UNIT 2

MARKETING MIX DECISIONS: PRODUCT & PRICING

CONTENT

◼ Marketing Mix Decision -Product and Pricing: Product

Decisions: Concept and classification; Levels of Product.
◼ Product strategies; Branding decisions; New Product
Development; Product life cycle
◼ Pricing Decisions: Objectives; Factors affecting pricing; Pricing
methods; Pricing strategies.
PRODUCT

◼ A product may be defined as a bundle of utilities consisting of various product

features and accompanying services.
◼ The customer does not buy merely the physical and chemical attributes of a product.
He is really buying want satisfaction.
◼ In other words, what a buyer buys is a mixture of expected physical and
psychological satisfactions.
◼ Therefore, the term 'product does not mean only the physical product but the total
product including brand, package, label, status of manufacturer and distributor and
services offered to the customer, in addition to the physical product. The term
product is inclusive.
LEVELS OF PRODUCT (BY PHILIP KOTLER)
CORE PRODUCT

◼ Core Benefit of a product

◼ Fundamental Dimensions of a product
◼ The basic job of a marketer is to sell the core benefits
◼ Answers the question “ What is the buyer really buying?”

◼ Example: A woman buying washing machine is actually buying comfort and not the mere collection of drum,
heater and nuts & bolts for their own sake.
◼ For example, the need to process digital images.
BASIC PRODUCT

◼ Larger packaging of a core product.

◼ What the target market recognizes as the offer
◼ The physical dimensions of a product

◼ A washing machine is considered as collection of drum, heater, nuts & bolts.

◼ For example, the need to process digital images could be satisfied by a generic, low-end, personal computer using
free image processing software or a processing laboratory.
EXPECTED PRODUCT

◼ Consumer's basic requirements/expectations form a product.

◼ Everything that meets customer's minimal expectations.
◼ Vary customer to customer, product to product and industry to industry.

◼ What a Customer expects from a computer?

◼ Features, Style, Quality and brand, Warranty and Packaging

◼ For example, the computer is specified to deliver fast image processing and has a high-resolution, accurate colour
screen.
AUGMENTED PRODUCTS

◼ Broader conception of the product

◼ Represents totality of benefits that a customer may receive.
◼ Additional services and benefits with the product.
◼ The firm that develops the right augmented products will be able to attract more customers and can survive in
the competitive market.

◼ The Augment product for a TV seller is not only the TV but also delivery, free installation, guarantee, and
services and maintenance.
◼ For example, the computer comes pre-loaded with a high-end image processing software for no extra cost or at
a deeply discounted, incremental cost.
POTENTIAL PRODUCT

◼ Includes all augmentations and transformations that the product might undergo in the future.
◼ Includes all unexpected changes in :
◼ Technology Attributes Features Styles Color Grade Quality Etc.

◼ Today changes in information technology have brought about changes in the processing speed of computer
◼ Processor 16-Bit, 32 Bit, 64 Bit
◼ For example, the customer receives ongoing image processing software upgrades with new and useful features.
PRODUCT MIX

◼ The product-mix refers to all the products offered by a firm.

◼ Product-mix should be differentiated from the product line, which refers to the group or products which are
classified together for reasons of similarities on any one of the several criteria such as customer needs, market
served, channels used, or technology used in manufacture.
◼ An individual product in a line is termed as a product item. Thus, there are many product items in a product line
and a number of product lines in the product-mix of a big firm.
FACTORS AFFECTING PRODUCT MIX

It is very difficult for a marketer to take a decision about the number of products it should produce at a
given time because the number of products of product-mix is affected by several factors. Changes in the
product-mix, that is, adding or eliminating products, may be due to the following factors:
◼ Change in demand of product.
◼ Change in purchasing power or behaviour of the customers.
◼ Change in company targets.
◼ Development of by-products by using residuals, at low cost.
◼ The competitor's actions and reactions.
◼ Spare marketing capacity.
◼ Possibility of adding new product to its product line at less cost.
PRODUCT MIX DECISIONS
◼ An organization is required to bring changes in product mix to make it adaptable according to the
needs of consumer.
◼ Product mix decisions refer to addition, deletion or modification of product in product mix. Primary
aim of product mix decisions is sales and profit maximization.
◼ Product mix decisions can be explained as follows:
Product Line Decisions
Line stretching decisions
1. Downward Stretching
2. Upward stretching
3. Two Way Stretching
Line Filling Decisions
Line Pruning Decisions
PRODUCT MIX DECISIONS

◼ Product Line Decisions:

◼ Product line refers to a group of same products. Product line decisions refer to decisions relating to addition
or deletion of product from the existing product line. Addition and deletions in product can be explained as
follows:
◼ Line Stretching Decisions:
◼ Line stretching implies increasing the length of product line. It can take place in three directions.
a) Downward Stretching:
Downward stretching refers to addition of a new product into existing product line but at a lesser price. For
example; TATA introduced low cost car "Nano" in the market.
b) Upward Stretching:
Upward stretching is the opposite of downward stretching. When an organization adds a new product in the
current product line but at higher price than the existing one, it is called upward stretching. For example; Parle
started with low cost biscuits like Parle G then introduced high cost product of same category like Hide and
Seek.
PRODUCT MIX DECISIONS

c) Two-way Stretching:
◼ Two way stretching refers to addition of product in product line in both the directions. So, a low priced as well
as a high priced product are added at the same time in product line. Marriot - Hotels & Resorts started
Renaissance Hotels to serve upper end of the market and Town Place suites to serve lower section of the
market.

