Unit-III

Product & Pricing Decisions

Creating value: The product – Goods & Services
continuum – Classification & levels of product –
Product decisions- Product Mix and Product Lines:
Concepts - Product Life Cycle strategies – Brand
concepts – Marketing of services – Packaging &
Labeling decisions – Warranties & Guarantees – New
Product Development: Stages – New Product Success &
Failure – Diffusion of innovation – Pricing policies &
strategies – Factors affecting price determination –
Steps in setting the price.
 What Is a Product?

What is a Product?
A product can be a
service, and idea, goods,
or a combination of
these.
Definition
• A product is the item offered for sale. A
product can be a service or an item. It can be
physical or in virtual or cyber form. Every
product is made at a cost and each is sold at a
price.
What are Goods and Services?
•Goods and services are the output of an
economic system. Goods are tangible items sold
to customers, while services are tasks performed
for the benefit of the recipients.
•Examples of goods are automobiles, appliances,
and clothing.
•Examples of services are legal advice, house
cleaning, and consulting services.
Product Service & Classifications
1. Consumer Products
• Consumer products are products and services
for personal consumption

• Classified by how consumers buy them

a) Convenience products
b) Shopping products
c) Specialty products
d) Unsought products
a) Convenience products
• Convenience products are consumer
products and services that the customer
usually buys frequently, immediately, and with
a minimum comparison and buying effort
• Newspapers
• Candy
• Fast food
b) Shopping products
• Shopping products are consumer products
and services that the customer compares
carefully on suitability, quality, price, and style.
• Furniture
• Cars
• Home Appliances
c) Specialty products
• 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
• Medical services
• Designer clothes
• High-end electronics
d) Unsought products
• Unsought products are consumer products
that the consumer does not know about or
knows about but does not normally think of
buying.
• Life insurance
• Funeral services
• Blood donations
2)Industrial products are products purchased
for further processing or for use in conducting
a business.
• Classified by the purpose for which the
product is purchased
– Materials and parts
– Capital
– Raw materials
PLC Stages and Characteristics
• The interaction of the diffusion process and
firm competition means that marketers face a
different situation at each stage of the product
life cycle.
1.Introduction Stage
• Costs are very high
• Slow sales volumes to start
• Little or no competition
• Demand has to be created
• Customers have to be prompted to try the
product
• Makes no money at this stage
2. Growth Stage
• Costs reduced due to economies of scale
• Sales volume increases significantly
• Profitability begins to rise
• Public awareness increases
• Competition begins to increase with a few new
players in establishing market
• Increased competition leads to price decreases
3. Maturity Stage
• Costs are lowered as a result of production
volumes increasing and experience curve
effects
• Sales volume peaks and market saturation is
reached
• Increase in competitors entering the market
• Prices tend to drop due to the proliferation of
competing products
• Industrial profits go down
4.Decline Stage
• Costs become counter-optimal
• Sales volume decline
• Prices, profitability diminish
• Profit becomes more a challenge of
production/distribution efficiency than
increased sales
 Product Mix and Product Lines
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.
 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
(4) Frozen/Organic/Natural goods.
2. Length
•Length refers to the total number of products in
a firm’s product mix. For example, consider a car
company with two car product lines (3-
series and 5-series).
•Within each product line series are three types
of cars. In this example, the product length of the
company would be six.
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.
Example
Brand
Brand
•The term brand refers to a business
and marketing concept that helps people identify
a particular company, product, or individual.
•Brands are intangible, which means you can't
actually touch or see them. As such, they help
shape people's perceptions of companies, their
products, or individuals.
•Brands commonly use identifying markers to
help create brand identities within the
marketplace.
Types of Brands?
•There are numerous types of brands, but the
four most common ones include
1.Corporate brands
2.Personal brands
3.Product brands
4.Service brands.
What are the Elements of a Brand?
 Marketing of Services
• Services marketing is a form of marketing
businesses that provide a service to their
customers use to increase brand awareness
and sales.
• Unlike product marketing, services marketing
focuses on advertising intangible transactions
that provide value to customers.
 How services marketing differs from product
marketing
1. Tangible products vs. intangible services
•Tangible products may be easier to market than
intangible services because advertisers can easily show
them and demonstrate how they work.
•It can also be easier for customers to assign value to
physical items. Since services are intangible, advertisers
often focus on marketing the people who provide the
service and building relationships with potential
customers. This can help build trust and generate sales.
2. Customization
•Unlike products that are often designed one way
and sold to customers as is, businesses can
customize their services to meet the unique
needs of each customer.
3. Ownership
•When a customer purchases a product, they own
it. This means they can continue to use the
product for as long as they see fit and resell the
product if they desire to do so. When a customer
purchases a service, the business still retains the
employees, skills and capabilities that provided
the service.
•While product marketing may focus on why a
