USB:MBA – Industry Collaborated Programs

Subject Name-Marketing Management

Subject Code: 21BBT619
Faculty Name: Harneet Kaur

Unit-2 Marketing Mix Strategy: Product

and Pricing Decisions
DISCOVER . LEARN . EMPOWER
 Syllabus
Unit-2 Marketing Mix Strategy: Product and Pricing Decisions

Product Concept; Types of Products; New Product Development Process; Product Levels; Major Product Decisions; Brand
Product Decision Management; Product Mix, Product Strategy over different stages of Product Life Cycle,
 

Pricing Decisions: Determinants of Price; Pricing Process, Pricing Methods, Policies and Strategies, Discounts and offerings, Pricing
Product Price Decision Strategy over different stages of Product Life Cycle, Responding to Competitors’ Price Changes.

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What is a Product?

A product is a bundle of attributes (features, functions, benefits, and uses) that a person receives in an exchange.

In essence, the term “product” refers to anything offered by a firm to provide customer satisfaction, tangible or intangible.

Product is the entity that satisfies a customer’s need and want.

A product may be an idea, a physical good , a service, or any combination of the three.
“Broadly, a product is anything that can be offered to a market to satisfy a want or need, including physical goods, services,
experiences, events, persons, places, properties, organizations, information, and ideas” (Kotler & Keller, 2015)
Products can be any of the following entities :
• Goods

• Services

• Events and Experiences

• Persons

• Places and Properties

• Organizations

• Information

• Idea
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 Q3 : What is Marketed ?

What is
Marketed

Goods Services Events Experiences Persons Places Organizations Information Ideas

Universities
Test drives Palaces of
Rajasthan Social media

Cricket World Cup Abki Baar Modi Sarkar

What schools gives to parents
 Categories of Product
Broadly speaking, products fall into one of two categories:
• Consumer products
• Business products  (industrial products and B2B products)

• Some products, like computers, for instance, may be both consumer

products and business products, depending on who purchases and
uses them.

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Product Categorization

TANGIBLE PRODUCT
INTANGIBLE PRODUCT SERVICES

An intangible process that

Items have a physical presence No physical presence
benefits the customer

Sensory identification of different Differ from intangible products

Experienced indirectly through
attributes (look and feel, by delivering value without
offered features and benefits
appearance) giving any ownership

•Smartphone model •Antivirus software •Car Wash Facility

•Favorite beverage •Car Insurance Policy •Wedding Caterers

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Kotler’s 5 Levels of the Product
• As all customers are different and seek different benefits from products,
businesses would ideally tailor their products to satisfy each customer's wants and
needs. However, for many businesses this is not achievable, so they need a way of
classifying products in a structure aligned to customer segments, as defined by
their needs and wants. Philip Kotler, an economist, devised a model that recognizes
customers have five levels of need, ranging from functional or core needs to
emotional needs. The model also recognizes that products are merely a means to
satisfy customers' varying needs or wants. He distinguished three drivers of how
customers attach value to a product:
• Need: a lack of a basic requirement.
• Want: a specific requirement of products to satisfy a need.
• Demand: a set of wants plus the desire and ability to pay for the product.

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Levels of the Product

• Core(basic)
• Generic(absolutely necessary)
• Expected (set of attributes on which buyers agree to purchase)
• Augmented (supporting services)
• Potential (future augmentations and transformations )

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Levels of the Product

• core,
• tangible,
• augmented, and
• promised.

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The core Product
The core product satisfies the most basic or fundamental need
of the customer.
 The marketer must have a strong understanding of the target customer
(and the different segments of target customers) in order to accurately
identify the core product.
For example, the need to process digital images.

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Generic Product
• A version of the product containing only those attributes or
characteristics absolutely necessary for it to function.
• For example, the need to process digital images could be satisfied by a
generic, low-end, personal computer using free image processing
software or a processing laboratory.

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Expected product:
• The set of attributes or characteristics that buyers normally expect
and agree to when they purchase a product.
For example, the computer is specified to deliver fast image processing
and has a high-resolution, accurate color screen.

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The Augmented Product

• Every product is backed up by a host of supporting services. The

augmented product includes the tangible product and all of the
services that support it.
• The inclusion of additional features, benefits, attributes or related
services that serve to differentiate the product from its competitors.
 E.g.
In Hotels, the augmented product also include dry cleaning services,
concierge services, and shuttle services, among others.
The computer comes pre-loaded with a high-end image processing
software for no extra cost or at a deeply discounted, incremental cost.
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Potential product:

• This includes all the augmentations and transformations a product

might undergo in the future. To ensure future customer loyalty, a
business must aim to surprise and delight customers in the future by
continuing to augment products. For example, the customer receives
ongoing image processing software upgrades with new and useful
features.

