UNIT- 1

Definition of Marketing

Marketing is the activity, set of institutions, and processes for creating,

communicating, delivering, and exchanging offerings that have value for
customers, clients, partners, and society at large.

Concepts of Marketing

The marketing concept is the strategy that firms implement to satisfy

customer’s needs, increase sales, maximize profit and beat the
competition. There are 5 marketing concepts that organizations adopt and
execute.

Nature of Marketing - The Nature of Marketing may be studied under

the following points:

1. Marketing is an Economic Function

2. System of Interacting Business Activities

3. Art as well as science

4. Marketing is a Managerial function

5. Starts and ends with customers

6. Creation of Utilities

7. Goal oriented

8. Guiding element of business

9. System of Interacting Business Activities

10. Marketing is a dynamic process

Scope of Marketing:

1. Study of Consumer Wants and Needs

2. Study of Consumer behaviour

3. Production planning and development

4. Pricing Policies

5. Distribution

6. Promotion
7. Consumer Satisfaction

8. Marketing Control

Importance of Marketing:

Marketing is a tool used to create and maintain demand, relevance,

reputation, competition and more. Importance of marketing can be
studied as follows:

1. Marketing Helps in Transfer, Exchange and Movement of Goods

2. Marketing Is Helpful In Raising And Maintaining The Standard Of Living

Of The Community

3. Marketing Creates Employment

4. Marketing as a Source of Income and Revenue

5. Marketing Acts as a Basis for Making Decisions

6. Marketing Acts as a Source of New Ideas

7. Marketing Is Helpful In Development Of An Economy

Customer value:

It means the customer’s evaluation of the difference between all the

benefits and all the cost of the product. Total customer value= customer
benefit-customer cost Customer satisfaction: The match between
customer’s expectations of the product and product’s actual performance.
Customer evaluate performance as: Dis satisfaction – Satisfaction 0 High
satisfaction +

Customer retention:

Customer Retention is the activity that a selling organization undertakes

in order to reduce customer defections. Successful customer retention
starts with the first contact an organisation has with a customer and
continues throughout the entire lifetime of a relationship.

Value Chain:

Developed by Porter, value chain analysis is aimed at identifying potential

competitive advantages. Porter suggested that the activities of a company
can be broken down into nine ‘value activities’, five being primary and
four secondary.
These value activities collectively comprise those activities involved in
designing, manufacturing, marketing and delivering the organization’s
products and services.

Marketing Environment:

Marketing Environment is the combination of external and internal factors

and forces which affect the company's ability to establish a relationship
and serve its customers.

Marketing Mix:

The marketing mix refers to the set of actions, or tactics, that a company
uses to promote its brand or product in the market. Marketing vs Selling:
Selling is an action which converts the product into cash, but marketing is
the process of meeting and satisfying the customer needs.

Marketing Management Philosophies

We describe marketing management as carrying out tasks to achieve

desired exchanges with target markets. What philosophy should guide
these marketing efforts? What weight should be given to the interests of
the organization, customers and society? The organization's marketing
management philosophy influences the way it approaches its buyers.
There are five alternative concepts under which organizations conduct
their marketing activities: the production, product, selling, marketing and
societal marketing concepts.

The Production Concept

The production concept holds that consumers will favour products that are
available and highly affordable, and that management should therefore
focus on improving production and distribution efficiency. This concept is
one of the oldest philosophies that guides sellers. The production concept
is a useful philosophy in two types of situation. The first occurs when the
demand for a product exceeds the supply. Here, management should look
for ways to increase production. The second situation occurs when the
product's cost is too high and improved productivity is needed to bring it
down. For example, Henry Ford's whole philosophy was to perfect the
production of the Model T so that its cost should be reduced and more
people could afford it.

The Selling Concept

Many organizations follow the selling concept, which holds that consumers
will not buy enough of the organization's products unless it undertakes a
large-scale selling and promotion effort. The concept is typically practised
with unsought goods - those that buyers do not normally think of buying,
such as encyclopaedias and funeral plots. These industries must be good
at tracking down prospects and convincing them of product benefits. The
selling concept is also practised in the non-profit area. A political party, for
example, will vigorously sell its candidate to voters as a fantastic person
for the job. The candidate works hard at selling him or herself - shaking
hands, kissing babies, meeting donors and making speeches. Much money
also has to be spent on radio and television advertising, posters and
mailings.

The Product Concept

The product concept proposes that consumers will prefer products that
have better quality, performance and features as opposed to a normal
product. The concept is truly applicable in some niches such as
electronics and mobile handsets. Two companies which stand apart from
the crowd when we talk about the product concept are Apple and google.
Both of these companies have strived hard on their products and deliver
us feature rich, innovative and diverse application products. One problem
which has been associated with the product concept is that it might also
lead to marketing myopia. Thus companies need to take innovations and
features seriously and provide only those which the customer needs. The
customer needs should be given priority.

The Marketing Concept

The marketing concept holds that achieving organizational goals depends

on determining the needs and wants of target markets and delivering the
desired satisfactions more effectively and efficiently than competitors do.
Surprisingly, this concept is a relatively recent business philosophy. The
selling concept and the marketing concept are frequently confused. The
selling concept takes an inside-out perspective. It starts with the factory,
focuses on the company's existing products and calls for heavy selling and
promotion to obtain profitable sales. It focuses on customer conquest -
getting short-term sales with little concern about who buys or why. In
contrast, the marketing concept takes an outside-in perspective. It starts
with a well-defined market, focuses on customer needs, co-ordinates all
the marketing activities affecting customers and makes profits by creating
long-term customer relationships based on customer value and
satisfaction. Under die marketing concept, companies produce what
consumers want, thereby satisfying consumers and making profits.

The Societal Marketing Concept

 The societal marketing concept holds that the organization should
determine the needs, wants and interests of target markets. It should
then deliver the desired satisfactions more effectively and efficiently than
competitors in a way that maintains or improves the consumer's and the
society's well-being. The societal marketing concept is the newest of the
five marketing management philosophies. The societal marketing concept
questions whether the pure marketing concept is adequate in an age of
environmental problems, resource shortages, worldwide economic
problems and neglected social services. It asks if the firm that senses,
serves and satisfies individual wants is always doing what's best for
consumers and society in the long run. According to the societal
marketing concept, the pure marketing concept overlooks possible
conflicts between short-run consumer wants and long-run consumer
welfare.

Introduction to Digital Marketing:

Digital Marketing is done in order to reach a targeted audience to analyze

their demands, to promote product and services and to create brand
awareness using different digital platforms present online. It is mainly
done on the Internet.

Multilevel Marketing:

Multilevel marketing (MLM) is a strategy some direct sales companies use

to encourage existing distributors to recruit new distributors who are paid
a percentage of their recruits' sales. The recruits are the distributor's
"downline." Distributors also make money through direct sales of products
to customers. Amway, which sells health, beauty, and home care
products, is an example of a well-known direct sales company that uses
multilevel marketing.