customer wants to own an item, services
marketing focuses on building the brand and the
personality of the service provider.
4. Trust
•While customers who are unhappy with a
product may return it, customers who are
unhappy with a service cannot return it after
they have used it.
•This is why services marketing focuses heavily
on building trust with their customers and
continuing to provide an excellent customer
experience at every interaction with their
audience.
•Service-based businesses also want to ensure
their customers are happy so they continue to
purchase services from them.
5. Time
•Usually, businesses provide services to
customers at a specific time or for a specific
duration. After this, customers must renew the
service agreement to continue receiving the
service.
•However, a customer may purchase a product
once and continue using it indefinitely. Because
of this, services marketing typically focuses
on selling subscriptions, encouraging referrals
and retaining customers instead of selling
customers a product one time.
6. Market size
•The market size for service-based businesses
may be smaller than the market size for product-
based businesses.
•This is because most businesses can ship
products to customers globally, while many
businesses provide services only to a specific
geographic region.
 Packaging & Labeling
What is Packaging?
• Packaging is the act of enclosing or protecting
the product using a container to aid its
distribution, identification, storage, promotion,
and usage.
Definition
• Packing constitutes all the activities of
designing and producing the container for a
product.
-According to Kotler
• In simple terms, packaging refers to designing
and developing the wrapping material or
container around a product that helps to
1.Identify and differentiate the product in the
market,
2.Transport and distribute the product,
3.Store the product,
4.Promote the product,
5.Use the product properly.
 Importance of Packaging
1.Distribution: Good packaging makes it
possible for the seller to transport the product
from the manufacturing unit to the final selling
point and then to the customer.
2.Storage: Warehousing comes with its own
risks of product spoilage, spillage, and
mishandling. Proper packaging helps the seller
store and assort the products better.
3. Promotion: Packaging forms a vital
marketing element that the brand uses to
differentiate the product using attractive,
colourful, and visually appealing packages and
inform the buyer about the product’s
performance, features, and benefits.
4. Safety: Good packaging aids in product safety
before it reaches the final consumer. For
example, a Tetra Pak prevents the milk from
getting spoilt before its expiry date.
4. Identification: Packaging and labelling help
the customers identify the product and
differentiate it from other products in the
market.
5. Usage: Often, packaging, like that of a
toothpaste, that forms a part of the product
aids in its usage and consumption.
6. Safety: It also protects the consumer from the
dangers that the product comes with. For
example, an acid bottle protects the user from
getting acid burns.
 Types of Packaging
1.Primary Packaging
• Primary packaging, also referred to as
consumer packaging, is in direct contact with
the product and is intended for the customer to
identify, gain product knowledge, and to aid
product consumption.
• It’s the base packaging that emphasises both
utility and appearance.
Some examples of primary packaging are:
• Laminated pouches for dry fruits
• Plastic containers for fruits
• Tin cans for soft drinks
• Laminated tubes for beauty products
• Composite cans for chips
2. Secondary Packaging
• Secondary packaging forms the second
packaging layer that the customers don’t
usually see.
• Its main use is to group and hold together
individual units of the product to deliver large
quantities of that product to the point of sale.
Some examples of secondary packaging are:
• Plastic ring that holds soda cans together, and
• Cardboard box containing multiple individual
boxes of cereal, etc
3. Tertiary Packaging
• Tertiary packaging, also referred to as bulk or
transit packaging, is used to group a large
quantity of a particular product to transport it
from point A to B.
Some examples of tertiary packaging are:
• Wooden pallets used in freight shipping
• A stretch-wrapped pallet containing a large
quantity of secondary packaged goods.
 Labelling
• Labelling is a part of branding and enables
product identification.
• It is a printed information that is bonded to
the product for recognition and provides
detailed information about the product.
• Customers make the decision easily at the
point of purchase seeing the labelling of the
product.
Definition
•Labelling is defined as the process of affixing a
descriptive word or phrase to someone or
something. An example of labelling is the process
of putting signs on jars that say what is inside
them.
What Needs to be on a Product Label?
•The name of the product that affixes the label.
•A logo of the brand, if the product is part of a line of the
brand.
•Units of measurement denote the size, quantity or
weight of the specific item.
•A short description or tagline encourages the
customers to buy the product.
•The list of ingredients.
•The history is attached with the product.
•Directions for use of the product.
Importance of labelling
•Labelling is significant as it fetches customers’
attention to purchase the product because of
visual appeal.
•It promotes the sale of the product as it can
make or break the sale of a product.
•Labelling is an important factor in the sale of a
product. It helps in grading and provides
information required by the law.
Functions of Labelling
1.Defines the product and its contents
2.Recognition of product
3.Assorting of products
4.Assists promotion of products
5.In compliance with the law
Types of Labelling
1. Brand label: It plays an important role in
labelling as it gives information about the
brand. It can be removable or non-removable.

