SCHOOL OF MANAGEMENT STUDIES

UNIT – III– MARKETING REQUISITES – SBAB1302

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UNIT 3 PRODUCTS AND PRICING
Product – Layers of Product – Product Classification – Product Mix decisions – Product
Life Cycle and Marketing Mix – Branding Labeling and Packaging - Pricing objectives –
Factors influencing pricing – Pricing methods and strategy.

Definition:
“Product can be defined as anything that can be offered to a market for attention, acquisition,
use or consumption that might satisfy a want or need.”
- Philip Kotler

Layers of a product:
A product is like an onion with several layers and each of the layers contributes to the total
product image. The five layers of a product are:

Layers of a product Tangible (Washing Service

Machine) (Restaurant)

1.Core Benefit: The fundamental service or Comfort Change of mood

benefit provided Convenience
2. Basic Product: What the consumer recognize Washing Machine Restaurant
it as.
3.Expected Product: Attributes expected by the Features, Style, Tasty food,
customers Quality Cleanliness,
convenience
4.Augumented Product: Broader conception of Guarantee, service & TV, Light music,
the product/exceeds customer expectation maintenance , free Package offer,
home delivery place for family
5. Potential Product: new way to satisfy Free demo at home, Performance of
customers & differentiate from competitors. call back of artist, Booking
performance of tours, Railways &
product. Airways

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Classification of Products:
Products or goods are classified in to several types. They are:
1. Consumer & Industrial Products: Consumer products are those which are meant for the
consumption or final use of consumers or house-holds.
Eg: Shampoo, Biscuits, watches, Two-wheelers.
Industrial goods are those which are used by business buyers as inputs for further commercial
processing. Eg: raw materials, spare-parts, equipments or machinery.
2. Durable & Non-Durable products: Durable products are those tangible products that last
longer or they do not get exhausted even after repeated use.
Eg: Chair, Car, Refrigerator, Utensils.
Non-Durable products are those which get exhausted with a single or few uses.
Eg: Food items, Soft drinks, Soap, Toothpaste.

3. Convenience, Shopping and Specialty products:

Convenience goods are those products which are bought with the minimum of efforts,
at short notice and from convenient location.
These products have features such as – purchase at convenience location - full knowledge of
products- keen competition among producers and are perishable – in nature.
Examples are all those articles sold by grocers – a wide range from cigarettes to medicines like
soaps, cosmetics, bakery products, papers and so on.

Shopping goods are those where consumers devote considerable time in making
selection of those before they buy. The consumers want to compare a quality, price & style in
several shops before they buy.
The basic features of this product are – they are durable, higher unit price, comparison in
selection, pre-planned purchase, and existence of exclusive stores.
Examples: Office & house-hold furniture, automobiles, audio & audio-visual sets,
refrigerators, jewelleries etc.,

Specialty goods are those which enjoy certain special features and special efforts are
made in their purchase. These products have unique characteristics and brand identification
calling for special efforts.

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The special features are – full knowledge of products, bias on a particular brand, limited
demand, and high unit price.
Examples: Wrist-watches, cameras, cars and so on.

Concept of Product Mix:

Product Mix: Product mix, also known as product assortment, is the total number of product
lines that a company offers to its customers. The product lines may range from one to many
and the company may have many products under the same product line as well. All of these
product lines when grouped together form the product mix of the company.

The product mix is a subset of the marketing mix and is an important part of the business model
of a company. The product mix has the following dimensions

Product Width: The width of the mix refers to the number of product lines the company has
to offer.
For e.g., If a company produce only soft drinks and juices, this means its mix is two
products wide. Coca-Cola deals in juices, soft drinks, and mineral water and hence the product
mix of Coca-Cola is three products wide.

Product Length: Length of the product mix refers to the total number of products in the mix.
That is if a company has 5 product lines and 10 products each under those product lines, the
length of the mix will be 50 [5 x 10].

Product Depth: The depth of the product mix refers to the total number of products within a
product line. There can be variations in the products of the same product line. For example –
Colgate has different variants under the same product line like Colgate advanced, Colgate
active salt, etc.

Product Consistency: Product mix consistency refers to how closely products are linked to
each other. Less the variation among products more is the consistency. For example, a company
dealing in just dairy products has more consistency than a company dealing in all types of
electronics.

