Marketing Management Notes Unit 2

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MARKETING MANAGEMENT NOTES UNIT 2
Marketing Management (Guru Gobind Singh Indraprastha University)
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Institute of Innovation in Technology and Management

Marketing Management BBA-205
BBA (G)-III Semester
Unit II
Product: Product Levels, Product Mix, Product Strategy, Product innovation and Diffusion, Product
Development, Product Lifecycle and Product Mix.
Pricing Decisions: Designing Pricing Strategies and Programmes, Pricing Techniques
PRODUCT CONCEPT
Product is anything that can be offered for use and consumption, in exchange for money or some
other value , to satisfy a want or need.
According Philp Kotler, “A product is a bundle of physical services and symbolic particulars
expected to the yield satisfactions or benefits to the buyer.”
2.1 PRODUCT LEVELS

In planning its market offering, the market offering, the marketer needs to think through
five levels of the product. Each level adds more customer value and the five constitute a
customer value hierarchy.
I Level - Core Benefit
The most fundamental level is Core Benefit: the fundamental service or benefits that the
customer is really buying. A hotel guest buying “ rest and sleep“, the purchaser of drill is
buying “holes”. Marketer must see themselves as benefit providers.
Potential Product
Augmented Product
Expected Product
Basic Product
Core Product

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II Level - Basic Product
At the second level, the marketer has to turn the core benefit into basic product. Thus a
hotel room include a bed, bathroom, towel, dresser etc.
III Level - Expected Product
At this level, the marketer prepares an expected product, a set of attributes and conditions
buyer normally expect when they purchase this product. Hotel guests expect a clean bed,
fresh towel, working lamps, and a relative degree of quiet. Because most hotels can meet
this minimum expectation, the traveler normally will settle for whichever hotel is most
convenience or least expensive.
IV Level - Augmented Product
At the fourth level, the marketer prepares an augmented product that exceeds customer
expectations. A hotel include a remote control Television set, fresh flowers ,rapid check
in, fine dining and room service.
Today competition essentially takes place at the product

augmentation level. In less developed countries, competition takes place mostly at the
expected product level. Product augmentation leads the marketer to look at the user’s
total consumption system: the way the user performs the tasks of getting, using, fixing
and disposing of the product.
Some things should be noted about product augmentation strategy:
1. Each augmentation adds cost. The marketer has to ask whether customers will pay
enough to cover the extra cost.
2. Augmented benefits soon become expected benefits, this means that competitors will
have to search for still other features and benefits.
V Level - Potential Product
At this level, all the possible augmentations and transformations the product might
undergo in the future. Here is where companies search for new ways to satisfy
customers represent an innovative transformation of the traditional hotel product.
Successful companies add benefits to their offering that not only satisfy customers but also
surprise and delight them. Delighting is a matter of exceeding expectations.

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2.2 TYPES OF PRODUCTS
A. Durability
a. Non –durable goods: Non Durable goods are tangible goods normally consumed in
or few days.
Example: soap, salt and biscuits.
b. Durable Goods: are Tangible goods that can normally be used for many years. For
example, color TV, refrigerator, washing machines and vacuum cleaners.
B. Consumer good classification
Consumer products are products and services bought by final consumers for personal
consumption. Marketers usually classify these products and services further based on
how consumers go about buying them.
Consumer products include continence products, shopping products, specialty prod. And
unsought products.
These products differ in the ways consumers buy them.
a. Convenience Products: are consumer products and services that consumers usually buy
frequently, as soon as they feel the need for them, they require minimum or no planning
before the purchase.
Example: detergent, soft drinks, cigarettes, chocolates magazines , fast food etc.
Convenience goods can be further classified into three categories:
1. Staple goods: Consumer purchase on regular basis
2. Impulse goods: Consumer purchase without any planning or search effort
3. Emergency goods: Consumer purchases on urgent need.

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b. Shopping products: are less frequently purchased consumer products and services that
customers compare carefully on suitability, quality, price, and style. When buying
shopping products and services, consumer spend much time and efforts in gathering
information and making comparisons. These are goods that the consumers in the process
of selection and purchase characteristically compares on such bases as suitability and
quality
Examples include furniture, clothing, used cars, jewelry and hotel and air lines.
Shopping products marketers usually distribute their products through fewer outlets that
are known for the quality of their merchandize and provide deeper sales support to help
customers in their comparison efforts.
c. Specialty Products are consumer products and services with unique characteristics or
brand identification for which a significant group of buyers is willing to make a special
purchase effort. They are more expensive than convenience products and are not
purchased frequently.
Examples include specific brands of cars, high priced photographic equipment, designer
clothes, and household appliances like TV, refrigerator and washing machines and
services of medical or legal specialists. Eg: A Mercedes is a specialty product.
Buyers do not compare specialty product. They invest only the time needed to reach
dealers carrying the wanted products. However, they spend a lot of time in planning the
purchase deciding on the brand and arranging for the money to buy the product.
Eg cars
d. Unsought products are consumer products that the consumer either does not know or
knows about but does not normally think of buying.
Eg Life insurance, donation for charity and blood donations to hospitals.
By their very nature, unsought products require a lot of advertising, personal selling and
other marketing efforts.
C. Industrial products:
Industrial products are those purchased for further processing or for use in conducting a
business. Thus distinction between a consumer product and IP is based on the purpose for
which the product is brought.
Three groups of IP and services include
1. Materials and parts

