PRODUCT DECISIONS

Definition of a product

According to Chartered Institute of Marketing (CIM) “a

product is something that satisfies a set of wants that
customers have”.

According to Kotler and Armstrong “a product is

anything that can be offered to the market for attention,
acquisition or purchase, use, or consumption that might
satisfy a want or need”. It includes physical products,
services, persons, a place, an organization, and an idea.
Levels of A Product
 When companies are planning to develop a product
to be offered to the market they think about it in
terms of three levels namely:
 Core product
 Actual product
 Augmented product.
 Core product consists of the problem solving service or
core benefits that consumers obtain when they buy a
product.
 For instance a student pursuing commerce degree is
buying knowledge.
 It is therefore very important for the product planners
to first define the benefit the product will provide to
the consumers(student).
 At this level marketers try to match what people set
out to buy and what benefits the producer would like
their product to offer buyers.
Actual product – is composed of various
characteristics, which makes a product.

They could be: quality level, features, styling, a brand

name, packaging, and other attributes.

The aim at this stage is to design and develop a

product that will persuade people to purchase your
product.
Expected Product
This is a set of attributes and conditions that buyers
normally expect and agree to when they purchase the
product, for example, a clean room, clean towel, working
bulbs and relative degree of silence.

 Augmented product - includes additional consumer

services and benefits build around the core and actual
product such as: Warranty/guarantee, Free lessons on
how to operate a product.
 Quick repair services, Installation services, delivery,
credit, and other after sales service.
Potential Product
It encompasses all the augmentations and
transformations that the product might ultimately
undergo in the future- its possible evaluation.

Companies search aggressively for new ways to

satisfy the customer, for example, en-suit hotel
rooms.

They not only add benefits that satisfy their

customers but, also surprise and delight them.
 Individual Product Decisions

 Development and marketing of individual products and

services involves making the following important
decisions:
 Product attributes,
 Branding,
 Packaging,
 Labeling,
 Product support services
 Product Attributes
 
Developing a product or service involves defining the
benefits that it will offer.

These benefits are communicated and delivered by

product attributes such as quality, features, and style and
design.
Product quality
Product quality can be described as the characteristics
of a product or service that determine its ability to satisfy
the customer needs. 
Product quality can be explained from two levels that is
performance quality and conformance quality.
Performance quality – is the ability of a product to
perform its functions.
Conformance quality means freedom from defects and
consistency in delivering a targeted level of performance.
In general terms product quality is the ability of a
product to perform its functions; it includes the product’s
overall durability, the product’s overall reliability, ease of
operation, precision, repair and other valued attributes.
Product features

 Features are competitive tools for differentiating the

company’s product from competitors’ products.
 A ‘stripped-down’ or ‘standard’ model is a one without
any extras. A company can create higher-level models
by adding more features.
 The best way to identify the features valued by the
customers is to conduct a market survey. After
identification of the features they should then be
assessed on the basis of cost and value to the customers.
Product style and design

Design is a larger concept than style. Style simply

describes the appearance of a product, which does not
necessarily make the product perform better.

Good design on the other hand contributes to the product

performance as well as its appearance.

A good style and design can therefore, attracts customers’

attention, improves product performance, reduces
production costs, and gives the product a strong competitive
advantage in the target market.
Branding
A brand is a name, term, sign, symbol, or design, or a
combination of these intended to identify the goods or
services of one maker or seller and to differentiate them
from those of competitors.
 
 Branding has become so strong that today hardly
anything goes unbranded even salt and sugar, which
were traditionally not branded. Branding helps buyers
in many ways.
 Brand names help consumers identify products that
might benefit them. Brands also tell the buyer
something about product quality.
Brand Equity
 Brand equity is defined as the value of a brand based on
the extent to which it has high brand loyalty, name
awareness, perceived quality, strong brand associations,
and other assets such as patent, trademark, and channel
relationships.
Major Branding Decisions

Brand Name Selection

 Finding a good brand name is a difficult task. It begins
with a careful review of the product and its benefits,
the target market, and proposed marketing strategies.
 A new brand name should evoke positive associations,
be easy to pronounce and remember, suggest positive
benefits, be distinctive, be transferable, not infringe an
existing registered brand name, and consideration
should be given to the use of numerals when
emphasizing technology.
Brand Sponsor
In relation to brand sponsor decision a manufacturer has five sponsorship
decisions:
 To use manufacturer brand, that is the company brand it’s own product.
 Sell the product to the reseller who gives it a private brand also called a
store brand or distributor brand.
 Use other companies licensed brands.
 Join with another company and co-brand a product.
 To use generic brand
Manufacturer vs. private brands

 Though manufacturers brands have for a long time

dominated the retail stores, in recent times, an increasing
number of retailers and wholesalers have created their own
private brand in other words store brands.
 There is what is called battle between manufacturers, and
private brands (battle of brands).
 Retailers price their store brands lower than comparable
manufacturers’ brands, thereby appealing to budget-
conscious shoppers, especially in difficult economic times.
Licensed brands
 This means licensing some manufacturers’ brand
names or symbols previously created by other
manufacturers for a fee.  
 Instead of spending millions to create own brand
names, some companies license names or symbols
previously created by other manufacturers.
 This provides an instant and proven brand name.
Co-branding
 Although companies have been co-branding products
for many years, there has been resurgence in co-branded
products.

Co-branding occurs when two established brand names

of different companies are used on the same product.