Customer relationship marketing:

Customer relationship marketing (CRM) is a business process in which

client relationships, customer loyalty and brand value are built through
marketing strategies and activities. CRM allows businesses to develop
long term relationships with established and new customers while helping
streamline corporate performance. CRM incorporates commercial and
client-specific strategies via employee training, marketing planning,
relationship building and advertising.

Green Marketing:

Green marketing refers to the process of promoting products or services

based on their environmental benefits. Such a product or service may be
environmentally friendly in itself or produced in an environmentally
friendly way.

Event Marketing:

Event marketing strategies leave a lasting, brand-focused impression of

fun by grabbing the attention of a group of people who are gathered
together. If executed successfully, event marketing will provide each of
them with an experience that will resonate in their minds. Event
marketing is one of the best ways to: Build brand awareness, Increase
customer engagement, Generate leads, Educate prospects and
customers, Upsell customers.

Rural Marketing:

Rural marketing is a process of developing, pricing, promoting, and

distributing rural specific goods and services leading to desired exchange
with rural customers to satisfy their needs and wants, and also to achieve
organizational objectives.

Global Marketing:

Global marketing is defined as the process of adjusting the marketing

strategies of your company to adapt to the conditions of other countries. It
can also be defined as “marketing on a worldwide scale, in different
countries, reconciling or taking commercial advantage of global
operational differences, similarities, and opportunities in order to meet
global objectives”.

Marketing for Non-Profit Organization:

Nonprofit marketing is activities and strategies that spread the message

of the organization, as well as to solicit donations and call for volunteers.
Nonprofit marketing involves the creation of logos, slogans, and copy, as
well as the development of a media campaign to expose the organization
to an outside audience.

Core Concepts of Marketing

 (1) NEED/ WANT/ DEMAND:

 Need: It is state of deprivation of some basic satisfaction. eg.- food,

clothing, safety, shelter.

 Want: Desire for specific satisfier of need. eg.- Indians needs food –
wants paneer tikka/ tandoori
chicken. Americans needs food- wants hamburger/ French fries.
  Demand: Want for a specific product backed by ability and
willingness to buy. eg.- Need – transportation.

Types of needs

We can distinguish among five types of needs:

1. Stated needs (the customer wants an inexpensive car).

2. Real needs (the customer wants a car whose operating cost, not its
initial price, is low).

3. Unstated needs (the customer expects good service from the dealer).

4. Delight needs (the customer would like the dealer to include an

onboard navigation system).

5. Secret needs (the customer wants to be seen by friends as a savvy

consumer).

 (2) PRODUCTS- GOODS/ SERVICES/ PLACE.

Product is anything that can satisfy need/ want.

 Product component-

 Physical Good.

 Service.

 Idea.

 Marketing Myopia: Focus on products rather than on customer

needs.

 (3) VALUE/ COST/ SATISFACTION:

 COST– Price of each products. Each product would

 have a cost/ price elements attached to it.

 VALUE– Products capacity to satisfy needs/ wants as per

consumer’s perception or estimation.

 Customer satisfaction is a marketing term that measures how

products or services supplied by a company meet or surpass a
customer’s expectation.

(4) EXCHANGE/ TRANSACTION:

 To satisfy need/ want, people may obtain the product through

 Self Production

 By force or coercion

 Begging

 Exchange

 EXCHANGE: – The act/ process of obtaining a desired product from

someone by offering something in return. For exchange potential to
exist, the following conditions must be fulfilled.

 There must be at least two parties.

 Each party has something of value for other party.

 Each party is capable of communication & delivery

 Each party is free to accept/ reject the exchange offer.

 Each party believes it is appropriate to deal with the other party.

 TRANSACTION: – Event that happens at the end of an exchange.

Exchange is a process towards an agreement. When agreement is
reached, we say a transaction has taken place.

 a) Barter transaction.

 b) Monetary Transaction.

 At least two things of value.

 Condition agreed upon.

 Time of agreement.

 Place of agreement.

 May have legal system for compliance.

 Proof of transaction is BILL/ INVOICE.

 NEGOTIATION: – Process of trying to arrive at mutually agreeable

terms.

 Negotiation may lead to

 Transaction

 Decision not to Transaction

RELATIONSHIP/ NETWORKING:
  Relationship marketing:- It’s a pattern of building long term
satisfying relationship with customers, suppliers, distributors in
order to retain their long term performances and business.

 Achieved through promise and delivery of

 high quality

 good service

 fair pricing, over a period of time.

 Outcome of Relationship Marketing is a MARKETING NETWORK.

 MARKETING NETWORK: It is made up of the company and its

customers, employees, suppliers, distributors, advertisement
agencies, retailers, research & development with whom it has built
mutually profitable business relationship.

 Competition is between whole network for market share and NOT

between companies alone.

MARKET:

 A market consists of all potential customers sharing particular need/

want who may be willing and able to engage in exchange to satisfy
need/ want.

 Market Size = fn (Number of people who have need/ want; have

resources that interest others, willing or able to offer these
resources in exchange for what

they want).

 In Marketing terms: Sellers – called as “INDUSTRY”.

 Buyers – referred to in a group as “MARKET”.

MARKETERS/ PROSPECTS:

 One party seeks the exchange more actively, called as “ Marketer”,

and the other party is called “Prospect”.

 Prospect is someone whom marketer identifies as potentially willing

and able to engage in exchange.

 Marketer may be seller or buyer. Most of time, marketer is seller.

Unit- 2
Market segmentation:

Market segmentation is the process of dividing a target market into

smaller, more defined categories. It segments customers and audiences
into groups that share similar characteristics such as demographics,
interests, needs, or location.

Types of Market Segmentation:

Bases of consumer market segmentation

 There is no single way to segment a market. A marketer use

different segmentation variables, alone and in combination, to find
the best way to view the market structure.

 There are following segmentation variables-

 Geographic

 Demographic

 Psychographic

 Behavioral

Geographic segmentation

 The market is segmented according to geographic criteria—

continents, nations, states, regions, countries, cities, neighborhoods,
or zip codes.

 In rainy regions you can sell things like raincoats, umbrellas and
gumboots. In hot regions you can sell summer wear. In cold regions
you can sell warm clothes.

Demographic Segmentation

 Demographic segmentation consists of dividing the market into

groups based on variables such as age, gender, family size, income,
occupation, education, religion, race and nationality.

 This is because customer wants are closely linked to variables such

as income and age etc.

 Racial group

 Nationality
  Age

 Religion

 Gender

 Family size

 Education

 Life cycle

 Income

 Occupation

 Generation

Psychographic Segmentation

 Psychographics is the science of using psychology and

demographics to better understand consumers.

 within the same demographic group customers can exhibit very

different psychographic profiles.

 In Psychographic segmentation Consumers are divided according to

their

 lifestyle,

 personality,

 values and

 social class.

Behavioral Segmentation

 In behavioral segmentation, consumers are divided into groups

according to their knowledge of, attitude towards, use of or
response to a product.