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Kotler's Five Product Level model-Benefits
• Kotler's Five Product Level model provides businesses with a proven method
for structuring their product portfolio to target various customer segments.
• This enables them to analyze product and customer profitability (sales and
costs) in a structured way. By organizing products according to this model, a
business' sales processes can be aligned to its customer needs and help
focus other operational processes around its customers – such as design
and engineering, procurement, production planning, costing and pricing,
logistics, and sales and marketing.
• Grouping products into product families that align with customer segments
helps modelling and planning sales, as well as production and new product
planning.

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New product development

New product development (NPD) covers the complete process of

bringing a new product to market, renewing an existing product or
introducing a product in a new market.
“By new product we mean original products, product improvements,
product modification and new brands that the firm develops through its
own research and development efforts”.

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Product – Types of New Products

Booz, Allen and Hamilton have identified six categories of new products:
(i) New-to-the-World Products:
•New-to-the-world products are innovative products that create an entirely new market, like water purifiers.
•These are inventions such as the first automobile or computer. They are very rare: most new products are in fact simply improvements
on existing products
(ii) New Product Lines or New Category entries
•New products that allow a company to enter an established market like LCD television.
•These are products introduced by firms into a product category where the firm had not been doing business up to this time. Hallmark
gift items
(iii) Additions to Existing Product Lines:
•New products that supplement a company’s established product lines like Fair and Lovely for men.
•These are line extensions in the firm’s current markets such as a new tablet computer introduced by Apple. P&G’s Tide Liquid
detergent
(iv) Improvements and Revisions of Existing Products:
•New products that provide improved performance or greater perceived value and replace existing products, examples are softwares.
•This refers to current products made better in some way. Most new products are, in fact, product improvements.
(v) Repositioning:
•Existing products that are targeted to new markets or market segments, this is beneficial in expansion of market.
•This refers to taking a current product and attempting to find a new use for it. The most famous example of this is Arm and Hammer
Baking Soda which was repositioned many times as a refrigerator deodorant or carpet cleaner. Aspirin repositioned as a safeguard
against heart attacks
(vi) Price Differentiation:
•Sometimes due to increasing competition in the market, the manufacturers have to offer the product with same features and functions
but at lower price. 17
8 STAGES OF PRODUCT DEVELOPMENT PROCESS

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 THE NEW PRODUCT DEVELOPMENT PROCESS
  
1.     Generate the Idea
•Internal idea sources
•External idea sources
2.      Screening the Idea
3.      Test the Concept
New product concepts, need to be tested with groups of target consumers.
4.       Marketing strategy development
1 .A description of the target market, the planned value proposition, and the sales, market share and profit goals for
the first few years
2. An outline of the product’s planned price, distribution and marketing budget for the first year
3. The planned long-term sales, profit goals and the marketing mix strategy.
5.       Business analysis
It involves a review of the sales, costs and profit projections for the new product to find out whether these factors
satisfy the company’s objectives. If they do, the product can be moved on to the product development stage.
6.       Product development
7.       Test marketing
It allows the company to test the product and its entire marketing programme, including targeting and positioning
strategy, advertising, distributions, packaging etc. before the full investment is made.
8.       Commercialization/Launch
After Test marketing results, management needs to make the final decision: launch or do not launch the new product.
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Test Market
Here product(not concept) is tested. The product testing is carried out in 3 distinct steps.
• Alpha Testing
In house testing
• Beta Testing
Insights about product and its uses are provided by set of customers
• Gamma Testing
Regulatory requirements wherein long term use of product is tested (pharma industry)

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What is Product Mix?

• Product mix, also known as product assortment or product portfolio,

refers to the complete set of products and/or services offered by a
firm.
• A product mix consists of product lines, which are associated items
that consumers tend to use together or think of as similar products or
services.

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Dimensions of a Product Mix
#1 Width
• Width, also known as breadth, refers to the number of product lines offered by a company. For
example, Kellogg’s product lines consist of: (1) Ready-to-eat cereal, (2) Pastries and breakfast snacks, (3)
Crackers and cookies, and (4) Frozen/Organic/Natural goods.
#2 Product mix Length/Line Length
The product mix length refers to the total number of items a company carries within the product lines.
• Product Line length refers to the number of products/brands that come under a single product
category/line.
#3 Depth
• Depth refers to the number of variations within a product line. For example, continuing with the car
company example above, a 3-series product line may offer several variations such as coupe, sedan, truck,
and convertible. In such a case, the depth of the 3-series product line would be four.
#4 Consistency
• Consistency refers to how closely related product lines are to each other. It is in reference to their use,
production, and distribution channels. The consistency of a product mix is advantageous for firms
attempting to position themselves as a niche producer or distributor. In addition, consistency aids with
ensuring a firm’s brand image is synonymous with the product or service itself.