1. The combined brands create broader consumer appeal

and greater brand equity.
2. Co-branding also allows a company to expand its
existing brand into a category it might otherwise have
difficulties entering alone.
 PRICING PRODUCTS

 Meaning of price

 In the narrowest sense, price is the amount of money charged for

a product or service.
 In broad terms price is the sum of all values that consumers
exchange for the benefits of having or using the product or
service or a value that will purchase a definite quantity, weight,
or other measure of a good or service which forms the essential
basis of commercial transactions.
Factors to consider in price determination

Marketing Objectives
Before setting prices, the company may be guided by the
marketing objectives, which could be profit maximization;
market share leadership, and product quality leadership.
If for instance, the marketing objective is profit
maximization or product quality leadership the prices
should be high
on the other hand if the marketing objective is market
share leadership the firm should set as low prices as it is
possible.
Marketing mix variables

 Pricing decisions must be made in conjunction with

product, promotion and distribution decision in mind.

 Decision made on other marketing, mix variables affect

pricing decisions.
 For instance, a decision to position the product on high
performance quality will mean high prices to cover higher
costs and to support the quality image.
Costs
 Costs are a key concern when establishing
prices. Most marketing managers regard a
products cost as the minimum below which the
product cannot be priced. A company’s costs
take two forms, fixed and variable.

Total costs are the sum of the fixed of production

management at least charge a price that will cover
the total production costs at a given level of
production.
The Market and Demand
 As we have seen costs set the floor or the lower limit of
prices on the other hand market and demand set the
upper limit.
 Before setting prices, the marketer must understand the
relationship between price and demand in different
types of markets.
Consumer perceptions of price and value
 Pricing decisions, like other marketing mix decisions must
be buyer oriented.
 Effective, buyer-oriented pricing involves understanding
how much value consumers peace on the benefits they
receive from the product and setting a price that fits it
value.
 If customers perceive that the price is greater than the
products value, they will not buy the product.
 If consumers perceive that the price is below the products
value, they will buy it, but seller loses profit opportunities.
Price – Demand Relationship
 In the normal cases, demand and price are inversely
related, which means the higher the price, the lower
the demand.
 In case of prestige goods, the demand curve
sometimes slopes upwards because consumers think
that higher prices means more quality.
 Demand curve shows the number of units the market
will buy in a given time period at different prices that
might be charged.
Competitors
 Price sellers keep a close watch on competitors’ prices. It is
important to Match or beat the price of the competition.
 To compete effectively, an organization needs to be the
lowest cost producer.
 In markets where one company commands a dominant
share, that firm is usually the leader.
 When it raises or lower prices, other companies follow. But
in markets in which, no single firm dominates, marketers
generally monitor and react to the prices of all major
competitors.
Government
The government also influence prices set by private
companies. For instance, price fixing among firms
competing on approximately the same level is illegal.

Ethical Considerations
Producers and retailers practice ethical pricing
strategies to earn profits without defrauding competitors
or consumers.
Despite that, competitor's prices, convenience,
availability and other factors affect consumer
impressions of fair pricing.
Business laws protect competitors and consumers from
many unethical pricing strategies that unscrupulous
marketers may wish to attempt.
Pricing Strategies
The main aim of these pricing strategies is to help the
company set prices that maximizes the profits on the total
product mix. Let us now take a closer look at the five
product mix pricing strategies.

Product Line Pricing

 This is a pricing strategy whereby, management decide on
the price steps to be set between various products in the
product line based on cost differences, between the
products, customer evaluations of different features and
competitors prices
Optional – product pricing

It involves pricing of optional or accessory products

along with a main product.
Today for example, Japanese, German and U.S
carmakers include useful items in the list price of their
cars, which they previously sold only as options or
accessory.
Examples of these option items include car stereo, CD
changer, etc.
Captive-product pricing

Companies that make products that must be used along

with a main product use captive-product pricing.

Examples of captive products are razor blades, camera

film, video games and computer software.
 
 Producers of the main products often price them low
and set high mark ups on the supplies or products that
are used with the main product.
By-product pricing

Refers to setting for by-products in order to make the

main products more competitive or to generate profit for
their products.

For example, many timber mills sell bark chips and saw
dust profitably for decorative purposes especially in
hotels and restaurants.
Product Bundle pricing

This is a strategy whereby the marketer combines

several products and offer the bundle at a reduced
price.

Price bundling can promote the sales of products

consumers might not otherwise buy, but the combined
price must be low enough to get the buyer buy the
bundle. Commonly used in hotel industry (bed and
breakfast), supermarkets (back to school package) etc.
Psychological Pricing

This is a pricing approach that considers the psychology

of prices and not simply the economics price saying
something about the product.

For example, many consumers use price to judge quality

especially in situations when they cannot judge quality
1. By examining the product
2. By referring on past experience with a product
3. When they lack information and skill or to judge
quality.
Promotional pricing
 Promotional pricing involves temporarily pricing products
below the list price and sometimes even below cost to
increase short-run-sales, it is commonly used by retailers.
 For example, many businesses will offer promotional
pricing as a sales enticement when initially introducing a
particular product line to potential consumers.
Price discrimination / Segmented pricing

Price discrimination is a microeconomic pricing

strategy used by marketers where identical or largely
similar goods or services are transacted at
different prices by the same company in different markets.

Price discrimination occurs when an organization sell its

products at two or more prices, even though the differences
in prices is not based on differences in costs.
Geographical Pricing
 In geographical pricing the company decides how to price
its products to different customers in different locations
and countries.

International pricing
In some cases, a company can set uniform worldwide
price. For example, Boeing sell its jetliners at about the same
price everywhere, whether in the United States, Europe or a
third –world country.

However, most companies adjust their prices to reflect

local market conditions and considerations.