 It is actually based on the behavior of the consumer.

 Occasions

 Benefits

 User Status

 User rate
  Loyalty status

 Buyer readiness

 Attitude

Levels of Market segmentation:

Marketers subdivide markets into segments, so they can do focus on

marketing plans. Each Level of market segmentation determines the
strategy a company will follow to promote, distribute and position its
product in the market and respectively target audience or its customers.
Before developing a marketing plan, one must know what are the levels of
market segmentation.

Patterns of Market segmentation:

Market segments can be build up in many ways, one way is to identify

preference segments.

There are three different patterns of market segmentation Process of

Market segmentation:

1. Identify the target market

2. Identify expectations of Target Audience

3. Create Subgroups

4. Review the needs of the target audience

5. Name your market Segment Need based market segmentation can also
be used for the same purpose.

Requirements for Effective Segmentation:

There are many ways to segment a market, but not all segmentations are
effective. To be useful, market segments must be: Measurable,
Accessible, Substantial, Differentiable and Actionable

Evaluating the market segment:

Three Factors must be considered to evaluate a market segment-

Segment Size and Growth, Segment Structural Attractiveness

Company objectives and resources selecting the market segment:

From a high-level, the goal of a marketing strategy is to identify a target
market and develop a marketing mix that will appeal to those potential
customers.

Tool for competitive differentiation:

Differentiation allows you to provide superior value to customers at an

affordable price, creating a win-win scenario that can boost the overall
profitability and viability of your business.

Developing a positioning strategy:

Market Positioning refers to the ability to influence consumer perception

regarding a brand or product relative to competitors. The objective of
market positioning is to establish the image or identity of a brand or
product so that consumers perceive it in a certain way. There are several
types of positioning strategies.

A few examples are positioning by:

Product attributes and benefits:

Associating your brand/product with certain characteristics or with certain

beneficial value Product price:

Associating your brand/product with competitive pricing Product quality:

Associating your brand/product with high quality Product use and

application:

Associating your brand/product with a specific use Competitors:

Making consumers think that your brand/product is better than your

competitors Analyzing consumer markets and buyer behaviour:

UNIT-3
What is Product

Product is anything that can be offered to customer to fulfill their needs

and wants. It can be tangible or intangible or combination of both.
Toothpaste is tangible while software is intangible. Computer is
combination of both hardware is tangible while services are intangible.
Product can be an idea, person, organization, event etc.

Levels of product

1. Core benefit
2. Basic product

3. Expected product

4. Augumented product

5. Potential product

Level 1: Core Product. What is the core benefit your product offers? This is
the fundamental benefit or service that the customer is buying. For eg. A
customer going to a Hotel is buying rest, sleep etc.

Level 2 Basic Product: Basic functional attributes. All Hotels provide rest
and sleep. The aim is to ensure that your potential customers purchase
your one service. Thus the functional attributes like Room, Bed, Bath are
important.

Levels of product Level 3 : Expected product : Set of attributes that the

buyer expects (Clean room, large towels, quietness)

Level 4: Augmented product: What additional non-tangible benefits can

you offer? This meets the customer’s desires beyond his expectations –
(Prompt room service, music, aroma etc).

Levels of product Level 5 : Potential product : The possible evolutions that

can be made to make the product a distinguished offer (all suite room).

Product Life Cycle and Marketing Strategies

Product Life Cycle (PLC)

 Product Life Cycle (PLC) is based upon the biological life cycle. For
example, a seed is planted (introduction), it begins to sprout(growth), it
shoots out leaves and puts downs roots, as it becomes an adult(maturity),
after a long period as an adult the plant begins to shrink and die
out(decline) Product life cycle

1. Each Products has different and limited life cycle 2. Product sales pass
through different stages of PLC, each stage has different challenges,
opportunities and problems to the seller. 3. Profits rise and fall at different
stages of the product life cycle 4. Products require different marketing,
financial, manufacturing, purchasing and human resource strategies in
each stage of their life cycle Stages of product life cycle

1 Introduction 2 Growth 3 Maturity 4 Decline

Introduction

This is the first stage of PLC and has low growth rate of sales as the
product is newly launched in the market. A firm usually incurs losses
rather than profit. If the product is in the new product class, the users may
not be aware of its true potential. In order to achieve awareness in the
market, extra information about the product should be transferred to
consumers through various media.
This stage has the following characteristics 1. Low competition 2. Firm
mostly incurs losses and not profit.

Growth stage

Growth begins with the acceptance of the product in the market and
profit starts to flow in the organization. There is still monopoly exists in
the market and companies can experiment with new ideas and
innovations in order to maintain the sales growth. This stage is the best
time to introduce new effective products in the market and creating an
image in the product class in front of its competitors who try to copy or
improve the product and present it as a substitute.

Maturity

In this stage, sales starts slowdown as the product has already achieved
saturation in the market. Firms start experimenting in order to compete
by innovating new models of the product. With many companies in the
market, competition for customers becomes fierce. Aggressive
competition in the market results in profits decreasing at the beginning of
the maturity stage, Later sales becomes flat and after some period
started declining. Thus profit started declining and market lost its charms.

Decline

This is the stage where most of the product classes usually dies due to
negative growth rate in sales. A number of companies share the same
market, making it difficult for all players to maintain sustainable sales
levels. Not only the efficiency of the company is an important factor in the
decline, but also the product category itself becomes a factor, as the
market may perceive the product as "old" and may not be in demand. It is
not always necessary that a product should go through all these stages. it
depends on the type of product, its competitors, scope of the product etc.

PLC • Marketing strategies throughout the PLC

Marketing strategies in Introduction Stage

• In launching a new product, marketing management can set a high or

low level for each marketing variables like price, promotion, distribution,
product quality. • if we consider only price and promotion , management
can pursue one of the four strategies

• 1.A rapid-skimming strategy consist of launching the new product at a

high price and a high promotion level. Marketing strategies in Introduction
Stage
• 2. A slow-skimming strategy consists of launching the new product at a
high price and a low promotion level.

• 3. A rapid-penetration strategy consists of launching the product at a

low price and spending heavily on promotion.

• 4. A slow-penetration strategy consists of launching the product at a low

price and spending low level on promotion

Marketing strategies in growth Stage

• The following strategies are adopted by company in the growth stage

• 1. It improves product quality and adds new product features and also
improves styling.

• 2. It adds new models and flanker products i.e. products of different

sizes, flavors etc. that protect the main product.

• 3. It enters into new market segments.

Marketing strategies in growth Stage

• 4. It increases its distribution coverage area and also introduced new

distribution channels.

• 5. It shifts from product-awareness advertising to product preference

advertising.

• 6. It lowers prices to attract the next layer of price-sensitive buyers in

the market.