◼ Line Filling Decisions:

◼ Product line filling involves adding a new product in the existing product line to face competition and increase
consumer base. Under product line filling price of the new product is normally same. For example, Maruti Suzuki
introduced Alto when Maruti Zen was already available in the same range.
◼ Line Pruning Decisions:
◼ Line pruning decisions refer to removal of unprofitable product from the product line. For example Pepsi
launched Pepsi Gold but the product was not successful in the market. So after some time it was removed from
the market.
TYPES OF PRODUCTS
TYPES OF PRODUCTS

Durability/ Tangibility of Goods

◼ Durable Goods: These are also tangible goods that remain in use months after months and year after
year. Normally, they require more personal selling and service, guarantee, higher margin, etc. For
example: cars, couches or chairs, vacuum cleaners, washing machines, etc.
◼ Non Durable goods: These are tangible goods that are low priced and normally consumed in one or
few uses everyday or anytime of the day such as soaps, biscuits, shampoos, deodorants, etc. As these
goods are consume quickly and purchased frequently, the appropriate strategy is to make them
available in many locations, charge only a small mark up and advertise heavily to induce trial and build
preference.
◼ Services: These are intangible, inseparable, variable and perishable products. As a result, they normally
require more quality control, supplier creditability and adaptability. Example- hair cut, legal advices,
appliance repair, financing, etc.
TYPES OF PRODUCTS
Consumer Goods classification:
◼ Convenience goods: These are those products which a consumer purchases frequently, immediately and with
minimum efforts from convenient locations. For example, tooth paste, bread, newspaper, cigarette, match box,
medicine, soap, cold drinks, grocery items, etc.
◼ Shopping goods: These are those goods where consumers devote considerable time in making selections
before they buy. On the basis of durability, suitability, quality price and style, the selection and purchasing of the
goods takes place. For example, household furniture, automobiles, refrigerators, sewing machines, clothing, used
cars; arid major appliance, etc.
◼ Specialty goods: These goods possess unique characteristics and brand identification for which a sufficient
number of buyers are willing to make a special purchasing effort. For example, stereo components, photographic
equipment, men’s suits, shoes, goggles, mobile phones, cloth material, etc.
◼ Unsought goods: These are those goods which the consumer does not know about or does not normally
think of buying. These goods require advertising and personal-selling support. For example, smoke detectors,
kitchen exhaust fans like electric chimneys, etc. The classic examples of known but unsought goods are life
insurance, cemetery plots, encyclopedias, reference books, etc.
TYPES OF PRODUCTS
Industrial Goods classification
◼ Raw Material (are also known as feedstock or unprocessed material): These are basic
industrial materials that are used to produce goods, finished products, energy, or intermediate
materials, which are feedstock for future finished products. They are divided into following parts:
◼ Natural products: Minerals, land, and products of the forests and the seas.
◼ Agricultural products: wheat, cotton, tobacco, fruits, live-stocks, etc.
◼ Animal products: Eggs, raw milk, etc.
◼ The demand for raw material depends upon the demand of finished goods. These are usually graded
for standardized quality.
◼ Fabricating material and parts: These are partial or complete manufactured goods that are used
without any substantial change in their form and become a part of the finished goods. For example,
electric motors, batteries, automobile parts, spark plugs, Tyres and tubes, components of electrical
appliances, etc. These products are directly supplied to the industrial users.
TYPES OF PRODUCTS
Industrial Goods classification
◼ Installation: Installations have long life and are expensive major equipment of an industrial user.
They are usually bought directly from the producers with the capital sale preceded by long
negotiation period. For example, heavy machinery, diesel engines, trucks, factory sites and production
lines.
◼ Accessory equipment: These are those industrial goods which are usually less expensive and have
short life than installation. They are required for manufacture of final products though they don’t form
part of finished products. Example, Portable factory equipment and tools (hand tools, fork lift trucks)
and office equipment (personal computers, desktops, etc.). They are highly standardized instruments.
◼ Operating supplies: Operating supplies are short-lived and low priced items usually purchased with
a minimum of effort. They are the ‘convenience goods’ of industries. They do not have a significant
impact on the long run profitability of an organization. Supplies include floor wax, lubricating oils,
heating fuel and office stationary like pins, pens, pencils, papers, etc. Operating supplies do not
become a part of finished product.
NEW PRODUCT DEVELOPMENT
1. The first stage of the New Product Development is the idea generation. Ideas come from everywhere, can be of
any form, and can be numerous. This stage involves creating a large pool of ideas from various sources, which
include
◼ Internal sources- many companies give incentives to their employees to come up with workable ideas.
◼ SWOT analysis- Company may review its strength, weakness, opportunities and threats and come up with a
good feasible idea.
◼ Market research - Companies constantly reviews the changing needs, wants, and trends in the market.
◼ Customers- Sometimes reviews and feedbacks from the customers or even their ideas can help companies
generate new product ideas.
◼ Competition- Competitors SWOT analysis can help the company generate ideas.
2. Idea Screening
◼ Ideas can be many, but good ideas are few. This second step of new product development involves finding those
good and feasible ideas and discarding those which aren't. Many factors play a part here, these include -
◼ Company's strength,
◼ Company's weakness,
◼ Customer needs,
◼ Ongoing trends,
◼ Expected ROI,
◼ Affordability, etc.
3. Concept Development & Testing
◼ The third step of the new product development includes concept development and testing. A concept is a
detailed strategy or blueprint version of the idea. Basically, when an idea is developed in every aspect so as to
make it presentable, it is called a concept.
◼ All the ideas that pass the screening stage are turned into concepts for testing purpose. You don't want to launch
a product without its concept being tested, right?
◼ The concept is now brought to the target market. Some selected customers from the target group are chosen to
test the concept. Information is provided to them to help them visualize the product. It is followed by questions
from both sides.
◼ Business tries to know what the customer feels of the concept. Does the product fulfil customer's need or want?
Will they buy it when it's actually launched?
◼ Their feedback helps the business to develop the concept further.
4. Business Strategy Analysis & Development
◼ The testing results help the business in coming up with the final concept to be developed into a product.
◼ Now that the business has a finalized concept, it's time for it to analyse and decide the marketing and other
business strategies that will be used. Estimated product profitability is estimated, marketing mix, and branding
strategies are decided for the product.
◼ Competition of the product
◼ Costs involved
◼ Pricing strategies Breakeven point, etc.