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Dimensions in Product Mix

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Major Product Decisions
• Individual product decision
• Product line decision
• Product mix decision
• Product positioning decision

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1.) Individual product decision

i) Product attribute: it refers to the quality, feature, style and design of the product. With the help of the
quality manufacturer can give the customers assured quality product. Feature helps in differentiating the
product from other products. Style and design helps to bring the attention of the customers towards the
product.
ii) Product branding: it is very essential to give a product a brand name. Only with the help of brand
name the customer can differentiate the product from the other products. Branding facilitates the
marketers in promoting the product and making consumer brand conscious.
iii) Product packaging: packaging means the wrapper which contains the product. Like a pack of Cadbury
chocolate has a primary golden color wrapper and then a secondary wrapper to cover it. Packaging act as
a silent salesman. It is with the help of the packaging the customer come to know about the product
quality, quantity, weight, price etc.
iv) Product labeling: labeling gives the consumer information regarding the manufacturer’s name, place,
date of manufacturing, expiry date, calories, carbohydrates, nutritional value etc.
v) Product support services:- it means the services which are provided to the customer after selling the
product to the customer like after sale services, installation etc.

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II) Product line decision:–

a) Product line stretching

Line stretching is an expanding strategy by a company where the new
products are launched in the same product line but beyond the current
product range with some additional or different features. Line
stretching can be done down market, up market or both ways.
b) Product line filling
Line filling means adding more items within the present range of the
line

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III) Product mix decision:-

• Add new product lines: widen the product mix. New lines benefit
from and build on the company’s reputation in its other lines.
• Lengthen the existing product lines. More items in the product lines
may result in a more full-line company.
• Add more versions of each product: Deepen the product mix.
• Make product lines more consistent (or less). This depends on
whether the company wants to have a strong reputation in a single
field or in several fields of business.

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 IV) Product positioning decision

• It is the way by which the marketer communicate the information of

the product to the prospective buyer. It can be done on the bases of
symbolic , price or size or usage of the product.
• Positioning means developing the image that a product projects in
relation to competitive products and to firm’s other products.” For
example, Ariel is positioned as the gentle detergent for fine washables
and Tide is positioned as powerful, all-purpose family detergent.
Similarly, Tata Nano is positioned on economy, Mercedes on luxury
and BMW on performance.

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Product life cycle strategies

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Product Life cycle
A product life cycle is the amount of time a product goes from being
introduced into the market until it's taken off the shelves.

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Stages of PLC
• Introduction: This phase generally includes a substantial investment in advertising and a marketing
campaign focused on making consumers aware of the product and its benefits. Company tries to build awareness
about the product or service in a market where there is less or no competition.
• Growth: If the product is successful, it then moves to the growth stage. This is characterized by growing demand,
an increase in production, and expansion in its availability. The growth stage is the period during which the
product increasingly gains acceptance among consumers, the industry, and the wider general public.
• Maturity: This is the most profitable stage, while the costs of producing and marketing decline.
• Decline: A product takes on increased competition as other companies emulate its success—sometimes with
enhancements or lower prices. The product may lose market share and begin its decline.

• Extended life cycle: An extension strategy is usually introduced between the maturity and saturation stages of
the product life cycle, before a real decline takes place. The aim is to continue to maintain a steady rate of
revenue from a product.

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Product introduction strategies

During the introduction stage, you should aim to: offer a basic product
Marketing strategies used in the introduction stages include:
 rapid skimming - launching the product at a high price and high
promotional level
 slow skimming - launching the product at a high price and low
promotional level
 rapid penetration - launching the product at a low price with significant
promotion
 slow penetration - launching the product at a low price and minimal
promotion
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Product growth strategies

Marketing strategies used in the growth stage mainly aim to increase

profits. Some of the common strategies to try are:
• improving product quality
• adding new product features or support services to grow your market
share
• keeping pricing as high as is reasonable to keep demand and profits high
• increasing distribution channels to cope with growing demand
• shifting marketing messages from product awareness to product
preference

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Product maturity strategies

When your sales peak, your product will enter the maturity stage. This often
means that your market will be saturated and you may find that you need to
change your marketing tactics to prolong the life cycle of your product.
Common strategies that can help during this stage fall under one of two
categories:
• market modification - this includes entering new market segments, redefining
target markets, winning over competitor's customers, converting non-users
• product modification and diversifications - for example, adjusting or
improving your product's features, quality, pricing and differentiating it from
other products in the marking, entering into markets or products that are
related to current business.