Marketing strategies in Maturity Stage

• The following strategies are adopted by company in the maturity stage

1. Market Modification

• The Company might try to expand the market for its mature product
with the two factors that make up sales volume • Volume=number of
brand users * usage rate per user • Number of brand users can be
increased in three ways • I. Convert nonusers. • II. Enter new market
segments. • III. Win competitors' customers. 1. Market Modification •
Volume can be also increased by increasing consumption of current users
• I. More frequent use. • II. More usage per occasion. • III. New and more
varied uses.

2. Product modification • Sales can also increased by modifying the

products characteristics through quality improvement, feature
improvement or style improvement • I. Quality improvement aims at
increasing the product's functional performance-its durability, reliability,
speed, taste. • Such words are used-new and improved, stronger better,
bigger. 2. Product modification • II. Feature improvement aims at adding
new features like size, weight, materials, and additives accessories. • III.
Style improvement aims at increasing the product's aesthetic appeal.

3. Marketing mix modification

• I. Prices • II. Distribution • III. Advertising • IV. Sales promotion • V.

Personal selling • VI. Services.

Marketing strategies in Decline Stage

• 1. Increasing the firm's investment to dominate the market or

strengthen its competitive position in market.

• 2. Maintaining the firm's investment level until the uncertainties about

the industry are resolved.

• 3. Decreasing the firm's investment level selectively, by dropping

unprofitable customer groups, while simultaneously strengthening the
firm's investment in lucrative niches.

• 4. Harvesting ("milking") the firm's investment to recover cash quickly.

• 5. Divesting the business quickly by disposing of its assets as

advantageously as possible.

New product development process

The consulting firm Booz, Allen & Hamilton has identified six categories of
new products in terms of their newness to the company and the
marketplace.

• New-to-the-world products (Product new to the company and the

market) • New product lines: New products that allow a company to enter
an established market for the first time (the product is new to the
company not the market) • Additions to existing product lines: New
products that supplement a company’s established products lines
(package sizes, flavours, and so on) New product development process •
Improvements and revisions of existing products: New products that
provide improve performance or greater perceived value and replace
existing product (Improvements in features and benefits of a product) •
Repositionings- Existing products that are targeted to new markets or
market segments (to be called a new product there must be some
changes in the existing product to suit the new segments targeted). •
Cost reductions-New products that provide similar performance at lower
cost to the company.

New product development process

1. Idea Generation 2. Screening of ideas 3. Concept development 4.

Business analysis 5. Product development 6. Test Marketing 7.
Commercialization

Idea Generation -There are two sources of new product development

1. Internal sources a) Research and development b) Sales marketing c)

Production d) Other executive e) Board of directors

2.External sources 1. Customer 2. Contract research company 3.

Consultant 4. Technical publications 5. Competitors 6. Universities 7.
Inventors 8. Advertising agency 9. Suppliers 10. Government agencies

Idea Generation Techniques 1. Brain storming 2. Market analysis 3.

Futuristic studies 4. Need heedlogy or gap analysis 5. Management think
tank 6. Lifestyle watching 7. Global study 8. Morphology approach

IDEA SCREENING - The purpose of screening is to drop poor ideas as early

as possible and allow only promising ideas for further stage in the new
product development process. There is likelihood of two opposite types of
errors occurring in this process. One, the drop error, results in dismissing
a good idea. The other, the go-error, results in moving a poor idea
forward. Poor ideas result in product failures. Three types of product-
marketing failures can be categorized: Absolute product failure loses
money even on variable cost. Partial product failure recovers variable cost
and some fixed cost. Relative product failure yields a profit, means it
recovers variable cost and fixed cost, but the profitability is less than the
company's target rate of return.

The screener should ask several questions, Will the customer in the target
market benefit from the product? What is the size and growth forecasts of
the market segment / target market? What is the current or expected
competitive pressure for the product idea? What are the industry sales
and market trends the product idea is based on? Is it technically feasible
to manufacture the product? Will the product be profitable when
manufactured and delivered to the customer at the target price?

CONCEPT DEVELOPMENT AND TESTING -A product concept is an

elaborated version of the product idea and it is expressed in meaningful
consumer terms so that consumer can visualize the product. Concept
testing involves an appropriate group of target consumers giving their
reactions to the concept. Develop the marketing and engineering details

Product Idea - It is an idea for a possible product that the company can
see itself offering to the market.

Product Concept - It is a detailed version of the idea stated in meaningful

consumer terms. Product Image - It is the way consumers perceive an
actual or potential product

Investigate intellectual property issues and search patent databases. Who

is the target market and who is the decision maker in the purchasing
process? What product features must the product incorporate? What
benefits will the product provide? How will consumers react to the
product? How will the product be produced most cost effectively? Prove
feasibility through virtual computer aided rendering and rapid prototyping.
What will it cost to produce it?

BUSINESS ANALYSIS -At this stage, marketing department has finalized

its market understanding and converted it into sales revenues and related
marketing costs. The next stage is analysis of operating costs and profit
analysis. Estimate likely selling price based upon competition and
customer feedback. Estimate sales volume based upon size of market.
Estimate profitability and break-even point Product development. If the
business analysis clears the product, actual product development work is
given to the research and development department. Produce a physical
prototype or mock-up. Test the product (and its packaging) in typical
usage situations

TEST MARKETING OR MARKET TESTING

High investment/high-risk products, where the chance of failure is high

must be market tested. The cost of the market tests will be an
insignificant percentage of the total project cost.

Various types of market testing are: Sales-wave research • Simulated test

marketing • Controlled test marketing • Test Markets

COMMERCIALIZATION-Based on marketing, if the company decides to

go for the manufacture and sale of the product, capacity decisions are to
be made. The timing of the launch, the geography of the initial launch, the
niche market within the target market and how to launch the product
become important decisions.

Products classification

The two most commonly used methods of classifying products are:

(1) Consumer goods versus industrial goods, and

(2) goods products (i.e., durables and non-durables) versus service

products. Consumer Goods and Industrial Goods.

The traditional classification of products is to dichotomize all products as

being either consumer goods or industrial goods. When we purchase
products for our own consumption with no intention of selling these
products to others, we are referring to consumer goods . Conversely,
industrial goods are purchased by an individual or an organization in order
to modify them or simply distribute them to the ultimate consumer in
order to make a profit or meet some other objective.

Classification of Consumer Goods

A classification long used in marketing separates products targeted at

consumers into three groups:

(1) Convenience goods,

(2) shopping goods and

(3) specialty goods

(4) Unsought Products

(1) Convenience goods • These products require minimum time and effort
and are purchased frequently by the customers. For example bread,
medicines, salt, sugar, jam etc. • (i) These products are easily available
and require minimum time and effort. • (ii) They are available at low
prices. • (iii) These are essential goods; so their demand is regular and
continuous. (iv) They have standardized price. • (v) The supply of these
goods is more than the demand; therefore competition for these products
is very high. • (vi) Sales promotion schemes such as discount, free offer,
rebate etc. help in marketing of these products.

