UNIT 2 PRODUCTS AND PRICE

2.1 Product Meaning

It is by offering something to the customer that the firm begins it’s marketing job. This offering is the
product.

Product is not just the physical entity, it includes various features and functions built around it – the
brand name, packaging and labelling, the quality, the guarantee, the price label, the manufacturer’s
name and prestige, all goes into the personality of the product. This total personality is Total Product
Offering.

Components of a Product (Product Personality) include:

 The core product – the basic constituent (eg Mysore sandal soap)
 The associated features – the built around (shape, colour, fragrance)
 The brand name – a name of recognition
 The logo – supports the brand
 The package and label

2.1.1 Product Planning

Different Levels Of Product

 The generic product – unbranded and undifferentiated

 The branded product – gets identity through name
 The differentiated product – distinct and unique on quality utility or service (eg. maggie)
 The customised product – adapts product to the requirement/ specification of the customer.
 The augmented product – voluntary improvement to increase the value of the offer on product.
 The potential product – ‘tomorrow’s product’ under given prevailing conditions .

Main Tasks In Product Management

 Appraisal of each product line and each product/brand in the line

 Decision on packaging
 Product differentiation and positioning
 Managing brands and developing brand equity
 Innovations and new product development
 Managing product quality
 Managing Product Life Cycle (PLC) of products/Brands

Classification Of Products (to facilitate the strategy formulation task)

Traditional classification:
  Consumer Products – meant for direct consumption/ personal use of consumers
 Industrial Products – products that went into the manufacture of other products

Modified classification:

 Consumer products
Set of classification 1:
 Consumer soft – can of coke
 Consumer durables – TV
 Consumer service – air travels
Set of classification 2:
 Convenience goods
 Shopping goods
 Speciality goods
 Business products
 Raw materials
 Fabricating materials and parts
 Installations
 Accessory equipments
 Operating supplies

2.1.2 Product Policies

Product Mix and Product Line:

Product Mix: the larger entity, denotes complete set of all products offered for sales by a company.

Product Line: a group of closely related products. (PM is composed of all PL)

Width Of Product Mix: number of product lines it carry.

Length Of Product Line: number of products/ brands in the line

Depth Of Product Line: total number of items under each product/brand in the line, in terms of
variants, size, shapes, models, etc

Product Item/SKU: SKU(stock keeping init) is the independent item of the product/brand offered for
sales.

Strengthening Of Product Line:

 Lengthening the line by adding more products and brands to the line.
 Deepening the line by adding more variants/formulae/pack size to the line
 Pruning and rationalising the lines by withdrawing items/integrating them.
2.1.3 Product Positioning

Product Differentiation is making the product offer different from the rest.

Attributes on which marketers differentiate their product offering

 Tangible product attributes

 Product ingredients/formula
 Functional features/ additional features
 Design / styling
 Consumer experience associated with te product
 Product quality / technology
 Service support
 Packaging
 Intangible product attributes
 Prestige/ status
 Image
 Sentiments/beliefs

Product Positioning is the act of fixing the locus of the product offer in the midst of the target
consumers.

Tasks In Positioning

 Deciding the locus – in the consumer’s mind, where to lodge your product/brand?
 Analysing competitor’s positioning – is there a gap somewhere?
 Fixing the positioning plank
 Ensuring the infrastructure / competitive advantage for delivering the promise
 Developing the value proposition
 Communicating the value proposition to target customers
 Monitoring – how the positioning is faring in the market?
 Reposition the product offer, if required.

2.2 New Product Development Process

New product is one of the derivatives of innovation.

Why New Product?

 For larger, faster and sustained growth

 For filling the firm’s strategic planning gap
 NP reflects the value game the firm wishes to play
 Required for making new profits
 Required for meeting consumer expectations
 Required for beating competition
 Required for combating environmental threats
Classification of New Product

 NP that raises out of technology

 NP that represent market oriented modifications of existing products

Pricing strategy for New Product

 Skimming pricing
 Penetration pricing

Stages In New Product Development

1. Generating New Product Ideas

 Ideas from customers
 Ideas from employees
 Ideas from market research people
2. Idea Screening
 Is there a need?
 Is it from existing product?
 Is it close to current line of business?
3. Concept Development And Testing
 Simulation technologies
 Quality gates to screen and pass product ideas
4. Business/Market Analysis
 Estimate of demand
 Seasonal pattern of consumption
 Other market feature demands
 Price elasticity of demand
 Competition, major competitors
 Volume cost profit analysis
 Type of marketing channels, available channels
 The marketing organisation for marketing the product
5. Actual Product Development
6. Market Test
7. Commercialisation

2.3 Product Life Cycle

During a product’s life span, it passes through certain distinct stages in terms of demand, growth rate
and profitability. This is called Product Life Cycle (PLC).
Four Stages In PLC:

1. Market pioneering stage

 Low sales; remote profit; demand has to be created and developed; product undergoes
trouble.
2. Market growth stage
 Demand increases; profit goes up; competitors enter
3. Market maturity stage
4. Market declaim stage
 Sales falls; demand shrinks; new and functional products available in market

Uses Of PLC Concept In Market

 Facilitates preplanning the product launch

 Facilitates prolonging the product’s profitable phase
 Facilitates investment decisions in products
 Facilitates choosing the right entry strategies
 Facilitates choosing the right time to exit
 Provides useful clues for managing customers

PLC Operates At Three Levels

1. The product level

2. The product sub category level
3. The brand level
2.4 Branding

A Brand is a customer experience represented by a collection of images and ideas; often it refers to a
symbol such as a name, logo, slogan and design scheme. Brand recognition and other reactions are
created by the accumulation of experiences with the specific product or services, both directly relating
to its use, and through the influence of advertising, design and media commentary.

Role And Significance Of Brand

 Major asset of the firm

 Brand carries value promised to the customers
 Gives value and wins loyalty
 Leads distinction
 Brands offer strategic leverage to the firm

Characteristics Of Strong, Successful Brands

 Brand drives shareholder values

 Entire company is concerned with the brand
 Can be values in financial terms and comes on the asset side of balance sheet
 Can be bought and sold as an asset
 Customers are willing to pay a price premium for it
 Customers associate themselves with brand with an emotional and intangible relationship
 Brand is also a trademark

Categories Of Brand Based On Specific Value They Offer

 Functional brand – Functional value by the efficiency of their product features

 Image brand – offers image value to the users
 Experience brand – offers unique experience by interacting with the brand

Task Involved In Developing And Managing Brand

 Creating differentiation, developing value promotion and positioning of brand

 Selecting brand element – name, logo, slogan
 Providing it the right distribution, promotion and pricing in tune with positioning
 Monitoring the performance of the brand
 Keeping the brand live, contemporary and relevant
 Brand proliferation: adding more brand
 Brand acquisition: strengthening the brand portfolio
 Brand portfolio rationalisation
 Assessing the PLA related needs and modifying
 Building brand equity over time though all measures above
2.4.1 Packing

Innovation In Packaging

 Package Aesthetics – package material, design, package size and shape

 Handling convenience
 Package size – economy pack, refill pack, reusable, sachet sweep
 Using package for product renovation /repositioning

2.4.2 Labelling

Labelling is used for packaging the product and create awareness.

Types Of Labelling In Market

 Branded product label

 Removable labels
 Non removable labels
 Eco or information label

2.5 Price: Pricing Objective

Price is the measure of value.

Objectives Firm Seek In Pricing

 Profit maximisation in short term

 Profit optimisation in long term
 A minimum return on investment
 A minimum return on sales turnover
 Achieving a particular sales volume
 Achieving a particular market share
 Deeper penetration of the market share
 Entering new markets
 Target profile on the entire product line, irrespective of profit level in individual products
 Keeping competition out or keeping it under check
 Keeping parity with competition
 Fast turnaround of stock and early cash recovery
 Stabilising the prices and margins in the market
 Keeping the product affordable to all consumers
 Providing the commodities at low prices so as to stimulate economic development
2.5.1 Factors Affecting Pricing Decisions

 Internal Factors
 Corporate and marketing objective of the firm
 The image sort by firm through pricing
 The characteristics of the product
 The stage of the product in its life cycle
 Use pattern and turnaround rate of the product
 Cost of manufacturing and marketing
 Extent of differentiation of the product
 Interaction of other 3 Ps with pricing
 Whether buyers buy some of the products in combination
 External Factors
 Market characteristics: demand, customer, competition
 Price elasticity of demand of the product in particular
 Buying behaviour of the customer of the product
 Bargaining power of major customers
 Bargaining power of major suppliers
 Competitor’s pricing strategy
 Government controls/regulation on pricing
 Other relevant legal aspects
 Societal views
 Understanding reached, if any with competitors

2.5.2 Methods And Procedures Of Pricing

 Cost-based Pricing
 Mark-up pricing
 Absorption cost pricing
 Target rate of pricing return
 Marginal cost pricing
 Demand-based Pricing
 ‘what the traffic can bear’ pricing
 Skimming pricing
 Penetration pricing
 Competition-oriented Pricing
 Premium pricing
 Discount pricing
 Parity pricing / going rate pricing
 Product Line-oriented Pricing
 Tender Pricing
 Affordability-based Pricing
 Differentiated Pricing
Steps Involved In Pricing Procedure

 Identify the target customer segments and draw up their profile

 Decide the market position and price image that the firm desires for the brand
 Determine the price elasticity of demand of the product
 Take into account the lifecycle stage of the product
 Analyse competitor’s prices
 Analyse other environmental factors
 Choose the pricing methods to be adopted, taking into consideration of all the above
 Select the final price
 Periodically review the pricing method as well as procedures

2.6 Relevance To Digital World