2. Descriptive label: It specifies product usage.

3. Grade label: It describes the aspect and

features of the product.
Components of a Label
1. Brand Information: The label is key
to product differentiation as it conveys
information about the brand. This component
is usually in sync with brand guidelines and
includes the brand name, tagline, brand
message, etc.

2. Product Description: A label also includes

essential information about the product like
what the actual item is inside the packaging,
its description, ingredients, weight, usage
instructions, etc.
3. Marketing Information: The label is also
used as a marketing touchpoint to
communicate offers, discounts, and other
strategies to increase its sales. This
component includes attractive illustrations or
textual communication messages that align
with the marketing strategies and brand
guidelines.
4. Legal Information: Different countries have
set guidelines as to what should always be
included in the labels for certain industries’
products. These may include certifications,
grading, allergy information, nutrition facts,
5. Company Information: The label also
includes information about the brand’s parent
company and ways to contact the company.
6. Identification Marks: UPC code or barcodes
are essential components of a label if the
product is set to sell in stores – online or
offline. They help in easy identification and
billing among the lot.
 GUARANTEES
⮚ The necessity of a guarantee emerged as a
means of protection to safeguard the right of
the consumer.
⮚ With the strength of the guarantee, a seller is
liable to make the complete replacement of the
purchased item.
⮚ The guarantee is a legal instrument
irrespective of whether the customer paid for
the article or not.
⮚ A guarantee is giving you their word (kind a
like an empty promise.)
⮚ A guarantee is a promise made by a seller or
manufacturer to a buyer that the item / service
/ product sold is of the best quality
⮚ The buyer is not satisfied or if the said item /
service / product does not live up to this
promise, the seller agrees to replace it or
refund the buyer’s money.
⮚ A guarantee provides extra protection, over
and above the buyer’s existing legal right or
any other additional rights against the seller.
⮚ A guarantor cannot refuse to provide a copy of
the guarantee if you insist on one.
 WARRANTY
✔ It implies the provision of getting the article
repaired if the product is defective.
✔ The quality of damage incurred and the time
period of validity of the document.
✔ A Warranty covers only repair of the article.
✔ warranty is in writing that they will correct
any problem within the scope of the warranty.
Take a warranty over a guarantee anytime.
⮚ A warranty is a guarantee of repair and
replacement of an item / product or its parts
⮚ A warranty works like a legal contract and is
always binding, which means that it can subject
the seller to lawsuits if they do not comply with
their promise
⮚ A warranty can be limited by the terms of the
contract. Such a limited warranty put
conditions on the parts of an article, the nature
of damage incurred and the time period of
validity of the document.
A buyer must ensure that-
• The guarantee/warranty mentions how long it
will last, and the name and address of the
seller.
• The terms of the guarantee/warranty are clear
and unambiguous.
• If a guarantee/warranty is provided for a
longer term such as 8 years or more, this
should be supported by insurance as well
because without it such a guarantee may be of
limited value
 Summary
1. A guarantee is always free. A warranty attracts
charges as the insurance policy.
2. The guarantee is a commitment to make good
defects of a product or a service in a fixed
period. A warranty looks after the repairing of
a new article within the validity period.
3. A guarantee is a legal without any payment. A
warranty received contract on payment is also
a legal instrument with which the seller can be
brought to books.
 New Product Development
Definition
▪ Development of original products, product
improvements, product modifications, and new
brands through the firm’s own R & D efforts.
 Product Planning and Development
• Product Planning and Development aims to
align a range of business and operational
factors to focus product, design and
engineering efforts on delivering high impact
experiences that have the greatest probability
of success in achieving your goals.
• Product planning is the process of identifying
the challenges one can face and make a proper
plan to rectify the problems faced during the
implementation part. Without a proper
planning an idea cannot be transformed into
an actual product.
Objectives
• It helps in planning the requirements of the
resources used in building the product.
• With proper planning resources can be utilized
in an effective and efficient way.
• Helpful in surviving in the market by
understanding the current needs.
• Departments can be coordinated in a
systematic manner.
• Analysing the work environment is easy.
• Resourceful in understanding the Customer
Requirement.
• Estimation can be done to reduce the wastage