5. Product Development
◼ Once all the strategies are approved, the product concept is transformed into an actual tangible product. This
development stage of New Product Development results in building up of a prototype or a limited production
model. All the branding and other strategies decided previously are tested and applied in this stage.
6. Test Marketing
◼ Unlike concept testing, here the actual prototype is introduced for research and feedback. Actual customers
feedback are taken and further changes, if required, are made to the product. This process is of utmost
importance as it validates the whole concept and makes the company ready for the launch.

7. Commercialization
◼ The product is ready, so should be the marketing strategies. The marketing mix is now put to use. The final
decisions are to be made. Markets are decided for the product to launch in. This stage involves briefing different
departments about the duties and targets. Every minor and major decision is made before the final introduction
stage of the New Product Development.

8. Introduction
◼ This stage involves the final introduction of the product in the market. This stage is the initial stage of the actual
product life-cycle.
PACKAGING

◼ Packing means wrapping, compressing, filling or creating of goods for the purpose of
protection of goods and their convenient handling. Bulky materials like cotton and jute are
compressed into bales, liquid materials like wine and squash are placed in bottles and cans.
◼ Heavy goods are crated and fragile goods are placed in boxes or special containers. Package
means a case, container, wrapper or other receptacle for packing goods. It can be made of
metals, plastics, wood, paper, glass, or laminates.
◼ Packaging is the designing and producing of the container or wrapper for a product in order
to prepare the goods for transport, sale, and usage.
◼ For example, Dettol liquid comes in a package which facilitates easy pressing of the top
portion by thumb and ultimate release of the liquid Dettol. If this function cannot be
performed, the package would be useless for the consumer. Thus, properly designed
package would enhance the value of its contained product.
FUNCTIONS OF PACKAGING

◼ Protection and preservation

◼ Information transmission
◼ Containment
◼ Product Promotion
◼ Product Identification
◼ Convenience
◼ Product Positioning
◼ Enhances product image and Appeal
LEVELS OF PACKAGING

◼ Primary Package: Immediate package of a product. For example: Toffee wrapper,

toothpaste in tube.
◼ Secondary Package: Additional layers of protection to the product. For example:
Wrapped toffee are secured in a bottle having 100 toffees.
◼ Tertiary/ Transportation package: Packaging for transportation and storage. For
example: Packages of toffees are put into corrugated boxes.
BRANDING

◼ “A brand is a name, term, design, symbol, or any other feature that identifies one
seller’s good or service as distinct from those of other sellers” (American Marketing
Association).
◼ Branding is the process of giving a meaning to specific organization, company,
products or services by creating and shaping a brand in consumers’ minds. It is a
strategy designed by organizations to help people to quickly identify and experience
their brand, and give them a reason to choose their products over the competition’s,
by clarifying what this particular brand is and is not.
◼ A product can be easily copied by other players in a market, but a brand will always
be unique. For example, Pepsi and Coca-Cola taste very similar, however for some
reason, some people feel more connected to Coca-Cola, others to Pepsi.
Difference
between
branding
and
packaging
BENEFITS OF BRANDING