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PRODUCT LIFE CYCLE:

The product life cycle is a conceptual representation. It is a product aging process. It is simply
a graphic portrayal of the sales history of a product from the time of its introduction to
withdrawal.
Stages of Product life cycle: The product aging process has four stages namely

- Introduction
- Growth stage
- Maturity stage
- Decline stage

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1. Introduction: It has only proved demand and not the effective demand. It is
characterized by:

a. Low and slow sales:

o Delay in expansion.
o Delay in availability.
o Consumer resistance.
b. Highest promotional expense.
o To create demand.
o To inform
o Inducing trial.
c. Highest product prices.
o Initially the price will be high
o Lower output and sales – absorbing fixed cost
o Higher margin to support higher promotional expenses.
o Very few competitors.

2. Growth: Product accepted sales rises – price remain higher to recover the cost – high
sales + high price = profit rises sharply – leads to competition – product improvement.

a. Sales rises faster:

o Killing consumer resistance.
o Distribution and retail outlets built well.
o Production facilities streamlined.

b. Higher promotional expenses:

o Advertisement moves on brand identification.
o Special offer, concession, allowances to dealers is given.

c. Product improvement:
o Originator paved the pattern of market – Competitor becomes stronger by
emerging with modified products – may also reduce price – urge the originator
to further improve the product.

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3. Maturity: Market becomes saturated – demand satisfied – Distribution channel full –
Production cost reduced. Efforts made to extend the maturity stage – much longer than the
growth stage.

a. Sales increase at decrease rate: Market saturation – demand is mostly for

repeat sales – Competition intensives – Prices tend to fall – Selling effort is
aggressive – firms employ extensive strategies to retain market share.
o Development of new market
o Development of new uses.
o Development of more frequent use.
o Development of wide range of products.
o Development of style change. – pen, car, watch, etc.,

b. Normal promotional expenses: Promotional spend is very normal – Weaker

competitors leave the market to longer and stronger manufactures.

c. Uniform and lower prices:

4. Decline: Actual sales begin to fall.

- New product competition.
- Change in consumer taste & preferences.
- Price fall.
- Market for the product - suppressed by technological change.

a. Rapid fall in sales – eg: Calculators.

b. Further fall in price – Liquidate the stock ( maximum benefit at least profit margin)
c. No promotional expenses.

New Product Development:

A new product is product that is new to the company introducing it even though it may have
been made in some form by others. Eg: Fiama De Vils shampoo and soap from ITC.

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 Any product that consumer treats as an addition to the available choices could be
considered as new product. Eg: Medimix sandal soap.

Steps in new product development:

The function of planning and developing new products involves six steps they are:

IDEA GENERATION

SCREENING OF IDEAS

BUSINESS ANALYSIS

PRODUCT DEVELOPMENT

TEST MARKETING

COMMERCIALISATION

Idea Generation:

1. Internal Sources
a. Basic Research
b. Manufacturing
c. Sales people
d. Top Management

2. External Sources
a. Secondary sources of information

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 b. Competitors
c. Customers
d. Resellers
e. Foreign markets
Screening of Ideas:

1. Reasons of screening:
a. All good ideas are not equally promising.
b. Resource Constraints.
c. Product development is a continuous process.(competition & technological
important)
2. Screening Procedures:
a. Determine the product idea is compatible with the company’s objectives.(
Profit, sales company image)
b. Determine the product idea is compatible with the company’s resources. (Raw
materials, lab our, and other production facilities.)

Business Analysis:

a. Demand Analysis – Product demand, projection of future sale.

b. Cost Analysis – Cost involved in product (manufacturing & marketing)
c. Profitability analysis –
1. Break even analysis
2. Rate of return analysis
3. Pay-out analysis
4. Discounted cash flow analysis.

Product Development:

1. Technical Development
a. Applied engineering research – product drawing design, building prototype(
first design)
b. Manufacturing methods research – laboratory compounds, full product
commercially acceptable

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 2. Market development
a. Product concept testing.
 Consumer preference testing
 Concept testing.
Developing other elements of marketing mix
 Product branding
 Product packaging
 Product labeling
Test Marketing:

Test marketing is conducted to predict sales or profit.

The need for test marketing:

1. To improve the knowledge of potential product sales.

2. To pretest alternative marketing plans.
3. To predict product faults.
4. To know reactions of competitors.

Problems in test marketing:

1. In accurate results.
2. It is an expensive exercise.
3. It is time consuming.
4. It lets the tips to competitors.

Commercialization:

Actual introduction of the product in to the market place. The following are taken care.

- Raw material supply is taken care.

- Channel of distribution.

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 - Manufacturing facilities.
- Sales people are hired.
- Advertisement.