of resources.
• Efficient in reaching new customers.
New Product Development Process
1.Idea generation
2.Idea screening
3.Concept development and testing
4.Marketing strategy development
5.Business analysis
6.Product development
7.Test marketing
8.Commercialization
1. Idea Generation
• The development of a product will start with
the concept.
• The rest of the process will ensure that ideas
are tested for their viability
• Under-taking market research
• Listening to suggestions from your target
audience
• Encouraging suggestions from employees and
partners
• Looking at your competitor’s successes and
failures
2. Idea Screening
• Ideas need to be considered objectively, ideally
by a group or committee.
• Specific screening criteria need to be set for
this stage, looking at affordability and market
potential.
• These questions need to be considered
carefully, to avoid product failure after
considerable investment down the line.
3. Concept Development & Testing
• The idea need to be tested to see their
reaction.
• The idea should now be a concept, with
enough in-depth information that the
consumer can visualize it.
• Product Idea
• Product Concept
• Product Image: the way consumers perceive an
actual or potential product.
4. Business Analysis
• This analysis needs to include: whether there
is a demand for the product, a full appraisal of
the costs, competition and identification of a
break-even point.
• Once the concept has been tested and finalized,
a business case needs to be put together to
assess whether the new product/service will
be profitable.
5. Product Development
• If the new product is approved, it will be
passed to the technical and marketing
development stage.
• This means you can investigate exact design &
specifications and any manufacturing
methods.
6. Test Marketing
• Test marketing (or market testing) is different
to concept or consumer testing, in that it
introduces the prototype product following the
proposed marketing plan as whole rather than
individual elements.
• Once the product passes initial testing 🡪 it
moves on to Test Marketing
• This process is required to validate the whole
concept and is used for further refinement of
all elements, from product to marketing
message.
7. Commercialization
• Must decide on timing (i.e., when to introduce
the product).
• Must decide on where to introduce the
product (e.g., single location, state, region,
nationally, internationally).
• Pricing and marketing plans need to be
finalized and the sales teams and distribution
briefed, so that the product and company is
ready for the final stage.
8. Launch
• A detailed launch plan is needed for this stage
to run smoothly and to have maximum impact.
• Finally in order to learn from any mistakes
made, a review of the market performance is
needed to access the success of the project.
New Product Success & Failure
New Product Failure
1.Lack of understanding of the target market and
customer needs
2.Poor product design and quality.
3.Inadequate market research and testing
4.Misaligned pricing and value
5.Difficult to understand or use.
6.Poor product-market fit.
7.Lack of innovation and differentiation.
8.Mismanagement of risks and challenges
How to Define Product Success and Failure
•The definition of product success is highly connected
with what the consumers make of your product, think
of your product, how they react to your product. A
successful product will have no problem surviving in the
market, and it will bring positive feedback from the
consumers.
•On the other hand, product failure can be defined as
an inability to persist in the market due to various
reasons. Product failures occur when a new product fails
to gain sufficient demand and creates a negative first
impression, thus gets negative feedback from early
users.
 Diffusion of innovation
Meaning
•The diffusion of innovation is the process by
which new products are adopted (or not) by
their intended audiences.
•It allows designers and marketers to examine
why it is that some inferior products are
successful when some superior products are not.
• Diffusion of innovation is the process by which
the adoption of an innovation spreads over a
period of time to other consumers through
communication.
• The diffusion of innovation explains the rate at
which new ideas and technology spread.
• The diffusion of innovation theory is used
extensively by marketers to understand the
rate at which consumers are likely to adopt a
new product or service.
Definition
Diffusion of innovation is the process by which
the adoption of an innovation spreads over a
period of time to other consumers through
communication.
Diffusion Innovation Process
1.Awareness
2.Persuasion
3.Decision
4.Implementation
5.Continuation.
 Pricing
Definition
• Price
The amount of money charged for a
product or service, or the sum of the values
that consumers exchange for the benefits
of having or using the
product or service.
Pricing Objectives
1.Survival
2.Maximum current profit
3.Maximum market share
4.Maximum market skimming
5.Product-quality leadership
 Factors Affecting Price of a Product