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Product decline strategies
During the end stages of your product, you will see declining sales and profits. This can be caused
by changes in consumer preferences, technological advances and alternatives on the market. At
this stage, you will have to decide what strategies to take. If you want to save money, you can:
Phase-out weak items
• reduce your promotional expenditure on the products
• reduce the number of distribution outlets that sell them
• implement price cuts to get the customers to buy the product
• find another use for the product
• maintain the product and wait for competitors to withdraw from the market first
• harvest the product or service before discontinuing it.
Another option is for your business to discontinue the product from your offering. You may choose
to:
• sell the brand to another business
• significantly reduce the price to get rid of all the inventory

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“A product is something made in the factory; a brand is something
the customer buys. ‘Products are created in the factory, but brands are
created in the mind.’ A product can be copied or imitated by a
competitor; a brand is unique. A product can be outdated; a successful
brand is timeless.

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What is a brand?
Brand is the associated feeling and brand emotions that people have when they consider your brand.
There are various popular definitions of a brand:
“A type of product manufactured by a particular company under a particular name.” -
Oxford English dictionary.
A brand is a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers”
(American Marketing Association).
A brand is a name, term, sign, symbol or design or a combination of these that identifies the maker or seller of a product or service-Kotler
The legal term for brand is trademark. A brand may identify one item, a family of items, or all items of that seller.

Brand is nothing but an assortment of memories in customers mind. Brand represents values, ideas and even personality

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Characteristics
Brand has the following characteristics:
• Tangible characteristics: physical product, packaging, logo etc.
• Intangible characteristics: Customer’s experience with the brand,
Brand loyality, brand image(reputation).

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Objectives of a Brand
• To establish an identity for the product or a group of products.
• To protect the product or service legally for its unique features.
• To acquire place for the product in consumers’ minds for high and
consistent quality.
• To persuade the consumer to buy the product by promising to serve
their needs in a unique way.
• To create and send the message of strong reliable business among
consumers

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BRAND HELPS IN IDENTIFICATION AND DIFFERENTIATION OF PRODUCTS OF SIMILAR NATURE

To a consumer, brand means and signifies:

 Lower risk
 Less search cost
 Quality symbol
 Good Deal or pact with the product manufacturer
 Symbolic device

To a seller, brand means and signifies:

 Basis of competitive advantage

 Way of legal protection of products’ unique
traits/features
 Sign of quality to satisfied customer
 Means of financial returns
 Way of identification

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Benefits of A Strong Brand

• Customer recognition,
• Competitive edge in the market,
• Easy introduction of new products,
• Customer loyalty and shared values,
• Enhanced credibility and ease of purchase.

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Some Common Terms:
BRAND,BRANDING,BRAND
IDENTITY,BRAND MANAGEMENT
• Brand is how the world perceives your company,
• Branding is the design choices and other steps you consciously take to
shape that perception, and
• Brand identity is the collection of design elements you use in your
branding.
• Brand Management is an art of creating a brand and maintaining it.

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Brand Management

• Brand management is a function of marketing that uses techniques to

increase the perceived value of a product line or brand over time.
• Effective brand management enables the price of products to go up and
builds loyal customers through positive brand associations and images or
a strong awareness of the brand.
• A competent Brand Management includes building brand identity,
launching the brand, and maintaining the brand position in the market.
• A brand manager ensures the innovation of a product or brand, creating
brand awareness via the use of price, packaging, logo, associated
colors, and lettering format.

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Elements of a Brand
Essential elements of a brand as given below:
• Brand Name: This is what the people get to see everywhere. It must be as simple and
memorable as possible, meaningful, easy to pronounce, and unique.
• Logo: This can be anything from a piece of text to the abstract designs. It may be entirely
unrelated to the corporate activities. It must be relevant to the product or service, iconic, and
attractive.
• Jingle: It must be pleasant to hear and hum, relevant to the product, easy to remember, and
easy to understand over a large age group to connect consumer with the brand.
• Slogan: It summarizes overall value proposition. It should be short, easy to remember, and
catchy. For example, KFC’s slogan is “Finger Lickin’ Good” and Britannia’s is “Eat Healthy, Think
Better”.
• Packaging: It needs to be catchy and advertising, drawing people to see the product inside.
Also, it needs to be compact, yet attractive.
• Characters/Mascots: It is a special symbol, either still, animated, or real life entity such as an
animal or a human character. For example, Vodafone’s Zoozoo characters are played in its
various advertisements by humans wearing special white body suits.

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Selecting a Brand Name/Elements
Criteria for choosing a name:
1. Easy for customers to say, spell and recall
2. Indicate products major benefits
3. Should be distinctive
4. Compatible with all products in product line
5. Used and recognized in all types of media ,culture
6. It should not portray bad/wrong meanings in other categories.