BRANDING:

Branding of products is of strategic and increasing importance. Product brand is an

associated attribute and is so significant that due weight age is to be given in product policy
and strategy formulation. Brand though is a name, plays more important role.

Brand is a broad term encompassing most ways of identifying a product. A brand is a

product image, a quality, a value, a personality.

Branding is the process of finding and fixing the means of identification. It is nothing
but naming the product like naming a child. Once a product shapes, it needs an identity that
is in the form of brand and recognizing it is branding.

Definition:

Brand is “a name, term, symbol, or a design or a combination of them which is intended to

identify the goods or services of one seller or a group of sellers and to differentiate them
from those of competitors.”
- American Marketing Association

Selecting a Brand Name:

The key to create a brand is to be able to choose a name, logo, symbol, package design or other
attributes that identifies the product and distinguishes it from others. These different
components of a brand that identify and differentiate are called brand elements. Brand elements
come in many different forms. A variety of brand name exist they are:

1. Company name is used for all products. Eg: GE, PHILIPS.

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 2. Individual brand name to a new product that is unrelated to the company name, Eg:
HLL – Hamam, Lifebouy.
3. Brand names based on people. Eg: Saravana stores, Jeyachandran.
4. Brand name based on places. Eg: British Airways, Indian Airlines.
5. Brand name based on Animals or Birds. Eg: King fisher, Tortoise, Anil.
6. Brand name based on other things or objects. Eg: Shell , Apple computers.
7. Brand names that use words with inherent product meaning. Eg: All out, Good night,
Mother’s Recipe, Boost.
8. Brand names that suggest important attributes or benefits. Eg: Fair & Lovely, Fast
Relief, All clear.

Requisites of Good Brand Name:

1. It is easy to pronounce and remember.

2. It is short and sweet.
3. It projects product qualities.
4. It points out the producer.
5. It is original.
6. It is easy to promote.
7. It is legally protectable.

Brand Classification:

There are different ways in which brands are classified. The most obvious ways are three
namely.

1. Individual and Family brand.

2. Manufacturer and Distributor brand.

3. Regional and National brands.

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 1. Individual and Family brand: Individual brand names are those where each product
has a special and unique brand name. Eg: Surf, RIN, and Wheel – HUL. Individual
branding is the best tactics of successful marketing. However it has special promotional
problems, as the producer or advisor is to promote each individual brand separately.
Family brand names are used in a product-line of a company. Eg: “
Kissan”known for squashes, syrups, ketchups, sauces and jams, Similarly “Maggi”.
This reduces promotional cost considerably. However a failure in any line is sufficient
to damage the whole image built up.

2. Manufacturer and Distributor Brands: A brand which is owned by manufacturer or

is registered under manufacturer’s name is manufacturer’s brand. This is usually the
case with big sized concerns known for equality production with wide network that they
sell their products under their own names. All big business houses in India like
“TATA”.
Distributor’s brand or private brand is owned by the distributor or is registered
under the name of the distributor. It is called as private because the producer or the
manufacturer does not come into picture at all. Eg: BATA Company is selling the
products of so many small producers under their brand name. It speaks of the markets
standing of the middlemen than the manufacturer.

3. National and Regional Brands: A National brand is one which is identified by the
people as one through-out the nation. Eg: Lipton’s “Dalda” brand vanaspati.
If the same vanaspati is identified in different states by varying brands it is
regional brand.

Advantages of Branding :

To consumers:

1. It assures quality and value.

2. It evaluates status.
3. It saves time and effort.
4. It gives trade and legal protection.

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To marketers:

1. It is a massive asset.
2. It is a promotional tool.
3. It protects market.
4. It is an antidote for survival of middlemen.
5. It is a means of identification.
6. It facilitates product-line expansion.

Disadvantages of Branding :

To consumers:

2. It creates confusion and chaos.

3. It makes loosing sight of better products.
4. It hikes product prices.

To marketers:

1. It involves commitment.
2. Possibility of brandlessness.
3. Branding is expensive.

PACKAGING:

Packaging is often called the hidden “P” or the “5 th P” of marketing mix. This gives a clear
idea as to how important packaging is to marketer.

Definition: Packaging is defined as “the activities of designing and producing the container or
wrapper for a product, this container or wrapper is called package.

Package can be broken in to three different categories:

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1. Primary Package: It is the wrapper or container which is immediately next to the product.
Eg: The oil bound tissue paper next to a soap or biscuit.