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2. Capital item
3. Suppliers and services
Material and parts…… include raw materials and manufactured materials and parts.
Raw mat consists of farm products(wheat, cotton, fruits, vegetables) and natural products
(fish, crude, petroleum, ore)
Manufactured materials and parts consists of components materials(iron, cement, wires)

and component parts ( small motors, tires, castings)
Capital parts are long lasting goods that facilitates developing or managing the finished
product. They include two groups: installation and equipments
Installation consists of major purchases such a s buildings( factories , offices) and fixed
equipment includes portable factory equipment and tools (hand tool, lift trucks) and
office equipment (computers. Fax machines , desks) they have a shorter life than
installations and simply aid in the production process
Suppliers and services:
Suppliers include operating supplies(lubricants, coal, paper, pencils a). and repair and
maintenance items(paints, nails, ))
Suppliers are the convenience products of the industrial field because they are usually
purchased with a min. of efforts or comparison.
Business. Services include maintenance and repair services )windows cleaning, computer
repair) and business. Advisory services(legal, mgmt consulting, advertising) such
services are usually supplied under contract.
These are short listing goods and services that facilitate developing or managing the
finishes product.
C. Tangibility
a)Tangible Products- Most products , whether they are consumer products or industrial
products and whether these are durable or non – durable , fall in this category as they
have a physical form , that can be touched and seen. Thus all items like groceries , cars ,
raw material , machinery etc fall in category of tangible products.
b)Intangible products- refer to service provided to the individual consumers or to the

organizational buyers. Services are essentially intangible activities which provide want or
need satisfaction. Medical treatment, postal , banking insurance services etc fall in this
category

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2.3 PRODUCT MIX
Customers decision to buy a product is potentially influenced by:
1. Range
2. Style
3. Presentation of the product
And all manufacturing and service organizations offer a variety of different products and
services. Marketers policy decisions may be approached from the following possible levels:
1. Product item
2. Product Line
3. Product Mix
Product item is a specific model, brand or size of product a company sells.
Product Line is a group of products that are closely related because they function in a similar
manner, are sold to the same customer groups, are marketed through the same types of outlets, or
fall within a given price ranges.
For example, Nike produce s several lines of athletic shoes and apparel. And Marriott offers
several lines of Hotels.
The major product line decision involves product line length – the number of items in the
product line.
Product line length is influenced by company objectives and resources. For example, one
objective might be to allow for up selling. Thus, BMW wants to move customers up from 3-
series models to 5- and 7- series models.
Another objective might be to allow cress-selling. Hewelett-Packard sells printers as well as

cartridges.

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Product Mix: Product mix consists of all the different product lines a company offers.
A company product mix has a certain width, length, depth and consistency.
For Example: P&G
________________________PRODUCT MIX WIDTH______________________________
Detergents ToothPaste Bar Soap Disposal Diapers
Ivory stone 1930 Gleem (1952) Ivory (1879) Pampers (1961)

Tide(1946) Crest (1955) Kirk’s (1885) Luvs (1976)
Cheer (1950) Lava (1893)
PRODUCT Dash(1954) Camay (1926)
LINE Oxydol(1954) Zest (1952)
LENGTH Bold(1965) Safeguard (1963)
Gain(1966) Coast (1974)
Era (1972) Oil of Olay(1993)
1. Width of Product Mix: refers to how many different product lines the company carries.
Table above shows product mix width of 4 lines. In fact, P&G produces many additional lines.
The product width could be narrow and wide. As an example Project Management Institute of
India only offers course on Project management whereas IIT, New Delhi offers courses on
engineering, management, Research and pure sciences. Firs choose of offer wide or narrow
product or services lines on the basis of organizational objectives and capabilities and market
expectations.

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2. Depth of Product Mix: average Number of products items within each products lines. In
other words, the depth is measured by assortment of sizes, colours, models, prices, and quality
offered within each product line.
For example, if crest comes in three sizes and two formulations (regular and mint)crest has depth
of six. The average depth of P&G product mix can be calculated by averaging the number of
products within brand group.
3. Length of product mix refers to the total number of items in the mix. In above table it is 20.
Average length of a line is 5.which is total length by the number of lines.
4. Consistency of the product mix is the relationship amongst product line in terms of their
sharing the end use, distribution outlets, consumer group(s) and price range. Generally a
consistent mix is easily manageable compared to inconsistent one.
In consistent mix environment the firms concentrate on marketing and service delivery expertise,
create a string image and generate solid interpersonal relationships. Excessive consistency in
product mix may lead to limited product or service product assortments.
P&G product lines are consistent insofar as they are consumer goods that go through the same
distribution channels. The lines are less consistent insofar as they perform different functions for
the buyers.
2.4 PRODUCT STRATEGY

There are 4 strategies for entering into existing/new markets with existing/new products.

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PRODUCT
Existing New
Marketing Product
Penetration Development
Existing
MARKET Market Diversification

Development
New
ANSOFF’S MATRIX
A) Market Penetration
It is a strategy of increasing sales of existing products in existing market.
 Encourage customers to buy more.

 Attract competitors’ customers.
 Attract non-users.
E.g. Procter & Gamble reduced the price of its detergent, Ariel, to increase its sales
among existing & new customers in the current market.
B) Market Development
It is a strategy to increase sales by introducing existing products into new market. This can be
done in following ways:
 Expand to new markets

 Have additional distribution channels
 Selling in new location
E.g. With globalization and opening up of Indian borders to new business, many
organizations have introduced their products in Indian market. Like Tropicana, Del
Monte, Heinz, etc.
C) Product Development
It refers to increase in sales by improving current/existing product in some way or developing

entirely new product for existing market.

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E.g. Gillette has modified its razor and named it as Gillette vector for its Indian
consumers.
 Adding new features
 Explaining advantages and benefits to the customers
D) Diversification
It is a form of corporate strategy for the organization. It seeks and helps to increase the
profitability through greater sales volume obtained from new product and new market.
2.5 PRODUCT ADOPTION AND DIFFUSION
Adoption is an individual’s decision to become a regular user of a product.
An innovation is any good, service, or idea that is perceived by someone as new. The idea may
have a long history, but it is an innovation to the person who sees it as new. Innovations take
time to spread through the social system. Rogers defines the innovation diffusion process as
“the spread of a new idea from its source of invention or creation to its ultimate users or
adopters.”
The consumer-adoption process focuses on the mental process through which an individual
passes from first hearing about an innovation to final adoption. Adopters of new products have
been observed to move through five stages:
1. Awareness -The consumer becomes aware of the innovation but lacks information about it.
2. Interest-The consumer is stimulated to seek information about the innovation.
3. Evaluation -The consumer considers whether to try the innovation.
4. Trial-The consumer tries the innovation to improve his or her estimate of its value.
5. Adoption -The consumer decides to make full and regular use of the innovation.
The new-product marketer should facilitate movement through these stages. A portable electric
dish washer manufacturer might discover that many consumers are stuck in the interest stage
they do not buy because of their uncertainty and the large investment cost. But these same
consumers would be willing to use an electric dishwasher on a trial basis for a small monthly fee.
The manufacturer should consider offering a trial-use plan with option to buy