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Product Price Decision

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Introduction to Pricing

Price is the amount of money charged for a good or service, or the sum
of the values that customers exchange for the benefits of having or using
the good or service.
Pricing to a commodity means attaching the value to the product. In
order to purchase or sell it both the consumer taking the product and the
seller giving off the product benefits from the ‘value’ in return of some
bearing. Like the customer gives the money to the seller to take up the
‘value’ of the product and the seller gives off the product to earn the
‘value’ of money selling the product.
Price is the amount for which the product is exchanged to the potential
customers.
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Determinants of Price in Marketing

The main determinants that affect the price are:

1. Product Cost
2. The Utility and Demand
3. Extent of Competition in the market
4. Government and Legal Regulations
5. Pricing Objectives
6. Marketing Strategies
7. Others

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Factors Affecting Price Determination
1] Cost of the Product
The product cost includes the cost of production, the distribution costs and the selling and promotion costs. This cost will act as a
benchmark for setting the price.
In the long run, the company will obviously try to cover the entire cost of the product. And in addition, it will set for itself a profit
margin over and above such cost. But perhaps in the short run, the company may set a price lower than the cost of the product. This
is a marketing strategy to boost sales and capture a share in the market. But in the long run, no company can survive unless the
prices of the products/services do not even cover their costs.
Three types of costs of a company
• Fixed Cost: These costs are fixed. They have no relation to the level of activity or production of the company. Even if there is no
production of goods these costs will occur. For example, the rent of the factory is a fixed cost.
• Variable Cost: These are the costs that vary in direct proportion to the production levels of an entity. Higher the production, higher
the cost and vice versa. The raw material is a classic example of a variable cost
• Semi-Variable Costs: These costs also vary with the production levels. But they are not directly proportional. Say for example the
salary of a manager is 10,000/- a month fixed and then 10% of his sales. This is a semi-variable cost.
2] The Utility and Demand for the Product
Price affects demand and demand affects price level
The cost of the product will only give you a benchmark to determine the price. The upper limit of the price range will depend on the
utility the product has and hence its demand in the market. So the cost of the product is the seller’s concern. The buyer’s concern is
the utility of the product. The demand for the product will depend on its utility and its price. Price affects demand and demand
affects price level. The law of demands states that lower the price higher the demand.
Another factor to consider when determining the price is the elasticity of demand. This means the corresponding change in demand
to the change in the price of a product. If the demand is inelastic then the company can charge a higher price for their products.

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Factors Affecting Price Determination
3] Price of Competitors
One factor that affects price determination is the price the competition charges for
their product. Not only their price but their products, its features and other factors
like distribution channel, promotions etc. should also be studied.
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.
4] Government Regulation
The government has a duty to protect its citizens from unfair practices and pricing. So it may
impose certain laws and regulations with regards to the pricing of a product. It can even
regulate the prices of goods that it considers essential goods.
E.g. in the pharmaceutical industries. Manufacturers charge exuberant prices for life-saving
drugs and the buyers have no choice but to pay. In such cases, the government may step in and
regulate the prices of these essential medicines.

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Factors Affecting Price Determination
5. Company’s objectives affect price of the product. 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.
6. Marketing Methods Used: Other elements of marketing
such as distribution system, quality of salesmen employed,
quality and amount of advertising, sales promotion efforts,
the type of packaging, product differentiation, credit facility
and customer services provided.

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Other Factors
Product life cycle
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.
Consumers
The consumer factors that must be considered includes the price sensitivity of the buyer, purchasing power, and so on.
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.
Economic conditions:
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.
Elements of Marketing Mix
High quality product should be sold at a high price.
When a company spends heavily on advertising, sales promotion, personal selling and publicity, the selling costs will go
up, and consequently, price of the product will be high.
In the same way, high distribution costs are also reflected in forms of high selling price.
Supplies - Raw material

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Steps for Pricing Process:
1. Selection of pricing objective;
2. Determination of demand;
3. Estimating costs;
4. Analysis of competitors’ costs, prices, and offers;
5. Selection of a pricing method; and,
6. Determination of a specific price/Selecting Final Price

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(i) Selection of pricing objective:
1. Survival- fix a price that is reasonable for the consumers and also for
the producer to survive in the market. Once the survival phase is over
the company can strive for extra profits.
2. Maximum current profit (estimate demand and cost- the pricing is fixed
according to the product’s demand and the substitute for that product)
3. Maximum Market share/Maximum sales(high sales volume will lead to
lower unit costs
4. Maximum Market skimming/ Product quality leadership(luxuries-
sufficient buyers with high demand, less competition, superior product)
5. A market for an innovative idea
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(ii) Estimate Demand:
There is inverse relation between demand and price.