2. Secondary Package: This refers to the material that protects the primary package.
Eg: Carton cover for a soap.

3. Shipping Package: This is also called territory packaging. This is necessary for storage,
identification or transportation.
Eg: Cardboard box etc.

Package Design:

A well designed and attractive package is an ever present “Shelf Salesmen” for the
retailers. The package design itself can act as a brand. A good package is:

1. Economical – to manufacturer, to fill, to store

2. Functional – in transit, in store, at home
3. Communicative – of brand, of product, of performance, of usage
4. Attractive – in color, in design, in graphic impact.

Functions of Packaging:

1. Packaging is a sales tool.

2. It identifies the maker as well as the product and carries the brand name.
3. The packaging label informs the buyer about inner contents and how to use
them.
4. It is the biggest advertising and promotional tool.
5. It encourages re-purchase. (Pet bottle)
6. It facilitates retailer’s functions.
7. It creates product image & individuality.
8. It enables easy display.(Sachets are hung from a rool)

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Problems with packaging:

1. Unless the package is transparent the buyer can not judge the contents by appearance.
2. If quality information on the package label is absent, the buyer has to purchase almost
blindly.
3. Specific (required) quantity may not be sold (ie, 100ml may be required but 80ml may
be sold) when packed.
4. There is no feasible way to check weight and volume of the contents unless a buyer
opens the package to ascertain the weight.
5. Package design will look like large volume but inside the content will be small.
6. The color of the package will be different from color of the product.
7. Packages may creat health hazards for consumers. Certain

Attributes of a good package:

A package should:
1. Protect the content from breakage or spoilage.
2. be easy to open, dispense from and close.
3. be safe to use.
4. Keep the product from deteriorating.
5. Be of proper size and shape.
6. be reusable, able to be recycled or be bio-degradable.
7. be economical.
8. be available in the sizes appropriate to the market segment served.

LABELING

Definition: “Label is a part of the product which carries verbal information about the product
or the seller. It might be a part of the package or it might be a tag attached directly to the
product.”

Label may be a small slip, printed statement which gives necessary information to the
consumers. The act of attaching or tagging the labels is known as labeling.

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Types of Labeling:

A product label may be either descriptive, informative, grade designating or a combination of

these. Labels are fixed to products to identify them and to describe their ingredients, quantity,
quality and other characteristics.

Descriptive is one that describes the contents of the package or the ingredient of the product.
Informative includes descriptive material – how the product is made, how to use for better
results. Grade designates the ISI mark to which the product confirms.

Functions of Labeling:

1. It helps the producer to give clear instructions about the use of the product.
2. Price variation done by middlemen can be avoided as price is printed.
3. Manufacturer name is known to the buyer hence an unseen relation is
developed.
4. It encourages the manufacturer to make standardized products.
5. Buyers can easily identify the product.

Information provided by a Label:

1. Brand Name
2. Address of the producer
3. Gross & Net quantity of the content
4. Ingredients in the product
5. Direction for use
6. Precautionary measures (Warning)
7. Nature of the product (Veg, Non-Veg)
8. Date of packaging & Expiry
9. Maximum Retail Price (MRP)

Advantage of Labeling:

1. It helps in grading the product

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 2. It facilitates buyers to pay the right price
3. It gives details of the characteristics of a product
4. It helps advertising activity / it acts as media to popularize the product.
5. It gives guarantee for the product.

Disadvantages of labeling:

1. It is waste if the consumer is illiterate or ignorant about the use.

2. It increases the cost of the product.
3. Labeling can be taken up only when the product can be graded and standardized.
4. Its main goal is to popularize the product.

Pricing
Objectives: methods

“Price is the exchange value of goods and services in terms of money.”

The term price denotes money value of a product.”

Objectives of pricing:

Pricing objectives vary from firm to firm. Generally the firms have multiple pricing objectives,
They are:
1. To achieve target rate of return on investment.
2. To achieve price stability.
3. To meet or prevent competition.
4. To maintain or improve market share.
5. To maximize profit.
6. To survive in the market.
7. To build public image of the firms.
Factors affecting price of a product:
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

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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:

1. Internal or controllable pricing factors:

These are the factors within a company that affect how a price is set. Since they are internal,
the company has control over them. Some of these include the company's goals, production
and delivery costs, marketing plans, product type, and brand reputation.

a. Organization's objectives:
The company’s goals strongly affect how a product is priced. For example, a company may set
a low price when launching a new product to attract customers. Another company might set a
high price to quickly recover its costs or earn profit. So, the company’s main goal helps decide
the price.

b. Cost of manufacturing and marketing:

The cost of making and delivering the product plays a big role in pricing. If these costs are
high, the company cannot afford to set a low price. Therefore, price must be set to cover these
expenses.

c. Other marketing mix components:

Other elements of marketing like the product features, where it's sold (place), and promotions
(ads, offers) affect pricing. If a product is high quality or well-known, it may be priced higher.
Also, if a lot is spent on advertising, that cost may be added to the product price.