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2.6 DIFFUSION OF INNOVATION
Diffusion of Innovation is a theory that seeks to explain how, why, and at what rate new ideas
and technology spread through cultures.
In 1962 Everett Rogers, a professor of rural sociology published Diffusion of Innovations. In the
book, Rogers synthesized research from over 508 diffusion studies and produced a theory for the
adoption of innovations among individuals and organizations. Rogers defines an adopter
category as a classification of individuals within a social system on the basis of innovativeness.
In the book Diffusion of Innovations, Rogers suggests a total of five categories of adopters in
order to standardize the usage of adopter categories in diffusion research. The adoption of an
innovation follows an S curve when plotted over a length of time. The categories of adopters are:
innovators, early adopters, early majority, late majority, and laggards
Innovators:
Innovators are the first individuals to adopt an innovation. The first 2.5% of adopters are called
"Innovators. Innovators are willing to take risks, youngest in age, have the highest social class,
have great financial liquidity, very social and have closest contact to scientific sources and

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interaction with other innovators. They are technology enthusiastic, venturesome and enjoy
tinkering with new product.
Early Adopters:
This is the second fastest category of individuals who adopt an innovation. They are opinion
leaders who carefully search for new technologies that might give them dramatic competitive
advantage .These individuals have the highest degree of opinion leadership among the other
adopter categories. Early adopters are typically younger in age, have a higher social status, have
more financial liquidity, advanced education, and are more socially forward than late adopters.
Early Majority:
Individuals in this category adopt an innovation after a varying degree of time. This time of
adoption is significantly longer than the innovators and early adopters. Early Majority tend to be
slower in the adoption process, have above average social status, contact with early adopters, and
seldom hold positions of opinion leadership in a system.
They are deliberate pragmatists who adopt the new technology when its benefit are proven and
lot of adoption had already taken place. They makeup the mainstream market.
Late Majority:
Individuals in this category will adopt an innovation after the average member of the society. These
individuals approach an innovation with a high degree of skepticism and after the majority of society
has adopted the innovation. They are very price sensitive and require completely preassembled,
bulletproof solutions Late Majority are typically skeptical about an innovation, have below average
social status, , in contact with others in late majority and early majority, very little opinion leadership.
Laggards:
Individuals in this category are the last to adopt an innovation. They are tradition bound and resist the
innovation until status quo is defensible. Unlike some of the previous categories, individuals in this

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category show little to no opinion leadership. These individuals typically have an aversion to change-
agents and tend to be advanced in age. Laggards typically tend to be focused on “traditions”, likely to
have lowest social status, lowest financial liquidity, be oldest of all other adopters, in contact with
only family and close friends, very little to no opinion leadership.
2.7 NEW PRODUCT DEVELOPMENT
A firm can obtain new products in two ways.
1. Acquisition – by buying a whole company a patent or a license to produce someone else

product.
2. New product development – means original products, product improvements, product

modifications and new brands that the firms develops through its own research and
development efforts.
New Product Development Process
To create successful new products, a company must understand its consumers , , markets and
competitors and develop products that deliver superior value to customers. It must carry out
strong new product planning and set up a systematic, customer driver new product
development process for findings and growing new products.

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Idea Idea Concept Business

Generation development
Screening analysis
& Testing
Product Test Commerciali Review of

developm Marketing zation Performance
ent
MAJOR STAGES IN NEW PRODUCT DEVELOPMENT
A. IDEA GENERATION
A company generates hundreds of ideas, even thousands in order to find a few good ones.
For example, IBM held an “Innovation Jam” – a kind of online suggestion box in which it
invited IBM and customer employees worldwide to submit ideas for new products and
services. The mammoth brainstorming session generated some 46000 ideas from 150000
people in more than 160 countries over three days. Since the Jam fest, however IBM has
whittled down to only 10 products, businesses, and services that it plans to develop.
Major source of new product ideas include:
1. Internal Idea Sources

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Using internal sources , the company can find new ideas through formal research and
development.
Idea may originate from:
1. Sales personnel
2. Marketing personnel
3. Research and development
4. Production department
5. Employees suggestion system
For example: Cisco has set up an internal wiki called Idea Zone or I Zone through which any
Cisco employee can propose an idea for anew product or comment on or modify Someone else
proposed idea. Since its start, I Zone has generated more than 400 business ideas, and another
10000 people have added to those ideas. Cisco selects ideas that draw the most activity for
further development.
So far 12 I Zone ideas have reached the project stage and four new Cisco business units have
been formed.
2. External Idea Sources:
Companies can also obtain new product ideas from any of a number of external sources. For
example, distributor and suppliers can contribute ideas. Distributors are close to the market
and can pass along information about consumer problems and new product possibilities.
Suppliers can tell company about new concepts, techniques, and materials that can be used to
develop new products.
Competitors are another important source. Companies watch competitors ads to get clues
about their new products.. they buy competing new products, take them apart to see how thy
work, analyze their sale and decide whether they should bring out a new product of their
own. Other sources include :

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Trade magazines, shows and seminars, government agencies. Advertising agencies, ,

marketing research firms, university and commercial laboratories, and inventors.
The most important source of new product ideas is customer themselves. The company can
analyze customer questions and complaints to find new products that better solves consumer
problems. For example, Indian car customers were looking for a spacious, fuel efficient, and
affordable personal car in India – The Indica around this customer need. Within week of its
launch in 1999, the company received 115000 bookings. In two years, the Indica became the
largest selling car in its segment.
B. IDEA SCREENING
The purpose of idea generation is to create a large number of ideas. the purpose of the
Succeeding stages is to reduce that number. The first idea reducing stage is idea screening, which
helps spot good ideas and drop poor ones as soon as possible. The main intention of this phase is
only to eliminate unsuitable ideas as quickly as possible.
Screening criteria are established a evaluative standards in new product development. They
provide a unity of purpose and a perspective for new product planners.
Screening criteria usually concern themselves with three factors – markets, products, and
finances. More frequently used market criteria are: market size, market growth, market
positioning, distribution features etc. Before selecting or rejecting an idea , the following
questions must be considered
C. CONCEPT DEVELOPMENT AND TESTING
An attractive idea must be developed into a product concept.