Customer
Recognition

Customer
Brand Equity
Loyalty

Benefits of
Branding
Stay Ahead
of Consistency
Competitors

Improve
Company Credibility
Values
BENEFITS OF BRANDING

◼ 1. Customer Recognition
◼ In the world of ads, when a customer recognizes a brand’s color, theme, logo, etc., they are more likely to choose that
product over all others. This is because they are already familiar with your brand and what it stands for. From something
simple and minimalistic to something wild and eye-popping, a good brand will always be recognized in a sea of others.
◼ 2. Customer Loyalty
◼ Once a customer begins to recognize and buy a product or a service, good branding will keep them coming back for more.
A good company with great products combined with effective branding hits all the right notes with customers. This will
increase customer loyalty in the long run. A good example of customer loyalty is Apple, which has one of the most
successful branding stories in the world. It managed to build a loyal following by building an emotional connection with its
customers. Brand loyalty is one of the major reasons behind Apple’s massive success in the market.
◼ 3. Consistency
◼ A good brand sets the foundation for a business. Once a business has found its branding - company philosophy, colors,
typography, etc., all other efforts can be modeled around it. All future marketing efforts can branch off of this foundation.
This creates consistency within a brand and helps customers relate to it more. Imagine a company changing its logo every
other month. Most customers would get confused and not even want to buy the products and services from inconsistent
brands.
BENEFITS OF BRANDING
◼ 4. Credibility
◼ Every customer has their trust issues whenever it comes to trying a new product or service, However, a strong brand can help you
set yourself apart as a well-established business with strong values that customers can resonate with. Innovative marketing coupled
with exceptional products and services, phenomenal customer service, and interesting visuals will surely help even a small company
establish itself as a serious professional business.
◼ 5. Improve Company Values
◼ If your brand has a personality, it is easier for people to relate to your company’s values and motives. When people relate to your
company values, they are more likely to want to do business with you. Take Toms’ shoes, for instance. They are one of the most
popular shoe brands in the world, but the main thing the brand is known for is their donations. For every pair of shoes that you buy,
they donate a pair of shoes in partnership with humanitarian organizations. This fosters a shared emotional connection between the
company and the customer and is one of the main factors of branding.
◼ 6. Stay Ahead of Competitors
◼ If you have so many competitors in the market and you are just starting, it may be a tough job to get ahead of them. However, a
personalized and unique brand can help attract the right customers for you. You can also charge extra for premium quality products
with good branding.
◼ 7. Brand Equity
◼ One of the most important benefits of branding is that it helps to promote new products and services. If people are loyal to a brand,
they are automatically interested in whatever new the brand has to offer. When Apple first introduced AirPods in 2018, it dominated
the wireless earphones surpassing giants like Samsung and Xiaomi in the global market. A study by Strategy Analytics shows that
AirPods has over 50 percent of the global market share.
QUALITIES OF A GOOD BRAND NAME
◼ 1. The brand name should be easy to pronounce, spell and remember. It should be short also. For
example, Amul, Airtel, Natraj, Titan, Nirma, Lux, Surf, etc. are short and simple words. These could be easily
read and remembered by all.
◼ 2. If possible, the brand name should suggest something about the product's benefits, uses, purpose,
quality and performance. For instance 'Ujala' suggests brightness, 'Hajmola' suggests digestive properties, and
Sunsilk suggests hair shine like sun and softness of silk.
◼ 3. The brand mark or design should be attractive to the eyes such as Amul, Natraj, Dairy Milk.
◼ 4. The brand design should be unique or distinctive. It should be clearly identifiable even in the crowded
market place. For instance, Cinthol, Perk, Amul, Thums Up, etc. possess this quality.
◼ 5. The brand name should appropriate and suitable to the product as for instance, Hero for bikes,
Maruti Suzuki for cars, Britannia Nutrichoice for biscuits, Boost for health drink, etc.
◼ 6. The brand should have a stable life, its life should not be affected by the changes in fashions or
styles. Philips, Bournvita, Saridon, Surf and Airtel are some examples in this regard.
◼ 7. The brand name should be capable of being registered. This will protect the brand holder from
imitation by the rivals.
BRANDING
DECISIONS
TO BRAND OR NOT TO BRAND

◼ Marketers first decide whether to brand or not to brand its products. Nowadays, it isn’t easy to find
unbranded products. Almost all types of consumer goods and industrial goods are sold under brand
names.
◼ However, “Generic” products usually do not carry brands. The decision to brand or not to brand
requires careful consideration of some important issues. These are the necessity of branding, benefits
of branding, and cost of branding. Branding helps buyers in a number of ways.
◼ The brand indicates product quality, increases shopper’s efficiency, and provides information about
new products.
◼ Branding also offers several benefits to sellers. Branding helps sellers process orders, provide legal
protection for unique product features that otherwise might be initiated by competitors, and attract a
loyal and profitable set of customers. Branding helps the seller in segmenting markets.
BRAND SPONSOR

◼ A producer has four alternatives for sponsoring his brands;

◼ Manufacturer’s brand (national brand), the brand selected and owned by the producer of a product or
service.
◼ Private brand (or intermediaries, distribution, or store brand), the brand selected and owned by a
reseller of a product on service.
◼ Licensed brand, a brand used under license from other manufacturers who created it earlier.
◼ Co-branding, a brand created by combining the brand names of two different companies on the same
product.
 BRAND NAME SELECTION
◼ (a) Individual Brand Name. Here the manufacturer gives different names to each of their offering. for example, Hindustan Lever
Limited (HLL) has policy of giving individual names to each of its product, - Lifebuoy, Lux, Rexona, Surf, Vim, Rin, Liril, Wheel,
Pears. Proctor and Gamble Limited has the same policy - Cinthol, Marvel, Evita, Crowning Glory, Shikakai, Ganga.
◼ The main advantage of using individual brand names is that it does not tie its reputation with other product or its own name.
Therefore there is no effect of failure or low qualities of the product. For example, ALL introduced Hina frozen peas in 1960s
which failed because the Indian market was not mature enough to accept the product idea of frozen peas. It did not affect the
reputation of HLL.
◼ (b) Blanket Family Name. The brand is used for all the products it offers, thus, overcoming the need for name research or heavy
expenditure on brand building. For example, Sony is used for Televisions, CDs, Video players, floppy drives, floppy diskettes, etc.
Similarly, Philips uses its blanket name on all its products.
◼ (c) Separate Family Names. Here branding is carried out to substantially reduce the cost of advertising. For example, Reliance uses
Vimal for sarees and suitings. Legacy for ready-mades, and Harmony for curtains, etc.
◼ The family name is limited to one line of a product such as 'Amul' for milk products and 'Ponds' for cosmetics.
◼ (d) Company Trade Name Combined with Individual Product Name. This policy is used by companies to legitimize their own
name and to individualize the product. Thus, Kellogg's uses Kellogg's wheatflakes, Kellogg's cornflakes, etc. The house of Tatas is
also using the combined name. Each product is promoted under the umbrella brand "Tata', e.g., Tata salt, Tata Tea, Tata Steel and
so on.
BRAND STRATEGY

◼ A company has four options regarding brand strategies;

