Production Management and Marketing

2nd Paper
Chapter-5
Product and Pricing

Nazmun Nahar
Lecturer
Department of Marketing
Adamjee Cantonment College
Topics-
• Product
• Phases of product
• Classification of product
• Consumer goods and its considerations
• Industrial goods and its marketing considerations
• Product life cycle
• What is price and its intentions
• Different methods of pricing
• Factors affecting pricing
• Rebate

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 Click icon to add picture

What is product
A product is anything that can be
offered to a market for attention,
acquisition, use or consumption
that might satisfy a need or want.
Product
1. A product can be tangible and
intangible.
2. Product must have some related
qualities, such as- Brand, Packaging,
After sales service.
3. Product have a unique price
4. Product will meet the consumers needs
and want.

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Levels of product
and service
3 levels-
1. Core benefit
2. Actual product
3. Augmented product
Level of Product and Service

1. Core customer value: 3. Augmented product:

The core customer value consists of the The augmented product is the actual
core problem-solving benefits that product plus the various services and
consumers seek when they buy a product. benefits offered with it.

2. Actual product:
The actual product exists around the core
and includes the quality level, features,
design, brand name, and packaging

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PRODUCT CLASSIFICATION

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What is Consumer Goods
• “Consumer product are those bough by
final consumers for personal
consumption.-” according to Philip
Kotler
• For example- wheet, soap, rice,
toothpaste,veggies, fruits, beverages,
clothes,watch, television etc.

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 Types of CONSUMER PRODUCT

CONSUMER PRODUCT

Convenience Shopping Specialty Unsought

product product product
product

Home New Regular

Staple Impulse Emergency Fashion Service
delivered unsought unsought
product product product products products
product product product

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• convenience product is a customer product that customers usually buy frequently,
immediately and with minimum of comparison and buying effort. It has 4 types-
• A. staple goods: consumer goods and service that are brought often and consumed
routinely. For example bread, milk, sugar, paper, toothpaste etc.
1.Convenience goods:
• B. impulse goods: impulse goods are those are brought during emergency or critical
condition. For example-icecream, chocolate, magazines etc.

• C. emergency goods: a sudden need arises for a product when consumers cant actually
identify its qualities and prices. For example- medicine, Tyre for car etc.

• D. Home delivered goods: the type of goods sellers delivered door to door to the customers or
customers expect to get at home. For example- vegetables, milk, newspaper etc.

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Classification of product

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Indsutrial products: are products that are bought by individuals and
organizations for further processing or for use in conducting a business.

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Considerations of customer product
• 1. nature of demand
• 2. buyers income
• 3. distribution channel
• 4. promotional activities
• 5. changing demand
• 6. changing price
• 7. number of stores
• 8. sufficient supply
• 9. fashion consideration
• 10. brand and packaging
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Product Life-Cycle
• Product life cycle (PLC) is the course of a products sales and profits over its lifetime,
according to Philip Kotler.
• The product life cycle describes the stages a new product idea goes through from
beginning to end, according to McCarthy & Parreault.
• So we can say that-
• Product life-cycle is the history of products life
• It has five stages- product development, Introduction, Growth, Maturity, Decline.
• The sales, profit and competiton varies in each stages of life
• The marketing techniques are different in each stage of life.

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Stages of PLC

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Product development stage
• The development stage where the product concept is conceived, developed, branded, and
even tested before being introduced to the market.
• Large capital typically goes into the development stage, including product and advertising
cost.

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Introduction stage
• This stage of the cycle could be the most expensive for a campany launching a new
product.
• Low level of sales
• Low capacity utilization
• High unit cost
• Usually negative cash flow
• Distributors may be reluctant to take an unproven product
• Heavy promotion to make consumers aware of the product.

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Growth stage
• The growth stage characterized by a strong growth in sales and profit
• Expanding market but arrival of competitors
• Fast growing sales
• Product gain market acceptance
• Cash flow may become positive
• Unit cost falls with economies of scale

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Maturity stage
• The product is established and aim for the manufacturer is now to maintain the market
share they have built up.
• Slower sales growth
• High profit
• Positive cash flow
• Price and profit fall
• Weaker competitors may leave

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Decline stage
• The market will shrink.
• Falling sales
• Decline of profits and weaker cash flow

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Board questions:
• 01. Miss. Mitu along with three friends went to new market, Dhaka to buy a deep fridge.
After seeing deep fridges of different brands at several shops, she bought a deep fridge of
Tristar brand from Skyshop. It is because Tristar is bigger than any other fridge, more
durable and comes with 10 years warrantee. The manager of skyshop sold the fridge at
15% profit on purchasing price. Although the price is slightly high, Miss. Mitu is satisfied
by purchasing the fridge. (Dhaka Board'17)
• a) What is product?
• b) At which stage of product lifecycle does sales reach to the highest volume? Explain.
• c) What kind of product is the one mentioned in the stem? Explain.
• d) evaluate the pricing method of the deep fridge adopted by the Manager of Skyshop.

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• 02. The stages of Product life cycle are
shown in the figure below: (Dinajpur
Board'17)

a) What is price?
b) What do you mean by breakeven point?
c) At which stage of product life cycle do
sales and profit increase quickly? Explain.
d) What is the reasons for adopting
different marketing techniques at different Figure: Five stages of product life cycle
stages of product life cycle? Evaluate.
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03. There is a hotel named Comfort beside the sea beach in Cox's Bazar. Many travel loving
people go to the sea beach. There are many hotels to stay at night there. Rent 0 every hotel
including Comfort is almost the same. The authority cannot charge excess ren even if they
want. As there is normally less travelers in the summer, the owner of Comjo hotel offers
30% discount on hotel rent at that time. (Dinajpur Board'17)
a) What is product?
b) Why is packaging required for consumer products?
c) Based on which type of market do the hotels determine rent? Explain
d) Evaluate feasibility of the “30% discount on rent' offer of Comfort hotel.