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A product concept is a detailed version of the idea stated in meaningful consumer terms.In
this stage the company find out
a)Whether the consumer understands the product idea or not?
b)Whether the consumer need s the new product or not?
c)Whether the consumer will accept the product or not?
This is concerned with measuring customers reactions to the idea or concept of the product.
In fact, it is a kind of research, in which the product idea is screened before investing any
money, time, labour making the prototype product.
The idea of a product with as many details as possible is made known to the customers either
verbally or through the use of suitable blueprints. The response of the customers is checked
and only if it is found encouraging, then the development of product prototype taken up.
For instance, when the rest of the world had largely gone for synthetic detergent bar as a
concept, because in India most of the people do not use washing machines or even buckets
and are accustomed to using a bar to rub on the fabric.
Concept testing can tell whether the product is likely to be a success or not. To achieve better
results, however, the product concept should include the finished product itself with all
details, viz., packaging, price range, the brand name, etc.on the basis of these details,
interviews are conducted to collect the opinion of the would be purchasers.
Limitation:
1. some risk of disclosing the company’s plans to competitors.

2. respondent may overstate their interest and encourage unsound development
3. findings may be misleading, if the test is not carried out properly.
D, BUSINESS ANALYSIS

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BA involves a review of the sales, costs and profit projections for a new product to find out
whether they satisfy the company objectives. If they do, the product can move to the product
development stage,
To estimate sales, the company might look at the sales history of similar products and
conduct market surveys. It can then forecast management can estimate the expected costs and
profits for the product, including marketing, R&D, operations, accounting and finance costs.
The company then uses the sales and costs figures to analyze the new products financial
attractiveness. Under business analysis , the company finds out
a)Whether the new product is commercially profitably or not?
b)What will be the cost of new product ?
c)Is there any demand for the new product?
d)Whether the demand is regular or seasonal?
e)Are there any competitors of the new product?
f)How the total sales of the new product be?
g)what will be the expenses on advertising , sales promotion etc>
h)How much profit the product will earn?
E. PRODUCT DEVELOPMENT
If the product concept passes the business test, it moves into product development. Here,
R&D or engineering develops the product concept into a physical product. The product
development step, however, now calls for a large jumps in investment.
The R&D department will develop and test one or more physical versions of the product
concept. R&D or engineering develop the product concept. R&D hopes to design a prototype

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that will satisfy and excite consumers and that can be produced quickly and at budgeted
costs. Developing a successful prototype can take days, weeks, months, or even years
depending on the product and prototype methods.
F. TEST MARKETING:
If the product passes concept and product tests, the next step is test marketing, the stage at which
the product and marketing program are introduced into realistic market settings. Test marketing
gives the marketer experience with marketing the product before going to the great expense of
full introduction. It lets the company test the product and entire marketing program- targeting,
and positioning strategy, advertising , distribution, pricing, branding and packaging and budget
levels.
When introducing a new product requires a big investment, when risks are high, or when
management is not sure of the product or marketing program, a company may do a lot of
marketing.
When use test marketing, consumer products companies usually choose one of three approaches:
1. Standard Test Market:

Using standard test markets, the company finds a small number of representative test
cities, conducts a full marketing campaign in these cities, and use store audits, consumer
and distributor surveys. The results are used to forecast national sales and profits,
discover potential product problems and fine tuning the marketing program
Drawbacks of standard test market:
1. They can be costly and may take a long time.

2. Competitors can monitor test market results by cutting their prices in test cities,
increasing their promotion, or even buying up the product being tested.
Despite these disadvantages, standard test markets are still the most widely used approach.

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2. Controlled Test Markets:
Several research firms keep controlled panels of stores that have agreed to carry new
products for a fee. Controlled test marketing system such as ACNielsen’s scantrack and
Information Resource Inc. (IRI) Behaviour Scan track individual consumer behavior for
new products from the television set to checkout counter.
In each behavior scan market, IRI maintains a panel of shoppers who report all of their
purchases by showing an identification card at checkout in participating stores. And by
using a handheld scanner at home to record purchases at non participating stores.
Controlled test markets, such as BehaviourScan, usually costs less than standard test
markets. Also, because retail distribution is forced in the first week of the test, controlled
test markets can be completed mush more quickly than standard tset markets.
3. Simulated Test Markets:

Companies can also test new products in a simulated shopping environment. The
company or research firms shows ads promotions for a variety of products, including the
new product being tested, to a sample of consumers. It gives a small amount of money and
invites them to a real or laboratory store where they may keep the money or use it to buy
items. The researchers note how many consumers buy the new product and competing
brands.
This simulation provides a measure of trial and the commercials effectiveness

against competing commercials. The researchers then ask consumers the reasons for their
purchase or non purchase. Some week later they interview the consumers by phone to
determine product attitude, usage, satisfaction, and repurchase intentions.
G COMMERCIALIZATION
Test marketing gives management the information needed to make a final decision
about whether to launch the new product. If the company goes ahead
commercialization – introducing the new product into the market – it will face high
costs. The company may need to build or rent a manufacturing facility and in the case

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of a major new consumer packaged good, it may spend hundreds of millions of

dollars for advertising, sales promotion and other marketing efforts in the first year.
The following activities are usually undertaken during this stage:
1. Completing final plans for production and marketing.