◼ Line extension, adopting a successful brand name to introduce additional items in a given product
category under the same brand name, such as new flavors, forms, colors, added ingredients, or
package sizes.
◼ Brand extension, adopting a successful brand name to launch a new or modified product in a new
product category.
◼ Multibranding, a strategy under which a seller develops two or more brands in the same product
category.
◼ New brands, creating a new brand name when entering a new product category for which none of
the existing brand names are suitable.
BRAND REPOSITIONING

◼ A well-positioned brand might need repositioning in the market later. A competitor’s brand may
snatch away the company’s market share.
◼ Demand may also fall due to changes in customer wants. So, marketers might find it necessary to
reposition their existing brands before introducing new ones, ensuring brand recognition and
consumer loyalty.
◼ Repositioning may involve changing both the product and its image.
◼ Kentucky Fried Chicken changed its menu, adding lower-fat skinless chicken and non-fried items such
as broiled chicken and chicken salad sandwiches to reposition itself toward more health-conscious
fast-food consumers.
◼ Repositioning of a brand can also be made by changing only the product’s image. When repositioning
a brand, the marketer should make sure that such an action will not result in losing or confusing
existing loyal buyers.
PRODUCT LIFE CYCLE

◼ The term product life cycle refers to the length of time from when a product is
introduced to consumers into the market until it's removed from the shelves.
◼ This concept is used by management and by marketing professionals as a
factor in deciding when it is appropriate to increase advertising, reduce prices,
expand to new markets, or redesign packaging.
◼ Products, like people, have life cycles. The life cycle of a product is broken into four
stages—introduction, growth, maturity, and decline.
PRODUCT LIFE CYCLE
INTRODUCTION STAGE

◼ The introduction phase is the first time customers are introduced to the new
product. A company must generally includes a substantial investment in advertising
and a marketing campaign focused on making consumers aware of the product and
its benefits, especially if it is broadly unknown what the item will do.
◼ During the introduction stage, there is often little-to-no competition for a product,
as competitors may just be getting a first look at the new offering. However,
companies still often experience negative financial results at this stage as sales tend
to be lower, promotional pricing may be low to drive customer engagement, and the
sales strategy is still being evaluated.
GROWTH STAGE

◼ If the product is successful, it then moves to the growth stage. This is characterized
by growing demand, an increase in production, and expansion in its availability. The
amount of time spent in the introduction phase before a company's product
experiences strong growth will vary from between industries and products.
◼ During the growth phase, the product becomes more popular and recognizable. A
company may still choose to invest heavily in advertising if the product faces heavy
competition. However, marketing campaigns will likely be geared towards
differentiating its product from others as opposed to introducing the goods to the
market. A company may also refine its product by improving functionality based on
customer feedback.
◼ Financially, the growth period of the product life cycle results in increased sales and
higher revenue. As competition begins to offer rival products, competition increases,
potentially forcing the company to decrease prices and experience lower margins.
MATURITY STAGE

◼ The maturity stage of the product life cycle is the most profitable stage, the time
when the costs of producing and marketing decline. With the market saturated with
the product, competition now higher than at other stages, and profit margins starting
to shrink, some analysts refer to the maturity stage as when sales volume is "maxed
out".
◼ Depending on the good, a company may begin deciding how to innovate its product
or introduce new ways to capture a larger market presence. This includes getting
more feedback from customers, and researching their demographics and their needs.
◼ During the maturity stage, competition is at the highest level. Rival companies have
had enough time to introduce competing and improved products, and competition
for customers is usually highest. Sales levels stabilize, and a company strives to have
its product exist in this maturity stage for as long as possible.
DECLINE STAGE

◼ As the product takes on increased competition as other companies emulate its success, the
product may lose market share and begin its decline. Product sales begin to drop due to
market saturation and alternative products, and the company may choose to not pursue
additional marketing efforts as customers may already have determined whether they are
loyal to the company's products or not.
◼ Should a product be entirely retired, the company will stop generating support for it and
will entirely phase out marketing endeavors. Alternatively, the company may decide to
revamp the product or introduce a next-generation, completely overhauled model. If the
upgrade is substantial enough, the company may choose to re-enter the product life cycle
by introducing the new version to the market.
◼ The stage of a product's life cycle impacts the way in which it is marketed to consumers. A
new product needs to be explained, while a mature product needs to be differentiated from
its competitors.
PRICING

◼ Price is the exchange value of goods and services on terms of money.

◼ Pricing is an important element of marketing mix of a firm and fixing price of a product is perhaps the
most difficult difficult task of the marketing manager.
◼ It is the Process of setting/deciding the price of a Product.
◼ It is a process in which using different pricing techniques, the price of a product is decided.
◼ Pricing is a managerial task:
• involves establishing pricing objectives,
• identifying the factors governing the price,
• ascertaining their relevance and significance,
• determining the product value in monetary terms and formulation of price policies and the strategies,
• implementing them and controlling them for the best results.
PRICING

◼ Pricing Objectives
Profits related objectives
Sales related objectives
Competition related objectives
Customer related objectives
Other objectives
 1. PROFITS-RELATED OBJECTIVES:
◼ Profit has remained a dominant objective of business activities.
◼ Company's pricing policies and strategies are aimed at following profits-related objectives:
◼ A) Maximum Current Profit:
◼ One of the objectives of pricing is to maximize current profits. This objective is aimed at making as much money as
possible.
◼ Company tries to set its price in a way that more current profits can be earned. However, company cannot set its price
beyond the limit. But, it concentrates on maximum profits.
◼ B) Target Return on Investment:
◼ Most companies want to earn reasonable rate of return on investment.
◼ Target return may be:
◼ (1) fixed percentage of sales,
◼ (2) Return on investment, or
◼ (3) A fixed rupee amount.
◼ Company sets its pricing policies and strategies in a way that sales revenue ultimately yields average return on total
investment. For example, company decides to earn 20% return on total investment of 3 crore rupees. It must set price of
product in a wav that it can earn 60 lakh rupees.
2. SALES-RELATED OBJECTIVES:

◼ The main sales-related objectives of pricing may include:

◼ A) Sales Growth:
◼ Company's objective is to increase sales volume. It sets its price in such a way that more and more sales can be achieved.
It is assumed that sales growth has direct positive impact on the profits. So, pricing decisions are taken in way that sales
volume can be raised. Setting price, altering in price, and modifying pricing policies are targeted to improve sales.
◼ B) Target Market Share:
◼ A company aims its pricing policies at achieving or maintaining the target market share. Pricing decisions are taken in such
a manner that enables the company to achieve targeted market share. Market share is a specific volume of sales
determined in light of total sales in an industry. For example, company may try to achieve 25% market shares in the
relevant industry.
◼ C) Increase in Market Share:
◼ Sometimes, price and pricing are taken as the tool to increase its market share. When company assumes that its market
share is below than expected, it can raise it by appropriate pricing; pricing is aimed at improving market share.
3. COMPETITION RELATED OBJECTIVES

◼ Competition is a powerful factor affecting marketing performance. Every company tries to react to the competitors by appropriate business
strategies.
◼ With reference to price, following competition-related objectives may be set:
◼ A) To Face Competition:
◼ Pricing is primarily concerns with facing competition. Today's market is characterized by the severe competition. Company sets and modifies its
pricing policies so as to respond the competitors strongly. Many companies use price as a powerful means to react to level and intensity of
competition.
◼ B) To Keep Competitors Away:
◼ To prevent the entry of competitors can be one of the main objectives of pricing. The phase 'prevention is better than cure' is equally applicable
here. If competitors are kept away, no need to fight with them. To achieve the objective, a company keeps its price as low as possible to minimize
profit attractiveness of products. In some cases, a company reacts offensively to prevent entry of competitors by selling product even at a loss.
◼ C) To Achieve Quality Leadership by Pricing:
◼ Pricing is also aimed at achieving the quality leadership. The quality leadership is the image in mind of buyers that high price is related to high
quality product. In order to create a positive image that company's product is standard or superior than offered by the close competitors; the
company designs its pricing policies accordingly.
◼ D) To Remove Competitors from the Market:
◼ The pricing policies and practices are directed to remove the competitors away from the market. This can be done by forgoing the current profits
- by keeping price as low as possible - in order to maximize the future profits by charging a high price after removing competitors from the
market. Price competition can remove weak competitors.
4. CUSTOMER-RELATED OBJECTIVES:

◼ Customers are in center of every marketing decision.

◼ Company wants to achieve following objectives by the suitable pricing policies and practices:
◼ A) To Win Confidence of Customers:
◼ Customers are the target to serve. Company sets and practices its pricing policies to win the confidence of the
target market. Company, by appropriate pricing policies, can establish, maintain or even strengthen the
confidence of customers that price charged for the product is reasonable one. Customers are made feel that they
are not being cheated.
◼ B) To Satisfy Customers:
◼ To satisfy customers is the prime objective of the entire range of marketing efforts. And, pricing is no exception.
Company sets, adjusts, and readjusts its pricing to satisfy its target customers. In short, a company should design
pricing in such a way that results into maximum consumer satisfaction.
 FACTORS AFFECTING PRICING