• Price sensitivity can be defined as the degree to which consumers’ behaviors

are affected by the price of the product or service. Another way of explaining
price sensitivity is, “the consumer demand for a product changed by the cost
of the product. It basically helps the manufacturers study the consumer
behavior and assists them in making good decisions about the products.
• Price elasticity of demand
This means the extent to which sale of a particular product or service is
affected. Price sensitivity, in economics, is generally quantified through the
price elasticity of demand.
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Factors leading to less price sensitivity
• The product is very distinctive.
• Less awareness about substitutes/no substitute.
• Buyers cant easily compare quality of substitutes.
• The expenditure is small part of buyer’s total income
• The product is used in conjunction with assets previously purchased
• Price is only a small part of total cost of operating, obtaining the
product over its lifetime.
• Buyers are slow in changing their buying habits

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Estimating Demand
• Surveys: how any units will customers buy at different proposed
prices.
• Price experiments
• Statistical analysis (past prices , quantities sold )
• Data can be
• Longitudinal (over a period of time)
• Cross sectional (different locations)

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(iii) Estimating Costs

• Fixed cost
• Variable
• Semi-variable cost

In long run:
• Experience curve (accumulated production experience)
• Target costing (efforts by designers/engineers etc. to reduce cost)

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(iv) Analyzing competitor

• No of competitors
• Cost and price of competitors
• Anticipate Competitor’s reaction on price change(competitor’s
objective)
• Quality of product/features offered by nearest competitor

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(v) Selecting a Pricing Method
• The Pricing Methods are the ways in which the price of goods and
services can be calculated by considering all the factors such as the
product/service, competition, target audience, product’s life cycle, firm’s
vision of expansion, etc. influencing the pricing strategy as a whole.
• Mark up pricing
• Target Return
• Perceived value
• Going Rate Pricing
• Auction type Pricing

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1.Cost Oriented Pricing Method
• Cost Oriented Pricing Method– It is the base for evaluating the price of the
finished goods, and most of the company apply this method to calculate the
cost of the product. This method is divided further into the following ways.
• Cost-Plus Pricing- In this pricing, the manufacturer calculates the cost of production
sustained and includes a fixed percentage (also known as mark up) to obtain the selling
price. The mark up of profit is evaluated on the total cost (fixed and variable cost).
• Markup Pricing- Here, the fixed number or a percentage of the total cost of a product
is added to the product’s end price to get the selling price of a product.
• Target-Returning Pricing- The company or a firm fix the cost of the product to achieve
the Rate of Return on Investment.
First the target of Selling Price is set and then from there rest of calculations are done.

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 1.COST- BASED PRICING METHODS :
• Cost-plus pricing /Mark up Pricing
Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the
product and adds on a percentage (profit) to that price to give the selling price.
Cost Plus Pricing is a very simple pricing strategy where you decide how much extra you will charge
for an item over the cost.
Mark up Pricing is a form of cost-plus pricing, but here the profit margin is presented as a
percentage of expected return on sales.
The formula for mark-up pricing is:

This method although simple has two flaws; it takes no account of demand and there is no way of
determining if potential customers will purchase the product at the calculated price.
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Marginal cost pricing /Target Return pricing

As the name suggests, first the target of Selling Price is set and then from there rest of calculations are
done. The company or a firm fix the cost of the product to achieve the Rate of Return on Investment
Here, prices are marked according to a defined rate of return. This rate of return could be return on
investment, return on sales etc.
E.g. if you want to sell mobile phones in range of Rs 10,000 and want to keep profit of Rs 1000 then your
target cost should be Rs 9000.This means you have to make mobile phones within the range of Rs.9000/-
Selling price is fixed in such a way that it covers fully the variable or marginal cost and contributes
towards recovery of fixed costs fully or partly, depending upon the market situations.
The pricing objective in target return method is to attain a certain level of ROI (Return on Investment).
The formula for determining the target return price is:

Target return Price= Total cost +Desired Return/Total sales in units

This is also called Break-even pricing or target profit pricing.