2. Initiating coordinated production and selling programmes and
3. Checking results at regular intervals.
The company launched a new product must first decide on the introduction timing.
Next, the company must decide where to launch the new product – in a single location, a
region, the national market or the international market.
H.Review of Market Performance
The company must review the marketing performance of the new product . It must
answer the following questions
a)Is the new product accepted by consumer?
b)Are the demands , sales and profit high?
c)Are the consumers satisfied with after sales services?
d)Are the middlemen happy with their commission
e)Is the marketing manager changing the marketing mix according to the changes in the
environment?
f)Are the competitors introducing a similar new product in the market
The company must continuously monitor the performance of new product. The must take
necessary changes in their marketing plans and strategies else the product will fail
2.8 PRODUCT INNOVATION
A product or a service which is profitable today cannot be tomorrow or at some future time. It is
either replaced by another one or it degenerates into profits less price competition. The
underlying reason is that the market is highly dynamic. Therefore, a management places

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emphasis on product innovation and in modern times the watch word for management has been
innovate or die.
It is necessary due to following factors:
1. Market Changes:
The market is dynamic and therefore existing products and product lines prove
inadequate for meeting buyer demand. Sophisticated buyers buy products tailored to their
individual needs rather than the total markets generalized needs. Market changes have been
rendered possible with the development and growth of new media of communication the ease of
reaching this media and the changes in fashion therefore, to avoid their products going out of
markets, the manufacturer emphasis on product innovation.
2. Changes in Technology:
It has not widened the existing markets existence, through the creation of entirely new products.
For example, not only the market for portable radio has extensively widened but that for record
players as TV has also become feasible. Large amount of money is. Therefore being spent in
technical research so that product innovation become must.
3. Profit less Price competition:
Normally, the competitive forces in the modern system do not permit the continuance for a long
time of a firm if it does not produce new products or make improvements in the existing
products. The experience shows that markets for mature or dying products are highly
competitive. Therefore, not only to escape profit less price competition, but also for satisfying
customer expectation, manufacturer engage in continuum product innovation.
4. Consumer Preference:
With the passage of time, the existing product may not be liked at all by the buyers, which means
that they become obsolete. This has been the result with the horse driven Tanga have been
replaced by cars and bikes. The greater the variety of products placed by a firm, the smaller is the
chance of going that product out of the market.

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5. Other factors:
a. A company may develop new products to utilize the basic materials it is already making
or to utilize waste or scrap from present production.
b. A co. may add new products to even out sales fluctuation resulting from seasonal or
cyclical factors,
c. It may seek new products to counteract the highly erratic buying behavior
of certain customers. Such as government buyers.
2.9 PRODUCT LIFE CYCLE
All products and services have certain life cycles. The life cycle refers to the period
from the product’s first launch into the market until its final withdrawal and it is split
up in phases. During this period significant changes are made in the way that the
product is behaving into the market

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Introduction Stage:
The introduction stage starts when the new product is first launched. Introduction takes time, and
sales growth is slow.
In this stage, as compared to other stages, profits are negative or low because of the low sales
and high distribution and promotion expenses. Much money is needed to attract distributors and
build their inventories. Promotion spending is relatively high to inform consumers of the new
product and get them to try it. because the market is not generally ready for product refinements
at this stage, the company and its few competitors produce basic versions of the product. These
firms focus their selling on those buyers who are the most ready to buy.
Characteristics
1)High cost due to initial marketing , advertising , distribution and high promotion expenses
2)Sales volumes are low , increasing slowly
3)Demand must be created through promotion and awareness campaigns
4)Customer must be prompted to try the product.
5)Little or no profit made owing to high cost and low sales volume
Growth Stage:
If the new product satisfies the market, it will enter a growth stage, in which sales will start
increasing quickly. Attracted by the opportunities for profit, new competitors will enter the
market. They will introduce new product features, and the market will expand. The increase in
competitors leads to an increase in the number of distribution outlets, and sales jumps just to
build reseller inventories. Prices remain where they are or fall only slightly. Companies keep
their promotion spending at the same or a slightly higher level. Educating the market remains a
goal, but now the company must also meet the competition.

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Profits increase during the growth stage as promotion costs are spread over a large volume and as
unit manufacturing costs fall. The firm uses several strategies to sustain rapid market growth as
long as possible.
It improves product quality and adds new product features and models. It enters new market
segments and build distribution channels.
In growth stage, the firm faces a trade –off between high market share and high current profit.
By spending a lot of money on product improvement, promotion, and distribution, the company
can capture a dominant position.
Characteristics
1)Cost reduced due to economies of scale
2)Sales volume increase significantly.
3)Profitability begins to rise: revenue begin to exceed costs, creating profit for the company
4)Public awareness increase : through increases promotion, visibility and word of mouth , public
awareness grows.
5)Competition begins to increase with a few new players in establishing market
6)Increased competition leads to price decrease, price wars may erupt, technology may get
cheaper or other factors can ultimately lead to falling prices.
Maturity Stage:
At some point, a product sales growth will slow down, and the product will enter into maturity
stage. This maturity stage normally lasts longer than the previous stages.
The slowdown in sales growth results in many producers with many products to sell. In turn, this
overcapacity leads to greater competition. Competitors begin making down prices, increasing
their advertising and sales promotion, and upping their product development budgets to find
better versions of the product. These steps lead to drop in profits.

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To meet changing consumer needs, marketer should modify the market, product and marketing
mix.
1. In modifying the market, the company tries to increase the consumption of the current
product. It may look for new users and new market segments.
For example, Moov was successfully positioned for homemakers in the age group of 30 – 40
years as a back ache reliever. After establishing itself in this market, the company turned its
attention to the male segment of the same age group for the same purpose. For a new market, a
company may reposition the product, offering a modified or altogether different promise.
2. The company might also try modifying the product – changing characteristics such as
quality, features, style, or packaging to attract new users and to inspire more usage. It can
improve the product styling and attractiveness. It might improve the products quality and
performance – its durability, reliability, speed and taste.
3. The company can try modifying the marketing mix – improving sales by changing one or
more marketing mix elements. The company can offer new or improved services to buyers. It
can cut prices to attract new users and competitors customers. It can launch a better advertising
campaign or use aggressive sales promotion – trade deals, cents-off, premium and contests.
Characteristics
1)Cost are lowered as a result of production volumes increasing and experience curve effects
2)Sales Volume peaks and market saturation is reached.
3)Increase in members of competitors entering the market
4)Price tend to drop due to proliferation of competing products
5)Brand differentiation and feature diversification is emphasized to maintain or increase market

share.
6)Industrial profit go down

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Decline Stage:
The sales of most product forms and brands eventually dip. The decline may be slow or rapid
depend upon the nature of the product. Sales may come to zero or they may drop to a low level
where they continue for many years. This is the decline stage.
Characteristics
1)A decline in sales volume as competition become severe and popularity of the product falls
2)A fall in prices and profitability .
3) A counter optimal cost structure
4)Profit increasingly becomes a challenge of production/ distribution efficiency rather than

increase sales
Sales decline for many reasons, including technological advances, shifts in consumer tastes and
increased competition. As sales and profits decline, some firms withdraw from the market.
Companies need to pay more attention to their aging products a firms task is to identify those
products in the decline stage regularly reviewing sales, market shares, costs, and profit trends.
The, management must decide whether to:
a. Maintain the product

b. Harvest the product
c. Drop the product
Management may decide to maintain its brand without change, in the hope that
competitors will leave the industry, or management may decide to reposition the
brand in hopes of moving its back into the growth stage of the product life cycle.

