher price segment

• The competitors must not be able to undersell the firm in the higher price segment

• Should not breed customer resentment and illwill

• Price discrimination should not be illegal

Thank You

Please forward your query

To: [email protected]

CC: [email protected]

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