Factors
affecting
pricing

External
Internal factors
factors

Predetermined Image of the Product life Credit Period Promotional Government Economic Channel
Cost Competition Consumers
objectives firm cycle Offered Activity Control Conditions Intermediaries
 INTERNAL FACTORS
1. Cost:
While fixing the prices of a product, the firm should consider the cost involved in producing the product. This cost includes both the variable
and fixed costs. Thus, while fixing the prices, the firm must be able to recover both the variable and fixed costs.
2. The predetermined objectives:
While fixing the prices of the product, the marketer should consider the objectives of the firm. For instance, if the objective of a firm is to
increase return on investment, then it may charge a higher price, and if the objective is to capture a large market share, then it may charge a
lower price.
3. Image of the firm:
The price of the product may also be determined on the basis of the image of the firm in the market. For instance, HUL and Procter & Gamble
can demand a higher price for their brands, as they enjoy goodwill in the market.
4. Product life cycle:
The stage at which the product is in its product life cycle also affects its price. For instance, during the introductory stage the firm may charge
lower price to attract the customers, and during the growth stage, a firm may increase the price.
5. Credit period offered:
The pricing of the product is also affected by the credit period offered by the company. Longer the credit period, higher may be the price, and
shorter the credit period, lower may be the price of the product.
6. Promotional activity:
The promotional activity undertaken by the firm also determines the price. If the firm incurs heavy advertising and sales promotion costs, then
the pricing of the product shall be kept high in order to recover the cost.
 EXTERNAL FACTORS
1. Competition:
While fixing the price of the product, the firm needs to study the degree of competition in the market. If there is high competition,
the prices may be kept low to effectively face the competition, and if competition is low, the prices may be kept high.
2. Consumers:
The marketer should consider various consumer factors while fixing the prices. The consumer factors that must be considered
includes the price sensitivity of the buyer, purchasing power, and so on.
3. Government control:
Government rules and regulation must be considered while fixing the prices. In certain products, government may announce
administered prices, and therefore the marketer has to consider such regulation while fixing the prices.
4. Economic conditions:
The marketer may also have to consider the economic condition prevailing in the market while fixing the prices. At the time of
recession, the consumer may have less money to spend, so the marketer may reduce the prices in order to influence the buying
decision of the consumers.
5. Channel intermediaries:
The marketer must consider a number of channel intermediaries and their expectations. The longer the chain of intermediaries, the
higher would be the prices of the goods.
PRICING METHODS
◼ 1. Cost-based Pricing
◼ Cost-based pricing refers to a pricing method in which some percentage of desired profit margins is added to the cost of the product to obtain the final price. In other words, cost-based pricing can be
defined as a pricing method in which a certain percentage of the total cost of production is added to the cost of the product to determine its selling price. Cost-based pricing can be of two types, namely,
cost-plus pricing and markup pricing.
◼ These two types of cost- based pricing are as follows:
◼ (i) Cost-plus Pricing
◼ Refers to the simplest method of determining the price of a product. In cost-plus pricing method, a fixed percentage, also called mark-up percentage, of the total cost (as a profit) is added to the total cost to
set the price. For example, XYZ organization bears the total cost of Rs. 100 per unit for producing a product. It adds Rs. 50 per unit to the price of product as' profit. In such a case, the final price of a
product of the organization would be Rs. 150.
◼ Cost-plus pricing is also known as average cost pricing. This is the most commonly used method in manufacturing organizations.
◼ In economics, the general formula given for setting price in case of cost -plus pricing is as follows:
◼ P = AVC + AVC (M)
◼ AVC= Average Variable Cost
◼ M = Mark-up percentage
◼ AVC (m) = Gross profit margin
◼ Mark-up percentage (M) is fixed in which AFC and net profit margin (NPM) are covered.
◼ AVC (m) = AFC+ NPM
◼ For determining average variable cost, the first step is to fix prices. This is done by estimating the volume of the output for a given period of time. The planned output or normal level of production is taken
into account to estimate the output.
◼ The second step is to calculate Total Variable Cost (TVC) of the output. TVC includes direct costs, such as cost incurred in labor, electricity, and transportation. Once TVC is calculated, AVC is obtained by
dividing TVC by output, Q. [AVC= TVC/Q].
◼ The price is then fixed by adding the mark-up of some percentage of AVC to the profit [P = AVC + AVC (m)].
◼ The advantages of cost-plus pricing method are as follows:
◼ • Requires minimum information
◼ • Involves simplicity of calculation
◼ • Insures sellers against the unexpected changes in costs
◼ The disadvantages of cost-plus pricing method are as follows:
◼ • Ignores price strategies of competitors
◼ • Ignores the role of customers
◼ (ii) Markup Pricing
◼ Refers to a pricing method in which the fixed amount or the percentage of cost of the product is added to
product's price to get the selling price of the product. Markup pricing is more common in retailing in which a
retailer sells the product to earn profit. For example, if a retailer has taken a product from the wholesaler for Rs.
100, then he/she might add up a markup of Rs. 20 to gain profit.
◼ It is mostly expressed by the following formula:
◼ • Markup as the percentage of cost = (Markup/Cost) *100
◼ • Markup as the percentage of selling price= (Markup/ Selling Price)*100
◼ • For example, the product is sold for Rs. 500 whose cost was Rs. 400. The mark up as a percentage to cost is
◼ equal to (100/400)*100 = 25. The mark up as a percentage of the selling price equals (100/500)*100= 20.
◼ 2. Demand-based Pricing
◼ Demand-based pricing refers to a pricing method in which the price of a product is finalized according to its demand. If the demand
of a product is more, an organization prefers to set high prices for products to gain profit; whereas, if the demand of a product is
less, the low prices are charged to attract the customers.
◼ The success of demand-based pricing depends on the ability of marketers to analyze the demand. This type of pricing can be seen in
the hospitality and travel industries. For instance, airlines during the period of low demand charge less rates as compared to the
period of high demand. Demand-based pricing helps the organization to earn more profit if the customers accept the product at the
price more than its cost.
◼ 3. Competition-based Pricing
◼ Competition-based pricing refers to a method in which an organization considers the prices of competitors' products to set the
prices of its own products. The organization may charge higher, lower, or equal prices as compared to the prices of its competitors.
◼ The aviation industry is the best example of competition -based pricing where airlines charge the same or fewer prices for same
routes as charged by their competitors. In addition, the introductory prices charged by publishing organizations for textbooks are
determined according to the competitors' prices.
◼ 4. Other Pricing Methods
◼ In addition to the pricing methods, there are other methods that are discussed as follows:
◼ (i) Value Pricing
◼ Implies a method in which an organization tries to win loyal customers by charging low prices for their high- quality products. The organization
aims to become a low cost producer without sacrificing the quality. It can deliver high - quality products at low prices by improving its research