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Management may decide to harvest the product, which means reducing various costs(plant and
equipment, maintenance, R&D, advertising, sales force) and hoping that sales hold up. If
successful, harvesting will increase the company profits in the short run. Or management may
decide to drop the product from the line.
Hence, proper understanding of a product’s life cycle, can help a company to understand
and realize when it is time to introduce and withdraw a product from a market, its position in the
market compared to competitors, and the product’s success or failure.
Strategies For 4 P’s
Strategies Introduction Growth Maturity Decline

Product Offer a basic Offer product Diversify brands Phase out weak
product extensions, service and item models
, warranty

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Price Charge cost plus Price to penetrate Price to match or Cut price
market best competitors
Place Build selective Build intensive Build more Go selective
distribution distribution intensive :phase out
distribution unprofitable
outlets
Advertising Build product Build awareness Stress brand Reduce to level
awareness among and interest in the differences and needed to retain
early adopters mass market benefits hard core loyal
Sales Promotion Use heavy sales Reduce to take Increase to Reduce to minimal
promotion to advantage of encourage brand level
entice trial heavy consumer switching
demand
Price
Price is the exchanged value of product or service expressed in terms of money.
OR
Price is the only element in the marketing mix that produces revenue, the other element produces
cost.
2.10 OBJECTIVES OF PRICING

The task of fixing reasonable value of any product or services is called pricing. Main Objectives
of pricing are
1)Profit oriented Objectives- All the business organizations or companies are conducted with the
main objective of earning profit. Under such task, companies or organizations have two types of
objectives.
a)To achieve a target result- The certain rate of profit intended by an organization or company to
earn during certain period is called target result. Business firms or companies fix prices of their

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product with the objective to get certain result from sales or investments, for instance , 8 % profit
from sales, 7 % profit from investment etc.
b)To maximize profit- A pricing strategy should be adopted to earn maximum profit in long
term. Sales volume should be maximized with the minimization profit margin for earning
maximum profit.
2)Sales Oriented Objective
Sales Oriented objectives aims to increase sales quantity and market share. This objective can be
studied by dividing into two classes as follows
a)To increase sales volumes-Emphasis is on increasing certain percent of the sales quantity,
changing price per unit, changing the cost structure or adopting other pricing strategies
b)To increase market share- Every company wishes to promotes sale of its products. The
objective of pricing may be to increase market share .In order to expand market share, price of
products or services should be low in comparison of competitors
3)Status quo Oriented Objectives-are formed to maintain the present situation for long time. This
may include
a)Stability in price- Price leadership companies, , frequent demand changing companies and the
companies wishing to maintain reputation try not to let price fluctuate . All such companies make
their objective to maintain price at same level.
b)To meet Competition- Every business company needs to face competition . Companies have to
fix price of their products or services as fixed in the markets. So , price is fixed with a view to
face or meet competition in market.
c)Survival- It becomes very difficult to save the company from high competition in market. In
such situation , the firm should fix prices of their product in a way that production cost is equal
to revenue. This is called break even point. In this situation, there is neither profit or loss. In this
way , company existence is saved and it expects improvement in future
2.11 Methods of Price Determination

1)Cost Oriented Pricing
a)Cost plus pricing- According to this method, price of any product is determined adding certain
percent of profit

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b)Target Return Pricing-According to this method , expected return is added to the total cost and
is divided by sales unit
c)Break even Pricing- The situation when income and total cost become equal is called break
even point. In this analysis relation between cost , quantity and profit is studied.
2)Demand Oriented Pricing
a)Perceived Value Pricing- According to this method , business firm collects information about
consumer’s view, perception , experience and feeling etc. Then the price is determined by
calculating average on the basis of such information.
b)Customer value pricing- According to the customer value pricing method , business company
fixes very low price for high quality products. The company does so in order to occupy market
share ,This method is used by companies having several product lines or products.
3)Competition Oriented Pricing
a)Going Rate Pricing- If the price of products or services is determined on the basis of current
market price, it is called going rate.
b)Pricing below competition- The method of fixing prices lower than competitor’s price is called
price below competition. This method aims to attract price sensitive customers by sweeping
market competition aside.
c)Price above competition- According to this method, price of product or services are fixed
higher than the prices fixed by competitors. Generally such pricing method may be applied for
quality products or reputed brands
2.12 PRICING STRATEGIES

New Product Pricing Strategies:
These strategies are for products in the Introductory stage of the product life cycle
Pricing strategies usually changes as the product passes through its life cycle.
Introductory stage is especially challenging.
They can choose between two broad strategies:
1. Market Skimming pricing
2. Market-penetration pricing

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1. Market skimming pricing:
Many companies that invent new products set high initial prices to “skim” revenues
layer by layer from the market. Sony frequently uses this strategy, called market
skimming.
Advantages
1)It will give high profits while price in high , helps to payback research and
development cost.
2)High prices can give a product a good image and give customer the impression that
it is very high quality
Disadvantages
1)This strategy can backfire if there are close competitors as they also introduce same
product at lower price.
2)Price Skimming is not a viable option when there are strict legal and government
regulation regarding consumer rights
2. Market – Penetration Pricing
Companies set a low initial price in order to penetrate the market quickly and
deeply – to attract a large number of buyers quickly and win a large market share.
The high sales volume results in falling costs, allowing the companies to cut their
prices even further. For example, Dell used penetration pricing to enter the
personal computer market, selling high quality computer products through lower
– cost direct channels. Its sales soared when HP, Apple and other competitors
selling through retail stores could not match its prices.

