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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