2. External or independent pricing factors:

These are outside factors that a company cannot control but still affect pricing. These include
customers, distribution partners, competitors, government rules, and the country’s economy.

a. Consumers and market:

Customers and the market influence price. When setting prices, companies must think about
customer behavior, what kind of buyers they are targeting, how they feel about the product and
price, and how much they are willing to pay.

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b. Channel members:
Middlemen like wholesalers and retailers also affect pricing. They need to earn profit too, so
the company must offer a price that allows them to do that. The company can suggest selling
prices to them, but without formal agreements, it cannot force them.

c. Competition:
Prices are also influenced by what competitors are charging. If one company is a market leader
and changes its prices, others often follow. When no single company leads, businesses compare
all competitors’ prices before deciding their own.

d. Government:
The government can also influence or control prices through rules and policies like price
controls, taxes, and laws. In some cases, the government even sets the price for certain products.

Pricing methods:

There are three broad classes or methods that can be used for pricing the products. They are:
1. Cost based pricing method: Cost establishes the floor for the possible price range and there
are two commonly used pricing methods to set the product prices. These are:
a. Cost plus pricing.
b. Target return pricing.
2. Competition based pricing methods: Many firm set prices largely in relation to the prices
of their competitors. There are two commonly used competition based pricing namely:
a. Going rate pricing.
b. Sealed bid pricing.
3. Demand based pricing: There are two important demand based methods namely:
a. Demand modified break even analysis pricing.
b. Perceived value pricing.
Pricing Strategies:

 Penetration Pricing: The seller tries to penetrate the market with a low price and
increase the price subsequently with increase in demand.

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 Skimming Pricing: The seller tries to skim the profit from the market by charging a
high price in the initial stages and lowers the price in the long run.

 Captive Pricing: A special price is offered to loyal customers.

 Value based pricing: Sellers sets the prices according to the value perceived by the
customer of the product.

 Bundle Pricing (Combo): Sellers offer a bundle or package of different products or

services for a lower price than they would charge if the customer bought all of them
separately.

 Psychological Pricing: Prices are set according to emotional appeals that influence
buying decisions. Eg: Prestige pricing, Odd pricing,

 EDLP (Every Day Low Price): Retail stores offer low prices to customers every day
in comparison with competitors to promote sales and increase footfall without any
special occasion, event or discount.

 Discounting Pricing: It involves reduction of price from MRP for performing certain
activities. It includes cash discounts, quantity discounts and seasonal discounts.

 Discriminatory Pricing: Seller sells a product at two or more prices based on customer
segments, location, time and availability of product.

 Promotional Pricing: Prices are set below MRP to stimulate purchases and increase
awareness. It includes - Pricing for special events, low interest, Financing, Cash rebates,
Warranties & Discounts.

 Going Rate Pricing: Price is set on the basis of prevailing market rate.

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Discounts & Allowances:

Discounts:

1. Trade discount: It is a kind of functional discount. It is given to the buyers buying for re-
sale. Eg. Wholesalers or retailers. Thus, it is a reduction made from the quoted price of an
article. It is allowed to every purchaser whether the purchase is made in cash or in credit. The
actual rate of trade discount is not fixed but varies widely.( 2 ways: 15% or 10% + 5%.)

2. Quantity discount: It is a deduction offered from the list price by a seller in order to
stimulate the customer to buy in large quantities.

3. Cash Discount: It is allowed when payment is made on or before a particular date. It is in

addition to the trade discount and not in place of it.

Eg: Price of the good – Rs.1000/-

Less trade discount - Rs.145/-

Rs.855/-

Less cash discount (10%) Rs.85.50/-

Net amount Rs.769.50/-

4. Seasonal Discount: It is the deduction allowed over & above the trade discount in case of
products which have only seasonal demand.

Allowances:

The manufacturer may offer allowances to distributors for promotional activities Eg:
Advertising allowances, window display, free samples, free display materials, training in sales
demonstration etc,
It amounts to a price reduction of an amount spent by the distributor in performing promotional
services.

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