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Advantages
1)It may cause quick diffusion and adoption of product in market.
2)It may discourage competitors from entering the market
Disadvantages
1)Aggressive pricing may adversely affect company image if company is trying to put
forth an image of quality and luxury
2)There will be low profit margins. If the company is not in a position to lower
production cost , an increase in sales may not lead to profits
Market Skimming Price Vs Market Penetration Price
Basis Skimming Price Penetration Price

Meaning Higher prices are charged Prices are fixed below
during the initial stage of the competitive level to
the introduction of a new obtain a large share of
product. the market
Objective Enter the market where Enter the market
no substitutes are successfully and generate
available and skim the high sales volume
cream from the market
Product differentiation Followed in case of high Followed in case where
product differentiation products are not
differential
Suitablilty Suitable where customers Suitable where
are not price sensitive customers are price
sensitive

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Product life cyle Followed when product Followed when product

has shorter life cycle has long life cycle
2.13 FACTORS AFFECTING PRICING DECISIONS
A. Internal Factors:
1. Cost:
While fixing the prices of a product, the firm should consider the cost involved in producing the
product. This cost includes both the variable and fixed costs. Thus, while fixing the prices, the
firm must be able to recover both the variable and fixed costs.
2. The predetermined objectives:
While fixing the prices of the product, the marketer should consider the objectives of the firm.
For instance, if the objective of a firm is to increase return on investment, then it may charge a
higher price, and if the objective is to capture a large market share, then it may charge a lower
price.
3. Image of the firm:
The price of the product may also be determined on the basis of the image of the firm in the
market. For instance, HUL and Procter & Gamble can demand a higher price for their brands, as
they enjoy goodwill in the market.
4. Product life cycle:
The stage at which the product is in its product life cycle also affects its price. For instance,
during the introductory stage the firm may charge lower price to attract the customers, and
during the growth stage, a firm may increase the price.
5. Credit period offered:
The pricing of the product is also affected by the credit period offered by the company. Longer
the credit period, higher may be the price, and shorter the credit period, lower may be the price
of the product.
6. Promotional activity:
The promotional activity undertaken by the firm also determines the price. If the firm incurs
heavy advertising and sales promotion costs, then the pricing of the product shall be kept high in
order to recover the cost.

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B. External Factors:
1. Competition:
While fixing the price of the product, the firm needs to study the degree of competition in the
market. If there is high competition, the prices may be kept low to effectively face the
competition, and if competition is low, the prices may be kept high.
2. Consumers:
The marketer should consider various consumer factors while fixing the prices. The consumer
factors that must be considered includes the price sensitivity of the buyer, purchasing power, and
so on.
3. Government control:
Government rules and regulation must be considered while fixing the prices. In certain products,
government may announce administered prices, and therefore the marketer has to consider such
regulation while fixing the prices.
4. Economic conditions:
The marketer may also have to consider the economic condition prevailing in the market while
fixing the prices. At the time of recession, the consumer may have less money to spend, so the
marketer may reduce the prices in order to influence the buying decision of the consumers.
5. Channel intermediaries:
The marketer must consider a number of channel intermediaries and their expectations. The
longer the chain of intermediaries, the higher would be the prices of the goods.
2.14 PRICING PROCESS
The pricing decisions must take into account all factors affecting both demand price and supply
price. The price determination process involves the following steps:
1. Market Segmentation : On the basis of market opportunity analysis and assessment of firms
strengths and weaknesses marketers will find out specific marketing targets in the form of
appropriate market segments. Marketers will have firm decision on : (a) the type of products to
be produced or sold, (b) the kind of service to be rendered, (c) the costs of operations to be
estimated, and (d) the types of customers or market segments sought.
2. Estimate of Demand : Marketers will estimate total demand for the products. It will be based on
sales forecast, channel opinions and degree of competition in the market.

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3. The Market Share : Marketers will choose a brand image and the desired market share on the
basis of competitive reaction. Market planners must know exactly what his rivals are charging.
Level of competitive pricing enables the firm to price above, below, or at par and such a decision
is easier in many cases. Higher initial price may be preferred if you expect a smaller market
share, whereas if you expect of much larger market share, you prefer lower price.
4. The Marketing Mix : The overall marketing strategy is based on an integrated approach to all
the elements of marketing mix. It covers : (1) product-market strategy, (2) promotion strategy,
(3) pricing strategy, and (4) distribution strategy. All elements of the marketing mix are essential
to the overall success of the firm. Price is the strategic element of marketing mix as it influences
the quality perception and enables product positioning.
5. Estimate of Costs : Straight cost-plus pricing is not desirable always as it is not sensitive to
demand. Marketing must take into account all relevant costs as well as price elasticity of
demand, if necessary, through market tests.
6. Pricing Policies : Price policies provide the general framework within which managerial decisions
are made on pricing. Pricing policies are guidelines to carry out pricing strategy. Pricing policy
may desire to meet competition or we may have pricing above or below the competition. We
may have fixed or flexible pricing policies. Pricing policies must change and adapt themselves
with the changing objectives and changing environment.
7. Pricing Strategies: Pricing policies are general guidelines for recurrent and routine issues in
marketing. Strategy is a plan of action (a movement or counter movement) to adjust with
changing conditions of the market place. New and unanticipated developments may occur, e.g.,
price cut by rivals, government regulations economic recession, fluctuations in purchasing
power of consumers, changes in consumer demand, and so on. Situations like these demand
special attention and relevant adjustments in our pricing policies and procedures.
8. The Price Structure: Developing the price structure on the basis of pricing policies strategies is
the final step in price determination process.
2.15 PRICING DECISIONS & TECHNIQUES
Pricing Policy- The policy of a company or business that guides the prices setting of its goods
and services that are offered for sale is called pricing policy. Different policy problems may
appear in any company. Pricing policy should be made to solve pricing problems. Main policies
are mentioned as
1)Price Discriminatory policy-occurs when a company sells a product or service at two or more
prices
a)Customer Segment Pricing- Different customers groups are charged different prices for the
same product or services. For examples museums often charges a lower admission fee to
students and senior citizen.
b)Product form pricing- Different version of the product are priced differently but not
proportionally to their cost.