External Factors
Internal Factors •Demand
• Cost of the Product •Competition
•Objectives of the Firm Pricing Decision •Suppliers
•Product Differentiation •Buying Motives
•Management attitude •Government
1. Internal Factors
• Internal Factors are generally well within the
control of the organization.
a)Cost of Product: Cost and Prices of a product
are closely related. No firm can overlook cost
while setting the price.
b)Firms Objectives: Pricing policy of a firm
depends on its pricing objectives such as
maximizing market share, maintaining price
stability ,meeting competition etc…
c) Product Differentiation: In case the product is
different from rival products in quality, size,
colour, packaging etc…
d) Management attitude: The attitude of Top
management towards pricing affects pricing
decisions.
2. External Factors: External factors are
generally beyond the control of an
organization.
a) Demand: Number of buyers, their income,
preference etc.. Determine demand.
b) Competition: Competition is a crucial factor in
price determination. A firm can fix the price
equal to less than or more than the
competitors price.
c) Suppliers: When Suppliers of raw materials
and other inputs increase their prices the
buying firm has to increase the prices of its
finished products.
d) Buying Motives: Consumers who buy for
emotional motives are willing to pay more
than those buying for rational motives.
e) Government: Prices of some products are
sometimes regulated by the government in
public interest.
 General Pricing Approaches
1.Cost-Based Pricing

2.Value-Based Pricing

3.Competition-Based Pricing
1. Cost Based Pricing
• A pricing method in which a fixed sum or a
percentage of the total cost is added (as
income or profit) to the cost of the product to
arrive at its selling price.
• Cost-based pricing uses manufacturing or
production costs as its basis for pricing.
Customers
Value
Price
Cost
Product
Cost Based Pricing
2.Value-based Pricing
• The term is used when prices are based on
the value of a product as perceived from the
customer's perspective. The perceived value
determines the customer's willingness to pay
and thus the maximum price a company can
charge for its product.
• A value-based pricing company considers the
value of its product or service, as opposed to
the cost the company incurred to create and
produce it.
Product
Cost
Price
Value
Customer
Value-based Pricing
3. Competition-Based Pricing
• Competitive pricing is setting the price of a
product or service based on what the
competition is charging.
• This pricing method is used more often by
businesses selling similar products, since
services can vary from business to business,
while the attributes of a product remain
similar.
Competition-Based Pricing
 New Product Price Strategies
1.Cost-oriented pricing
2.Demand –oriented pricing
3.Competition –oriented pricing
4.Skimming pricing
5.Penetration pricing
1. Cost-oriented pricing
• It is also referred to as ‘cost-plus pricing’. This
pricing method assures that no product is
sold at a loss, since the price covers the full
cost incurred.
• Another common method used under cost
oriented pricing is known as Target Pricing.
This is invariably adopted by manufacturers
who fix a target return on its total cost.
Cover costs
⮚ Material
Variable costs
⮚ Labor
⮚ Capital resources
⮚ Marketing Fixed costs
2. Demand –oriented pricing
• It is a method price of product is changed
according to its demand higher price when the
demand is strong, lower price when it is weak.
• We first determine the customer's willingness
to pay for any good or service.
• Price discrimination is usually adopted under
such market situations.
3. Competition –oriented pricing
• Competitive pricing is setting the price of a
product or service based on what the
competition is charging.
• This pricing method is used more often by
businesses selling similar products, since
services can vary from business to business,
while the attributes of a product remain
similar.
4. Skimming pricing
• High Price, Low Volumes
• Price skimming is a pricing strategy in which
a marketer sets a relatively high price for a
product or service at first, then lowers the
price over time.
• Price skimming is a product pricing strategy by
which a firm charges the highest initial price
that customers will pay.
• Example: Earliest Mobile Phones, Digital
Technology, VCRs etc..
5. Penetration pricing
• Penetration pricing is the pricing technique
of setting a relatively low initial entry price,
usually lower than the intended established
price, to attract new customers.
• The strategy aims to encourage customers to
switch to the new product because of the
lower price.
• For Example, Dell used penetration pricing to
enter the personal computer market, selling
high quality computer products through lower
cost direct channels.
 Steps in setting the price
(1) Developing pricing objectives
(2) Assessing the target market's evaluation of
price
(3) Evaluating competitors' prices
(4) Choosing a basis for pricing
(5) Selecting a pricing strategy
(6) Determining a specific price.
 Unit – 3
PART B
1.Classifications of Product
2.Product Lifecycle
3.Packaging and Labelling
4.Warranties and Guarantees
5.New product Development Stages
6.Pricing Policies/ Methods
7.Factors affecting price determination