(2) shopping goods • These are the products that require considerable
time and effort. For example clothes, jewellery, televisions etc. Before
making final purchase, a consumer compares the quality, price, style etc.
at several stores. • Following are the main features of these products: • (i)
They are durable in nature • (n) These goods have high unit price as well
as profit margin. • (iii) Before making final purchase, consumer compares
the products of different companies. • (iv) Purchases of these products
are pre planned. • (v) An important role is played by the retailer in the
sale of shopping products.
(3) specialty goods • Speciality Products refer to those products which
have certain special features due to which the buyers are willing to spend
a lot of time and effort on the purchase of such products. These products
have brand loyalty of highest order. For example designer clothes, hair
styling, antique products, jewellery etc. • Following are the main features
of specialty products: (i) The demand for such products is relatively
infrequent. • (ii) These products are very costly. • (iii) These are available
for sale only at few places. • (iv) An aggressive promotion is essential for
the sale of such products. • (v) Many of the specialty product require after
sales service too.

(4) Unsought Products

Unsought products are items customers aren’t want to buy or don’t often
think about. Insurance, Encyclopedia, cemetery plot and coffin etc.

(5) Perishable Items- These product become rotton/useless after some

time

Classification of products on the basis of durability and tangibility

• Durability of Products: • The consumer goods can be classified into

three parts on the basis of durability: (a) Non Durable Products: Non
durable products are those consumer products which are consumed in
one or few uses for example soap, toothpaste, shampoo, salt etc. These
goods have a small profit margin, need heavy advertisement and should
be easily available. Durable Products Durable products are the products
with longer consumption period and uses. For example TV, refrigerator,
coolers etc. These goods provide high profit margin, require greater
personal selling efforts, after sales services etc. Services • Services are
intangible in form and refer to those activities, benefits or satisfaction
which are offered for sale. For example postal service, hair cutting,
tailoring, transportation etc.

Following are their main features:

(i) Services are intangible in nature. Services

(ii) Services can’t be stored.
(iii) Services are highly variable in that the quality of service provided
by different people is different.
(iv) A service can’t be separated from its source.

Product Mix

Product mix, also known as product assortment, refers to the total

number of product lines a company offers to its customers. For example,
your company may sell multiple lines of products. Your product lines may
be fairly similar, such as dish washing liquid and bar soap, which are both
used for cleaning and use similar technologies.

Or your product lines may be vastly different, such as diapers and razors.
The four dimensions to a company's product mix include width, length,
depth and consistency.

Width: Number of Product Lines. The width, or breadth, of a company's

product mix pertains to the number of product lines the company sells.
For example, HUL Company and have two product lines -- Detergent and
food -- your product mix width is two.

Length: Total Products The product mix length is the total number of
products or items in your company's product mix. For example, HUL has
two product lines and have 5 product in line of detergent and 6 in foods
then total products are 11.

Depth: Product Variations Depth of a product mix pertains to the total

number of variations for each product. Variations can include size, flavor
and any other distinguishing characteristic. For example, if your company
sells three sizes and two flavors of toothpaste, that particular line of
toothpaste has a depth of six.

Consistency : Product mix consistency describes how closely related

product lines are to one another--in terms of use, production and
distribution. Your company's product mix may be consistent in distribution
but vastly different in use. For example, your company may sell health
bars and a health magazine in retail stores. However, one product is
edible and the other is not. The production consistency of these products
would vary as well, so your product mix is not consistent

Your toothpaste company's product lines, however, are both toothpaste.

They have the same use and are produced and distributed the same way.
So, your toothpaste company's product lines are consistent. Product
Market Mix Strategy Small companies usually start out with a product mix
limited in width, depth and length; and have a high level of consistency.
However, over time, the company may want to differentiate products or
acquire new ones to enter new markets. They may also add to their lines
similar products that are of higher or lower quality to offer different
choices and price points. This is called stretching the product line. When
you add higher quality, more expensive products, it's called upward
stretching. If you add lesser quality, lower priced items, it's called
downward stretching.

Classification of Industrial Products

Types of industrial products 1) Material &Parts 2) Capital Items 3) Supplies
and Business services

1) Material &Parts These are of two types i) Raw Materials. ii)

Manufactured Materials and Parts.

i) Raw Materials are of two types

A) Farm Products:- Wheat, cotton, livestock, fruits and vegetables. B)

Natural Products:- Fish, crude petroleum, Iron ore.

ii) Manufactured Materials and Parts are two types A) Component

Materials:- iron, Yarn, wires. B) Component Parts:- Small motors, tyres.

2) Capital Items Capital items are of two types i) Installations ii)

Equipments

i) Installations are of two types A) Buildings:- Factories and offices

B) Machinery:- Generators, drill presses, mainframe computers, elevators.

ii) Equipments are of two types A) Factory equipments and tools:- Hand
tools, Lift trucks. B) Office Equipments:- PC, Desk etc.

3). Supplies and Business services

Supplies and Business services are of two types i) Supplies ii) Business
services

i) Supplies are of two types A) Operating supplies:- Lubricants,

writing pens, papers etc. B) Maintenance and repair:- Nail, paint,
brooms.
ii) ii) Business services are of two types A) Maintenance and repair
services:- Window cleaning, pc repair B) Business advisory
services:- legal advisor, Mgt consultancy, advertising.

Brand Management

Definition “A brand is a name, term, sign, symbol, or design, or a

combination of them, intended to identify the goods or services of one
seller or group of sellers and to differentiate them from those of
competitors”.

A Brand convey up to six level of meaning

1. Attributes- A brand brings to mind certain attributes, like well built.

2. Benefits- Attributes must be translated into functional and emotional

benefits.
3. Values- The brand also says something about the producer’s values,
like high performance, safety Brand Management

4. Culture- The brand may represent a certain culture.

5. Personality- The brand can project a certain personality.

6. User- The brand suggests the kind of consumer who buys or use the
product.

A brand resides in the minds of consumers. There are three commonly

used research approaches to get a brand meaning

1. Word associations- what comes in mind

2. Personifying the brand- what image of a person or animal comes in the

mind

3. Laddering up to find the brand essence-what benefits are derived from

the brand

I. Advantages to Consumers

(i) Shopping consumes lesser time as branded products can be easily

identified. (ii) The quality of branded product undoubtedly is better. (iii)
Prices of branded products are fixed by the companies themselves and
there are no frequent changes. (iv) The branded products own the
responsibility for its usefulness.

II. Advantages to Producers

(i) Brand name helps in advertising in an easier way. (ii) Brand name
establishes the permanent identity of the product. (iii) Brand name
promotes repurchasing. (iv) Competition becomes easier with the help of
brand loyalty.

BRANDING DECISIONS

• Does the product need a brand? • The brand name selection • How
should the brand be structured/sponsored? • Should we run a multi-brand
strategy? Does the product need a brand? • This question sounds a bit
silly at first, because as consumers we typically associate all products as
having a brand, but this is not always the case.

Brand Sponsorship

A manufacturer has four brand sponsorship options.