and development process. Value pricing is also called value-optimized pricing.
◼ (ii) Target Return Pricing
◼ Helps in achieving the required rate of return on investment done for a product. In other words, the price of a product is fixed on the basis of
expected profit.
◼ (iii) Going Rate Pricing
◼ Implies a method in which an organization sets the price of a product according to the prevailing price trends in the market.
◼ Thus, the pricing strategy adopted by the organization can be same or similar to other organizations. However, in this type of pricing, the prices
set by the market leaders are followed by all the organizations in the industry.
◼ (iv) Transfer Pricing
◼ Involves selling of goods and services within the departments of the organization. It is done to manage the profit and loss ratios of different
departments within the organization. One department of an organization can sell its products to other departments at low prices. Sometimes,
transfer pricing is used to show higher profits in the organization by showing fake sales of products within departments.
TYPES OF PRICING STRATEGIES
◼ 1. Penetration Pricing.
◼ The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by
France Telecom and Sky TV. These companies need to land grab large numbers of consumers to make it worth their while, so they offer free telephones or satellite
dishes at discounted rates in order to get people to sign up for their services. Once there is a large number of subscribers prices gradually creep up. Taking Sky TV for
example, or any cable or satellite company, when there is a premium movie or sporting event prices are at their highest - so they move from a penetration approach to
more of a skimming/premium pricing approach.
◼ 2. Skimming Pricing
◼ Price skimming sees a company charge a higher price because it has a substantial competitive advantage. However, the advantage tends not to be sustainable. The high
price attracts new competitors into the market, and the price inevitably falls due to increased supply.
◼ Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a
lower unit cost, other marketing strategies and pricing approaches are implemented. New products were developed and the market for watches gained a reputation for
innovation.
◼ 3. Competition Pricing
◼ Competitive pricing consists of setting the price at the same level as one's competitors. This method relies on the idea that competitors have already thoroughly worked
on their pricing. In any market, many firms sell the same or very similar products, and according to classical economics, the price for these products should, in theory,
already be at an equilibrium (or at least at a local equilibrium). Therefore, by setting the same price as its competitors, a newly-launched firm can avoid the trial and error
costs of the price-setting process. However, every company is different and so are its costs. Considering this, the main limit of the competitive pricing method is that it
fails to account for the differences in costs (production, purchasing, sales force, etc.) of individual companies. As a result, this pricing method can potentially be inefficient
and lead to reduced profits.
◼ For example, a firm needs to price a new coffee maker. The firm's competitors sell it at $25, and the company considers that the best price for the new coffee maker is
$25. It decides to set this very price on their own product. Moreover, this pricing method can also be used in combination with other methods such as penetration
pricing for example, which consists of setting the price below that of its competition (for instance, in this example, setting the price of the coffee maker at $23).
◼ 4. Product Line Pricing.
◼ Where there is a range of products or services the pricing reflects the benefits of parts of the range. For example car washes; a basic
wash could be $2, a wash and wax $4 and the whole package for $6. Product line pricing seldom reflects the cost of making the
product since it delivers a range of prices that a consumer perceives as being fair incrementally - over the range.
◼ If you buy chocolate bars or potato chips (crisps) you expect to pay X for a single packet, although if you buy a family pack which is 5
times bigger, you expect to pay less than 5X the price. The cost of making and distributing large family packs of chocolate/chips could
be far more expensive. It might benefit the manufacturer to sell them singly in terms of profit margin, although they price over the
whole line. Profit is made on the range rather than single items.
◼ 5. Psychological Pricing.
◼ This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example
Price Point Perspective (PPP) 0.99 Cents not 1 US Dollar. It's strange how consumers use price as an indicator of all sorts of factors,
especially when they are in unfamiliar markets. Consumers might practice a decision avoidance approach when buying products in an
unfamiliar setting, an example being when buying ice cream. What would you like, an ice cream at $0.75, $1.25 or $2.00? The choice
is yours. Maybe you're entering an entirely new market. Let's say that you're buying a lawnmower for the first time and know nothing
about garden equipment. Would you automatically by the cheapest? Would you buy the most expensive? Or, would you go for a
lawnmower somewhere in the middle? Price therefore may be an indication of quality or benefits in unfamiliar markets.
◼ 6. Cost Plus Pricing
◼ Your company has been developing a new printer that will streamline many processes for your small business customers.
◼ Your job is to determine the price of the printer. After doing some research, you determine that the best method for pricing the printer is the
cost-plus method.
◼ Cost-plus pricing is a straightforward and simple way to arrive at a sales price by adding a markup to the cost of a product. In our example of the
printer, you first have to determine the break-even price, which is the sum of all of the expenses involved in creating a product, including
expenses like supplies, production costs, and marketing costs. When you pull all of the expenses together to determine the cost of each printer,
you determine that each one will cost $78 to produce. If you sold the printer at $78 your company would break even, meaning there would be no
profit or loss.
◼ 7. Cost-based pricing
◼ Cost-based pricing involves setting prices based on the costs for producing, distributing and selling the product. Also, the company normally adds
a fair rate of return to compensate for its efforts and risks. To begin with, let's look at some famous examples of companies using cost-based
pricing. Firms such as Ryanair and Walmart work to become the low-cost producers in their industries. By constantly reducing costs wherever
possible, these companies are able to set lower prices.
◼ Certainly, that leads to smaller margins, but greater sales and profits on the other hand. But even companies with higher prices may rely on
cost-based pricing. However, these companies usually intentionally generate higher costs so that they can claim higher prices and margins.
◼ 8. Optional Product Pricing.
◼ Companies will attempt to increase the amount customers spend once they start to buy. Optional 'extras' increase the overall price of the
product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to
each other. Again budget airlines are prime users of this approach when they charge you extra for additional luggage or extra legroom.
◼ 9. Premium Pricing.
◼ Use a high price where there is a unique brand. This approach is used where a substantial competitive advantage
exists and the marketer is safe in the knowledge that they can charge a relatively higher price. Such high prices
are charged for luxuries such as Cunard Cruises, Savoy Hotel rooms, and first class air travel.
◼ 10. Bundle Pricing
◼ The act of placing several products or services together in a single package and selling for a lower price than
would be charged if the items were sold separately. The package usually includes one big ticket product and at
least one complementary good. Bundled pricing is a marketing method used by retailers to sell products in high
supply.