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• 04. Chomok Electronics imports television of Japanese famous brand-Sony. In case of
selling products, the organization gives the assurance of 10 years after-ales service to
customers. Consequently, it has got much response from customers. (Comolla Board’17)
• a) what is product life cycle?
• b) “price is a vital tool of marketing mix”-explain.
• c) what type of products are the televisions imported by Chomok Electronics? Explain.
• d) after sales service is very signigicant in marketing the televisions imported by Chomok
Electronics- analyze.

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Pricing
Discussion Agenda
• Concept of price
• What is price
• Objectives of pricing
• Pricing methods
– Cost-based pricing
– Value-based pricing
– Competition-based pricing

• Internal and External factors affecting pricing decisions

• Discounts and Rebates

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Concept of Price
• A sacrifice of value for availing a
product or service
• Synonymous to fees, commissions, rents,
charges etc.
– Rent for accommodation
– Utility bills
– Tuitions fees
– Interest on borrowed fund
– Salaries and wages
– Premium on insurance policy
– Taxes on income and other revenue
– Admission or entrance fee
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What is Price
• “Price is the amount of money customers The amount buyers The ownership is
ready to pay in transferred with
have to pay to obtain the product”- exchange of exchange of price
Philip Kotler & Gary Armstrong product/service

• “Price is what is charged for

Price
something”- McCarthy & Perreault

Generating revenues Pricing is the key to

which is further used success for each firm
for meeting expenses.

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A Quick Check: Which of the following are included in price?
Description Items Included in Price
1. Tuition fee
2. House rent
3. Love for children
4. Medical fee
5. Respect to the elders
6. Income tax
7. Salaries and wages
8. Taking care of parents
9. Rate charged on loan
10. Donation to a charitable firm

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Objectives of Pricing
Pricing Survival
• “A pricing objective is a general goal Objectives
Product-quality leadership
that describes what an organization
Profit maximization
hopes to achieve through its pricing Harvesting investment
activities”- Steven J. Skinner Ensuring cash flow

Increasing sales

Increasing market share

Facing competition

Stabilizing prices

Maintaining favorable image

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Methods of Pricing

Pricing
Methods

Cost-based Value-based Competition-

pricing Pricing based Pricing

Markup/Cost- Break-even Going Rate Sealed Bid

plus pricing pricing pricing pricing

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Cost-Based Pricing
• Cost-based pricing is the practice of setting prices based on the cost of the goods or services being sold.

• A profit percentage or fixed profit figure is added to the cost of an item, which results in the price at which it will

be sold.
– For example, an attorney calculates that the total cost of running his office each year is $400,000 and he expects to achieve 2,000 billable hours in

the coming year. This means that his cost per hour is $200. He wants to generate a $100,000 profit for the year, so he adds $50 to each billable

hour, resulting in a billing rate of $250 per hour.

• Although a business can be assured of always generating a profit, it results in prices that diverge from the market

rate, so that either the firm is selling at too high a price and is attracting too few customers, or it is selling at too

low a price and so is losing profits that customers would otherwise have been happy to pay.

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Markup/Cost-plus Pricing • Suppose, the unit variable cost of a firm is Tk.10; total
fixed cost is Tk.300,000; and expected sales is 50,000
units.

• Unit Production Cost = Unit variable cost + (Total

Fixed Cost/Sales in Units) = Tk.10+
(Tk.300,000/50,000 units) = Tk.10+Tk.6 = Tk.16.
Therefore, the unit production cost is Tk.16.

• If the firm wants to achieve 20% markup on cost, the

unit selling price will be = [unit production cost ×
(1+markup rate)] = [Tk.16 × (1+20% or 0.20)]
=Tk.19.20

• If the firm wants to achieve 20% margin on sales, the

unit selling price will be = [unit production cost ÷ (1-
margin rate)] = [Tk.16 ÷ (1-20% or 0.20)] =Tk.20
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Break-Even Pricing

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Break-Even Pricing
• Given that
Unit variable cost = Tk.10
Total fixed cost = Tk.300,000
Expected sales in units = 50,000 Units
Total investment = Tk.10,00,000
Expected profit on sales = 20%
Unit Production Cost = Unit variable cost +
(Total Fixed Cost/Sales in Units) = Tk.10+
(Tk.300,000/50,000 units) = Tk.10+Tk.6 =
Tk.16.
Therefore, the unit production cost is
Tk.16.
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• Unit selling price = unit production cost +
(Expected profit rate × Investment
amount)/Expected sales in units = Tk.16
+ (20% × Tk.10,00,000)/50,000 units =
Tk.16+Tk.4 = Tk.20
• Break-even point = Total Fixed Cost/(unit
selling price – unit variable cost) =
Tk.300,000/(Tk.20-Tk.10)=30,000 units
• Total revenue at BEP = unit selling price
× BEP = Tk.20 ×30,000 units =
Tk.600,000
• Total cost at BEP = Total FC + (unit vc ×
BEP) = Tk.300,000 + (Tk.10 ×30,000) =
Tk.600,000
• Therefore, at BEP, Total Revenue = Total
Cost
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Break-Even Pricing

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Value-based Pricing

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Competition Based Pricing

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Determinant Factors for Setting Prices

Pricing Decision

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Discounts
Discounts
Cash Discount

Quantity Discount

Functional Discount

Seasonal Discount

Allowances

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Rebates
• “Manufacturers will sometimes offer
cash rebates to consumers who buy the
product from dealers within a specified
time”- Philip Kotler and Gary
Armstrong.

• It can also be offered

for bulk quantity purchase

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