• A product may be launched as a manufacturer’s brand. This is also
called national brand. Examples include Kellogg selling its output under
the own brand name (Kellog’s Frosties) or Sony (Sony Bravia HDTV).

• The manufacturer could also sell to resellers who give the product a
private brand. This is also called a store brand, a distributor brand or an
own-label. Recent tougher economic times have created a real store-
brand boom. As consumers become more price-conscious, they also
become less brand-conscious, and are willing to choose private brands
instead of established and often more expensive manufacturer’s brands.

• Also, manufacturers can choose licensed brands. Instead of spending

millions to create own brand names, some companies license names or
symbols previously created by other manufacturers.

• This can also involve names of well-known celebrities or characters from

popular movies and books. For a fee, they can provide an instant and
proven brand name. For example, sellers of children’s products often
attach character names to clothing, toys and so on. These licensed
character names include Disney, Star Wars, Hello Kitty and many more.
Finally, two companies can join forces and cobrand a product.

• Co-branding is the practice of using the established brand names of two

different companies on the same product. This can offer many
advantages, such as the fact that the combined brands create broader
consumer appeal and larger brand equity. For instance, Hero Honda Brand

Name Selection

The name of the brand is maybe what you think of first when imagining a
brand – it is the base of the brand. Therefore, the brand name selection
belongs to the most important branding decisions.

We have to start with a careful review of the product and its benefits, the
target market and proposed marketing strategies. we have to find a brand
name matching these things. • Although finding the right name for a
brand can be a challenging task, there are some guidelines to make it
easier. Desirable qualities for a brand name include:

• It should suggest something about a product’s benefits and qualities.

Think of the Dairy Milk. The brand name indicates the benefit of using this
product.

• It should be easy to pronounce, recognise, and remember. iPod and Nike

are certainly better than “Troglodyte Homonculus” – a clothing brand.
• The brand name should be distinctive, so that consumers don’t confuse
it with other brands. Rolex and Bugatti are good examples.

• It should also be extendable. Think of Amazon.com, which began as an

online bookseller but chose a name that would allow expansion into other
categories. If Amazon.com had chosen a different name, such as
books.com, it could not have extended its business that easily.

• The brand name should translate easily into foreign languages. GM has
a car name Nova which means not to move in Spanish. The More famous:
Coca-Cola reads in Chinese as “female horse stuffed with wax”.

• It should be capable of registration and legal protection. In other words,

it must not infringe on existing brand names.

• Individual brand name like: Lux, Pears etc.

• Family or umbrella brand name like: Amul products has a family name
Amul

• Company brand name like: Videocon Approaches to brand name

selection. •

Descriptive name-Describe the product or service • Example • Milkmaid •

Associative name-A brand name reflective of the benefits of the product •

examples of a brand name that is tied to the features or benefits of the
product include: • VISA Approaches to brand name selection.

• Freestanding name- Has no link with product but has its own meaning •
KIWI • Abstract name- Altogether invented and has no meaning • ONIDA

• Coined name- Coined names can be descriptive • 3M(Minnesota, Mining

and Metal) • GRASIM(Gwalior Rayon Silk Mills)

Four brand strategies

• When it comes to brand development, there are four main brand

approaches • Product line extension • Multi-brand • Brand extension •
New brand • Co-Brands

Product line extension • A product line extension is introducing a new

product – that is similar to what the company already offers (that is, within
an existing product line/category) that is targeting an existing market by
using the current brand name. • This is a very common approach in
marketing. This is because the existing brand name has a customer
following, and new products/variations will tend to be relatively well
received by these loyal customers.
MULTI BRAND • a multi-brand strategy involves having more than one
brand competing in the same product category. • Again this is a relatively
common approach for large companies. • The main reasons for this is that
these brands can have different positioning in the market, dominate the
overall shelf space, and reduce opportunities for competitors to enter the
market or to win market share. BRAND EXTENSION • A brand extension
involves broadening the market’s understanding of the brand. This is
achieved by offering more products (of a different nature/category) under
the existing brand name. • Brand extensions they usually approached
with care, as the market may not fully accept the brand’s expertise in
another product category. As a hypothetical example, consider if the
Coca-Cola brand was extended to shampoos and detergents – the market
would see little connection and the overall brand would be damaged. •
Therefore, brand extensions work best if the new product category has
some relationship to the brand’s existing product category and perceived
area of expertise.

NEW BRAND • The final brand development strategy is a new brand. A

new brand occurs when the firm is expanding is offering – by developing a
new product line that they haven’t not offered before – and as a result,
need to build a new brand.

Co-Brands • When two or more organizations come together and makes

product with their different expertise they create co-branding • ICICI-
Lomabard • Hero Honda Brand Positioning • Brand positioning concerns
how you want customers to perceive the brand as compared to its
competitors. Your brand can be positioned based on these three things:
Attribute • it means the features of the product. The marketers can
emphasis on the attributes of the product and this way he can position the
product in the minds of the consumer of the product. For eg. Pears face
wash – to clean the face. • This can be considered as the lowest level in
terms of brand positioning. It mainly concerns the physical attributes of
the brand, such as the colors used, the overall design, and anything
similar. Benefit • it refers to the benefits which the consumer gets from
the product. For eg • Pears face wash – for soft skin. • The set of benefits
that the target market would enjoy would also be part of brand
positioning. Going with our previous example, this would cover the car’s
safety features, speed capabilities, and other similar specs. Beliefs and
values • Because benefits and attributes can be shared between
competitors, the challenge really is to create a deep emotional connection
between the brand and the market. This is where a brand’s set of values
and beliefs would come in. • the marketer can position their product in
the mind of the consumer by giving them strong beliefs. For eg. Pears
face wash- make you feel attractive.
Brand equity

• Brand equity is a phrase used in the marketing industry which describes

the value of having a well-known brand name, • based on the idea that
the owner of a wellknown brand name can generate more money from
products with that brand name than from products with a less well known
name, • as consumers believe that a product with a wellknown name is
better than products with less well-known names. • Brand equity refers to
the value of a brand. • Brand equity refers to a value premium that a
company generates from a product with a recognizable name, when
compared to a generic equivalent. • Companies can create brand equity
for their products by making them memorable, easily recognizable, and
superior in quality and reliability. • Mass marketing campaigns also help
to create brand equity.

Unit-4 Product Pricing

Pricing is the method of determining the value a producer will get in the
exchange of goods and Services. Simply, pricing method is used to set the
price of producer’s offerings relevant to both the producer and the
customer. Every business operates with the primary objective of earning
profits, and the same can be realized through the Pricing methods
adopted by the firms.

Concept of Pricing

Pricing contributes to the success or failure of the organization’s

marketing strategy. Price is also called a demand regulator. Setting the
prices involves a deep understanding of factors that affect the marketing
environment. Every organization sets the prices of its products for fulfilling
various objectives.