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2.COMPETITION – ORIENTED PRICING
• Sealed bid pricing: Competitive pricing also dominates in those situations where
firms compete on the basis of bids, such as original equipment manufacture and
defense contract work. The bid is the firms offer price, and it is a prime example
of pricing based on expectations of how competitors will price rather than on a
rigid relation based on the concern’s own costs or demand. 
• Auction type pricing: With more usage of internet, this contemporary pricing
method is blooming day by day. Many online platforms like OLX, Quickr, eBay,
etc. use online sites to buy and sell the product to the customer
• Going Rate Pricing: Here the price charged by the firm is in tune with the price
charged in the industry as a whole. The firms can make profits by being cost
effective.Usually, the cost of the product will be more or less the same as the
competitors.
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3.DEMAND ORIENTED PRICING
• Perceived value pricing : In this method, the producer establish the cost taking into
consideration the customer’s approach towards the goods and services, including
other elements such as product quality, advertisement, promotion, distribution,
etc. that impacts the customer’s point of view.Perceived value pricing considers the
buyer’s perception of the value of the product as the basis of pricing. Here the
pricing rule is that the firm must develop procedures for measuring the relative
value of the product as perceived by consumers.
• Differential pricing: Differential pricing is nothing but price
discrimination. It involves selling a product or service for different
prices in different market segments. Price differentiation depends on
geographical location of the consumers, type of consumer, purchasing
quantity, season, time of the service etc.,
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4. STRATEGY BASED PRICING
• Strategy is a plan of action to adjust with changing condition of the
market place. New and unanticipated developments such as price cut
by rivals, government regulations, economic recession, changes in
consumer demand etc. may take place, and then changes all for
special attention and relevant adjustments in the pricing policies and
producers.

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New product pricing strategies

• Market-skimming pricing
• Market-penetration pricing

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Product mix pricing strategies
• Product line pricing: In product line pricing, management must determine the
price steps to set between the various products in a line. The price steps should
take into account cost differences between products in the line. More important,
they should account for differences in customer perceptions of the value of
different features.
• Optional-product pricing: pricing optional or accessory products along with the
main product. Laptop-software.
• Captive-product pricing: products that must be used along with a main product.
• By-product pricing: Many times, the production process results in the creation of
Leftover products. Selling them helps meet some expenses of the business or bring
down the costing of the main product. 
• Ethylene – a by-product of petroleum refinery for polyethylene-based products i.e. Plastic
products
• Product bundle pricing: sellers often combine several products and offer the
bundle at a reduced price.

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Price adjustment strategies
• Discount and allowance pricing: adjusting basic price to reward customers for certain responses, such as paying bills
early, volume purchases and off-season buying.
• Psychological pricing: many consumers use price to judge quality. In using psychological pricing, sellers consider the
psychology of prices, not simply the economics. many consumers use price to judge quality.
E.g: lawyers who charge high are perceived to be successful or experienced
• Segmented pricing:
Price segmentation involves changing different prices for different customer segments for a product or service
• Cinemas, museums charging low for students and senior students
• Universities charging less tuition fee for local students

• Promotional pricing: companies will temporarily price their products below list price – and sometimes even below cost
– to create buying excitement and urgency.
• A seller may simply offer discounts from normal prices to increase sales and reduce inventories
• Dynamic and online pricing: adjusting prices continually to meet the characteristics and needs of individual customers
and situations.(airlines and hotels)
• International pricing: The price that a company should charge in a specific country depends on many factors, including
economic conditions, competitive situations, laws and regulations, and the nature of the wholesaling and retailing
system. Consumer perceptions and preferences also may vary from country to country, calling for different prices.

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Discounts and offerings
• Businesses use discount pricing to sell low-priced products in high
volumes. With this strategy, it is important to decrease costs and stay
competitive.
• Large retailers are able to demand price discounts from suppliers and
make a discount pricing strategy effective as they buy in bulk. It is
usually impossible to compete with these retailers based solely on a
discount pricing strategy.
• Offering discounts on purchases is a way to quickly draw people into
your store. Anytime you tell a customer that he can save money,
you’re likely to get his attention.

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Types of Discounts
• Quantity discounts
It is increasingly common to offer quantity discounts to customers who purchase in bulk and it
generally rewards customer loyalty. These discounts can be cumulative, such as discounts given
to customers who place multiple small orders or loyalty cards that give a free item after a
certain number are purchased.
• Seasonal discounts
These are appropriate to reward customers who purchase during off-peak times and often serve
to increase sales at the beginning of peak seasons.
• Promotional discounts
Promotional discounts are short-term and used to drive sales.
• Loss leaders
These are discounted items designed to bring customers into the store in the hope they’ll also
purchase more profitable products as well. Loss leaders should be recognized brands that are
used frequently. Loss leader items should also change regularly to keep customers coming back.

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Advantages/Disadvantages of Discount
Pricing
Advantages of Discount Pricing
• Discounts to reward customers who purchase in bulk, repeat customers and employees build customer loyalty.
• Loss leaders are effective for retailers who need to increase traffic in the store.
• Promotional discounts, used sparingly, offer temporary advantages including maximizing sales, revenue and
profit. During a short-term discount period, more units are sold, allowing the company to decrease inventory
stock and temporarily raise revenues.