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c)Image Pricing- Some companies price the same product at two different levels based on Image
difference.
d)Channel Pricing- Coca Cola carries a different price depending on whether it is purchased in
fine restaurant, a fast food restaurant or a vending machine.
e)Location Pricing- The same product is priced differently at different location even though the
cost of offering at each location is same. A theater varies its seats prices according to audience
preference for different location.
f)Time Pricing- Price are varied by season , day or hour. Restaurant charge less for early bird
customer .
g) One Price Policy- One Price policy is such a policy which fixes same price for all the
customers. This policy is suitable for departmental stores
2)Discount or allowance facilities- Some discount from the listed price can be given to the
customers. Cutting down price of product or services is called discount and allowance facility
a)Quantity discount- A price reduction to those who buy large quantity. For example Rs 30 is
charged for one unit , but if one dozen is bought by any customer, the same product is charged
Rs 29.
b)Cash Discount- A discount is cash given for getting quick payment for price for goods sold on
credit is called cash discount.
c)Trade Discount- Discounts offered by manufacturer to trade channel members if they perform
certain function such as selling , storing and record keeping
d)Seasonal discount0 A price reduction to those who buy product or service out of season,
Hotels ad airlines offer seasonal discounts in slow selling season.
3)Geographical Pricing Policy- Price of products an services can also be determined on the
basis of geographical pricing
Price of product cannot be same in all geographical areas . So the following policy can be
adopted
a)FOB Price- according to FOB pricing policy ., all the transport expenses should be incurred by
the purchaser.

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b)Zone Price- At first big market is segmented on the basis of zone or area for adopting zone
price policy . Then price is determined for different zones or area by fixing average transport
fare.
c)Base point price- Under this policy , producers determine price of product by fixing a base
point. Transport expenses for the transport of products from the base point to the purchasers’
place are incurred buy the purchasers themselves.
d)Uniform Price- This price is adopted to charge same price from the customer belonging to any
geographical region. For this , average transport is calculated and price is fixed same for all
geographical regions
4)Promotional Pricing- Companies can use several pricing techniques to stimulate early
purchase
a)Special Event pricing-Sellers will establish special prices in certain seasons to draw in more
customers.
b) Loss Leader- A loss leader is an item sold at or below cost in order to attract more
customers, who will also buy high-profit items. This is a good short-term promotion
technique if customers purchases several items at one time.
c)Low Interest financing- Instead of cutting its price, the company can offer low interest
financing. Automakers have even announced no interest financing to attract customers.
d)Longer payment terms- Sellers, especially banks and auto companies stretch loan over longer
period and thus lower monthly payments.
e)Warranties and discounts-Companies can promote sales by adding a free or low cost warranty
or service contact.
5) Psychological Pricing- This approach is used when the marketer wants the consumer to
respond on an emotional, rather than rational basis. For example 'price point perspective'
Was Rs 359 and Now Rs 299.
6)Product Mix Pricing- Price setting logic must be modified when the product is part of a
product mix.
a) Product Line Pricing: Where there is a range of product or services the pricing reflect
the benefits of parts of the range. For example car washes. Basic wash could be Rs200, wash
and wax Rs 400, and the whole package Rs 600.
b)Optional Product Pricing: Companies will attempt to increase the amount customer
spend once they start to buy. Optional 'extras' increase the overall price of the product or
service. For example airlines will charge for optional extras such as guaranteeing a
window seat or reserving a row of seats next to each other.

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c)Captive Product Pricing- Where products have complements, companies will charge a
premium price where the consumer is captured. For example a razor manufacturer will
charge a low price and recoup its margin (and more) from the sale of the only design of
blades which fit the razor.
d)Product Bundle Pricing- Here sellers combine several products in the same package.
This also serves to move old stock. Videos and CDs are often sold using the bundle
approach.

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MARKETING MANAGEMENT NOTES UNIT 2

Marketing Management (Guru Gobind Singh Indraprastha University)

StuDocu is not sponsored or endorsed by any college or university

Institute of Innovation in Technology and Management

Pricing Decisions: Designing Pricing Strategies and Programmes, Pricing Techniques

2.1 PRODUCT LEVELS

I Level - Core Benefit

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II Level - Basic Product

III Level - Expected Product

IV Level - Augmented Product

Today competition essentially takes place at the product

Some things should be noted about product augmentation strategy:

V Level - Potential Product

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2.2 TYPES OF PRODUCTS

Example: soap, salt and biscuits.

B. Consumer good classification

These products differ in the ways consumers buy them.

1. Staple goods: Consumer purchase on regular basis

2. Impulse goods: Consumer purchase without any planning or search effort

3. Emergency goods: Consumer purchases on urgent need.

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Eg Life insurance, donation for charity and blood donations to hospitals.

Three groups of IP and services include

1. Materials and parts

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3. Suppliers and services

Manufactured materials and parts consists of components materials(iron, cement, wires)

Suppliers and services:

b)Intangible products- refer to service provided to the individual consumers or to the

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2.3 PRODUCT MIX

Customers decision to buy a product is potentially influenced by:

Product item is a specific model, brand or size of product a company sells.

Another objective might be to allow cress-selling. Hewelett-Packard sells printers as well as

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For Example: P&G

________________________PRODUCT MIX WIDTH______________________________

Detergents ToothPaste Bar Soap Disposal Diapers

Ivory stone 1930 Gleem (1952) Ivory (1879) Pampers (1961)

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2.4 PRODUCT STRATEGY

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MARKET Market Diversification

It is a strategy of increasing sales of existing products in existing market.

 Encourage customers to buy more.

 Expand to new markets

It refers to increase in sales by improving current/existing product in some way or developing

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2.5 PRODUCT ADOPTION AND DIFFUSION

Adoption is an individual’s decision to become a regular user of a product.

2. Interest-The consumer is stimulated to seek information about the innovation.

3. Evaluation -The consumer considers whether to try the innovation.

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2.6 DIFFUSION OF INNOVATION

PRODUCT MIX WIDTH______