1. Pricing based on Marketing Consideration

2. Pricing based on Cost Consideration

Pricing Objective

Pricing contributes to the success or failure of the organization’s

marketing strategy. Price is also called a demand regulator. Setting the
prices involves a deep understanding of factors that affect the marketing
environment. Every organization sets the prices of its products for fulfilling
various objectives.
Factors affecting Pricing

Before making policy, strategy and technique of determining price of

goods or services, a marketer should consider both internal and external
environmental factors of the firm that affect the pricing. All the elements
of marketing mix have close relationship with environmental factors.
Among them, pricing is perhaps a very sensitive as well as explosive
power. Business firm itself, consumers or customers , channel members,
competitors, government and economy are the major factors that play
significant role at different stages in the process of pricing. These factors
can be discussed as follows:

The factors affecting pricing decisions are varied and multiple. Basically,
the prices of products and services are determined by the interplay of five
factors, viz., demand and supply conditions, production and associated
costs, competition, buyer’s bargaining power and the perceived value. We
would like to divide them as Internal Factors and External Factors.

Internal Factors:
1. Marketing Objectives and Pricing Objectives:

Pricing objectives may be as stated earlier – profit objectives (return on

sales investment and maximisation of profits), sales objectives (increasing
sales volume and increasing market share) and maintenance objectives
(price stabilisation and matching the competition). Various pricing
objectives have important implications for a firm’s competitive strategy.
Pricing objectives must not be in conflict with the marketing objectives of
the firm.

2. Marketing Mix Strategy:

Price of a product or service is highly influenced by other elements of

marketing mix. The product life cycle through which the product is
passing through, or the kind of sale (lease versus overnight purchase,
or liberal returns policy may be followed). In the introductory product
life cycle or liberal returns policy, the price is likely to be high. If the
product requires services and those services are to be provided free,
naturally the product will be highly priced.

• The channels of Distribution, location of warehousing and the

transportation involved also influence the price determination.
Direct to the customer may enable the manufacturer to charge a
lower price, but selling through many intermediaries mean the final
price is to be very high to compensate the efforts of intermediaries.

• Promotion efforts reflect into final price. The amount of money spent
by, Coke and Pepsi, HUL or Proctor & Gamble reflect in the prices to
be charged. If the intermediaries are to undertake promotion work,
they will be charged a lower price and vice versa.

3. Costs:

Cost of a product is the single most important factor to influence the

final price. Six steps need to be identified while evaluating cost-price
structure:

i. Define the existing price structure;

ii. Identify the prices of competing products for each item in the
product line;
iii. Decide which product items need attention;
iv. Calculate the profitability of the current product/service mix;
v. Identify products and services for price changes; and
vi. Define the new price structure in the company.
4. Organizational considerations:

All the marketers are to make profit. Profit is a function of costs,

demand, and revenue. Hence their relationship must be understood
by pricing managers. The costs may be fixed costs and variable
costs. Break-even analysis is one unique technique to understand
relationship between cost and price.
 ExternalFactors:
1. Nature of the market and demand:

• What is the expectation of the market about the product or

services? What is the demand level for the product at different
prices?

• Market must also be understood whether there is monopoly, perfect

competition, oligopoly, monopolistic competition or duopoly.

• To understand demand, the supplier or marketer prepares demand

curves for the product at different prices. The marketer prepares
separate curves for normal products and prestige goods. In addition
to understanding price and quantity relationship, the marketer must
determine the price elasticity of demand to understand price
sensitivity of customers.

2. Competition:

There might be pure competition (Many buyers and Sellers Who Have
Little Effect on the Price), Monopolistic Competition (Many Buyers and
Sellers Who Trade over a Range of Prices), Oligopolistic Competition
(Few Sellers Who Are Sensitive to Each Other’s Pricing/ Marketing
Strategies), or Pure Monopoly (Single Seller) and in each situation price
determination will be different. The competition may arise from different
sources: Directly similar products like Coke and Pepsi, available substitutes
speed post versus couriers, or unrelated products seeking the same rupee
cricket match versus cinema, coke versus juice, new year dinner versus
vacation for three days, etc.

3. Other Environmental Factors (economy, resellers, &

government)
Economic Conditions, Reseller Needs, Government Actions, Social
Concerns do play an important role in price fixation.
Inflation in economy is an important factor in pricing. In India during
the last two years the inflation has been a great burden on the
common man and even the government has failed to do anything.
During recessionary conditions, the price level also drops, to
maintain the same level of turnover. Presently due to increased
interest rate by Reserve Bank of India, the manufacturers have to
pay a higher cost of capital which will be reflected in the price to be
charged.
Resellers needs are important in price determination. If you
remember, petrol pump dealers went on strike a number of times
 and finally the oil marketing companies had to agree the margin for
the resellers. It will naturally reflect in the final price to be charged
to the consumers. In some cases, like butter, the retailers have to
manage facilities like deep freezers which have both a capital cost
and operating cost, the manufacturer will have to provide a larger
margin to them.
Government’s concerns about pricing are reflected in laws and
regulations. Government regulations include price controls, import
duties, quotas and taxes. Recent decline of rupee value vis-a-vis
dollar also affects the prices of imported products or products using
imported spares. The volatility in international markets also affects
the prices at home.
4. Willingness to Pay

Knowledge of consumers’ reservation price (“the price at which a

consumer is indifferent between buying and not buying the product”)
or willingness to pay (“reservation price at which the consumer’s utility
begins to exceed the utility of the most preferred item”) is central to
any pricing decision. Willingness to pay is important not only for pricing
but equally important for new product development, value audits and
competitive strategy.

5. Positioning Strategy:

Positioning strategy involves the choice of target market and the

creation of a differential advantage. Price can be used to convey this
differential advantage and to appeal to a certain market segment. Price
is a powerful positioning tool for many people as an indicator of quality,
especially in products like drinks, perfume, and services where quality
can’t be assessed before consumption.

6. New Product Launch Strategy:

While launching new products, price should be carefully aligned with

promotional strategy. High price and high promotion is called a rapid
skimming strategy. One company that uses skimming strategy
effectively is Bosch. Its skimming Price Policy is supported by a large
number of patents, to its launch of fuel injection and anti-lock brake
systems. High price (skimming) and low price (penetration) may be
appropriate in different situations.
Significance of Pricing Decisions:

Pricing is an important decision making aspect after the product is

manufactured. Price determines the future of the product, acceptability of
the product to the customers and return and profitability from the
product. It is a tool of competition. Such as: Economy, Determinant of
Profit, Beating Competition, Demand Regulator, Crucial Decision Input,
Important Part of Sales Promotion, Helps in Determining Return,
Determines Demand, Sales Volume and Market Share, Countering
Competition, Builds Product Image and A Tool of Sales Promotion.