Disadvantages of Discount Pricing

• Consider product positioning before choosing a discount pricing strategy. Consumers can often associate low
price with low quality, even more true when the brand name is not familiar. Implementing a discount pricing
strategy increases the chance that your product will be perceived as lower in quality.
• While you may gain customers, that make decisions on price alone, other customers may choose competitor
products because of perceived quality.
• Low prices may drive sales for a limited time, but do not build customer loyalty. When a lower priced
alternative comes along, you may lose your market share.
• Competitors can simply match your prices, or beat them. When prices have been driven down to absolute low
prices, it is difficult to raise prices again, especially if your product is perceived as being lower in quality.

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(vi) Selecting and implementing Final
Price
Developing the price structure on the basis of pricing policies and
strategies is the final step in price determination prices. The price
structure will now define the selling prices for all products and
permissible discounts and allowances to be given to distributor’s co-
dealers as well as various types of buyers.
Apart from pricing methods companies must consider other factors:
• Company’s pricing policy
• Impact of marketing activities
• Impact of prices on other parties

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PRODUCT LIFE CYCLE BASED PRICING

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Pricing in the Introduction Stage

• If the product is unique and consumers are introduced to something completely new, then the
prices can be fixed high. With the high-prices, the massive development and promotional costs
can be earned back. 
• If the product that you have launched onto the market already faces high competition, then you
must set the price lower than average to entice consumers to try out the new product.
• If you set the prices too high, then price-sensitive customers may refrain from even giving your
product a try, and the others may consider your brand as being overly prized.
• On the other hand, if you set the prices very low, you might be signaling poorer quality.
• So, understand what you are offering -whether it is unique or not. It’s also vital that
you understand the situation of the market.
• Generally high, assuming a skim pricing strategy for a high profit margin as the early adopters buy
the product and the firm seeks to recoup development costs quickly. In some cases a penetration
pricing strategy is used and introductory prices are set low to gain market share rapidly.

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Pricing in Growth Stage
• During the growth stage, the goal is to gain consumer preference and
increase sales.
• Here, you need to focus on retaining customers. This can be done by
decreasing the prices. It is during the growth stage when businesses
can earn revenue to recover from the initial investments and
marketing expenditure as long as they are able to still price high
enough to cover their costs.
• Understand what the competitors are doing in the market and set
competitive prices. 
• You may have to lower the costs to match-up to the competitive
market.

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Pricing in Maturity Stage

• Competition at this stage gets fierce!

• The successful way out through this is to invest in re-creating the product and
revamping it entirely to create curiosity in customers.
• Some maturity life cycle stage pricing examples would be- introducing special
discount period offers, providing privileges to the loyal members, introducing
exclusive membership offers, etc.
• These tactics work better than reducing the prices as these create curiosity in
people. 
• The firm places effort into encouraging competitors’ customers to switch, increasing
usage per customer, and converting non-users into customers. Sales promotions may
be offered to encourage retailers to give the product more shelf space over
competing products. 
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Pricing in Decline Stage
• Prices may be lowered to liquidate inventory of discontinued
products. Prices may be maintained for continued products serving a
niche market.

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 PRODUCT LIFE CYCLE BASED
PRICING: Kotler

Growth Maturity Decline

Introduction

High cost per The average Low cost per Low cost
Costs cost per per
customer customer customer customer

Price to Price to match

Price Use cost-plus penetrate the or beat Cut-price
market competitors

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Responding to Competitors Price Changes

The firm needs to consider several issues:

• Why did the competitor change the price?
• Is the price change temporary or permanent?
• What will happen to the company’s market share and profits if it does
not respond?

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Decisions on competitors 'price cut
If the company decides that effective action can and should be taken, it
might make any of the four responses.
1. Reduce price
2. Maintain price
3. Improve quality and increase price
4. Introduce a low price brand

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Decisions on competitors 'price cut
1. It could reduce its price to match the competitor’s price. It may
decide that the market is price sensitive and that it would lose too
much market share to the lower-priced competitor.
However, cutting the price will reduce the company’s profits in the
short run.
Some companies might also reduce their product quality, services and
marketing communications to retain profit margins, but this will
ultimately hurt long-run market share. The company should try to
maintain its quality as it cuts prices.

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Decisions on competitors 'price cut
2. The company might maintain its price but raise the perceived value
of its offer. It could improve its communications, stressing the relative
value of its product over that of the lower-price competitor.
• The firm may find it cheaper to maintain price and spend money to
improve its perceived value than to cut price and operate at a lower
margin.

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Decisions on competitors 'price cut
3. The company might improve quality and increase price, moving its
brand into a higher price–value position.
The higher quality creates greater customer value, which justifies the
higher price.

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Decisions on competitors 'price cut
4. Finally, the company might launch a low-price ‘fighter brand’ –
adding a lower-price item to the line or creating a separate lower-price
brand.

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THANK YOU

For queries
Email: harneet.e10225@cumail.in