Pricing Methods

There are several methods of pricing products in the market. While

selecting the method of fixing prices, a marketer must consider the
factors affecting pricing. The pricing methods can be broadly divided into
two groups

The two methods of pricing are as follows:

A. Cost-oriented Method
 B. B. Market-oriented Methods.

A. Cost-oriented Method:

Because cost provides the base for a possible price range, some firms
may consider cost-oriented methods to fix the price

1. Cost plus pricing:

Cost plus pricing involves adding a certain percentage to cost in order

to fix the price. For instance, if the cost of a product is Rs. 200 per unit
and the marketer expects 10 per cent profit on costs, then the selling
price will be Rs. 220. The difference between the selling price and the
cost is the profit. This method is simpler as marketers can easily
determine the costs and add a certain percentage to arrive at the
selling price.

2. Mark-up pricing

Mark-up pricing is a variation of cost pricing. In this case, mark-ups are

calculated as a percentage of the selling price and not as a percentage
of the cost price. Firms that use cost-oriented methods use mark-up
pricing.

3. Break-even pricing

In this case, the firm determines the level of sales needed to cover all
the relevant fixed and variable costs. The break-even price is the price
at which the sales revenue is equal to the cost of goods sold. In other
words, there is neither profit nor loss.

For instance, if the fixed cost is Rs. 2, 00,000, the variable cost per unit
is Rs. 10, and the selling price is Rs. 15, then the firm needs to sell
40,000 units to break even. Therefore, the firm will plan to sell more
than 40,000 units to make a profit. If the firm is not in a position to sell
40,000 limits, then it has to increase the selling price.

The following formula is used to calculate the break-even

point:

Contribution = Selling price – Variable cost per unit

4. Target return pricing

In this case, the firm sets prices in order to achieve a particular level of
return on investment (ROI).
 The target return price can be calculated by the following
formula:

Target return price = Total costs + (Desired % ROI investment)/ Total

sales in units

For instance, if the total investment is Rs. 10,000, the desired ROI is
20 per cent, the total cost is Rs.5000, and total sales expected are
1,000 units, then the target return price will be Rs. 7 per unit as shown
below:

• 5000 + (20% X 10,000)/ 7000

• Target return price = 7
• The limitation of this method (like other cost-oriented methods) is
that prices are derived from costs without considering market
factors such as competition, demand and consumers’ perceived
value. However, this method helps to ensure that prices exceed all
costs and therefore contribute to profit.
5. Early cash recovery pricing

Some firms may fix a price to realize early recovery of investment

involved, when market forecasts suggest that the life of the market
is likely to be short, such as in the case of fashion-related products
or technology-sensitive products.

Such pricing can also be used when a firm anticipates that a large
firm may enter the market in the near future with its lower prices,
forcing existing firms to exit. In such situations, firms may fix a price
level, which would maximize short-term revenues and reduce the
firm’s medium-term risk.

B. Market-oriented Methods:
1. Perceived value pricing:

A good number of firms fix the price of their goods and services on the
basis of customers’ perceived value. They consider customers’
perceived value as the primary factor for fixing prices, and the firm’s
costs as the secondary.

The customers’ perception can be influenced by several factors, such

as advertising, sales on techniques, effective sales force and after-sale-
service staff. If customers perceive a higher value, then the price fixed
will be high and vice versa. Market research is needed to establish the
customers’ perceived value as a guide to effective pricing.

2. Going-rate pricing
 In this case, the benchmark for setting prices is the price set by major
competitors. If a major competitor changes its price, then the smaller
firms may also change their price, irrespective of their costs or
demand.

The going-rate pricing can be further divided into three sub-

methods:

a. Competitors ‘parity method:

A firm may set the same price as that of the major competitor.

• b. Premium pricing:

A firm may charge a little higher if its products have some additional
special features as compared to major competitors.

• c. Discount pricing:

A firm may charge a little lower price if its products lack certain
features as compared to major competitors.

The going-rate method is very popular because it tends to reduce

the likelihood of price wars emerging in the market. It also reflects
the industry’s coactive wisdom relating to the price that would
generate a fair return.

3. Sealed-bid pricing
This pricing is adopted in the case of large orders or contracts,
especially those of industrial buyers or government departments.
The firms submit sealed bids for jobs in response to an
advertisement.
In this case, the buyer expects the lowest possible price and the
seller is expected to provide the best possible quotation or tender. If
a firm wants to win a contract, then it has to submit a lower price
bid. For this purpose, the firm has to anticipate the pricing policy of
the competitors and decide the price offer.
4. Differentiated pricing
Firms may charge different prices for the same product or service.
The following are some the types of differentiated pricing:

a. Customer segment pricing:

Here different customer groups are charged different prices for the
same product or service depending on the size of the order,
payment terms, and so on.
b. Time pricing:
 Here different prices are charged for the same product or service at
different timings or season. It includes off-peak pricing, where low
prices are charged during low-demand tunings or season.
c. Area pricing:
Here different prices are charged for the same product in different
market areas. For instance, a firm may charge a lower price in a
new market to attract customers.
d. Product form pricing:
Here different versions of the product are priced differently but not
proportionately to their respective costs. For instance, soft drinks of
200,300, 500 ml, etc., are priced according to this strategy.

Price Strategy

How much the customer is willing to pay for the product has very little to
do with cost and has very much to do with how much they value the
product or service they’re buying. Pricing a product is one of the most
important aspects of your marketing strategy. Generally, pricing
strategies include the following strategies

Discounts
Discount is reduced prices or something being sold at a price lower than
that item is normally sold for. Lowering the price of a product to stimulate
sales is a conventional strategy employed in every area of sales, but
simply announcing the price drop may not be enough and can even have
a negative effect if buyers perceive the price drop as a reflection of the
product's true value. Appropriate discount pricing strategies dispel this
idea and introduce the idea of a limited price drop for buyers who respond
quickly.

The following points highlight the six most common types of price
discounts. The types are:

Quantity Discounts 2. Trade Discounts 3. Promotional Discounts 4.

Seasonal Discounts 5. Cash Discounts 6. Geographical Discounts

Rebate:

Return of a portion of a purchase price by a seller to a buyer, usually

on purchase of a specified quantity, or value, of goods within a
specified period. Unlike discount (which is deducted in advance of
payment), rebate is given after the payment of full invoice amount.
Rebates are a post-compensation approach used by manufacturers
when the distributors' sales volume reaches a certain standard.
Compared with price discount, the rebate is an indirect way of
discounting and the value of this method has yet to be given a
reasonable explanation in industrial organization theory. Preliminary
Study of the economics principles of shows that rebates can overcome
problems caused by double mark-up and achieves the goals of vertical
structural optimization. At the same time, rebates can also eliminate
the defects resulted from traditional vertical price restraints. From the
principle point of view, combined with Quantity Fixing and Franchise
Fees, rebates can replace the vertical restrictions. However, as an
incentive for the distributors, rebates have their own characteristics.
For example, rebates make reasonable distribution of benefit to all
parties, and the mechanism to realize objectives is closer to the market
rules, so fewer legal and social risks will arise. These practices, which
are different from traditional vertical restrictions, should be grouped
under the concept of vertical incentives, so as to illustrate the vertical
measures which have with common features.