Product planning begins by formulating an offering to meet the needs and wants of the target customers.
Products are comprised of 5 levels. Each level adds more customer value. Here are the product levels using a hotel as an example. Core benefit: service or benefit the customer is really buying. Basic product: marketers turn core benefit into a basic product at this level. Expected product: attributes and conditions buyers expect when they purchase this product. Competition takes place at this level in developing countries. Augmented product: : attributes and conditions exceed customer expectations. Competition takes place at this level in developed countries.. Potential product: various augmentations that could be incorporated in the future. Here is where companies search for new ways to satisfy customers and distinguish their offering.
For a product to be branded it must be differentiated from competitors.
Products can be differentiated in many ways including: Form, features, customization, performance quality, conformance quality, durability, reliability, repairability, and style.
The main service differentiators are ordering ease, delivery, installation, customer training, customer consulting, and maintenance and repair. The key to competitive success may lie in adding valued services and improving product quality.
Design is the totality of features that affect how a product looks, feels, and functions to a consumer. Design is often an important aspect of luxury products.
The product hierarchy stretches from basic needs to particular items that satisfy those needs. A product system is a group of diverse but related items that function in a compatible manner. A product mix is the set of all products and items a particular seller offers for sale. Product line analysis: companies develop a basic platform and modules of a product line that can be added to meet different customer requirements and lower production costs. Managers need to know the sales and profits of each item in their line to determine which items to build, maintain, harvest, or divest, as well as each product line’s market profile. Product line length is influenced by company objectives and tend to lengthen over time. In product-mix pricing, the firm searches for a set of prices that maximizes profits on the total mix. In Co-branding: two or more well known brands are combined into a joint product or marketed together in some fashion.
The product hierarchy stretches from basic needs to particular items that satisfy those needs. E.g., life insurance.
A product system is a group of diverse but related items that function in a compatible manner. A product mix is the set of all products and items a particular seller offers for sale. A company’s product mix has a certain width, length, depth, and consistency. These concepts are illustrated in Table 12.2 for selected Procter & Gamble consumer products.
Table 12.2 shows the product mix for P&G.
In conducting product line analysis managers must examine each product in terms of how it contributes to overall sales and profits. Products that are responsible for a large percentage of sales and profits must be carefully monitored and protected. Products that deliver on a small percentage may be candidates for being dropped, unless strong growth potential is possible. Figure 12.3 highlights
A product line manager must examine how the line is positioned against competitors. One tool that managers can employ is a product map, which shows competitors’ items in relation to firm’s items. This also allows for identifying market segments.
Product line analysis is helpful in two key decision areas – product line length and product mix pricing.
Line stretching – company lengthens its product line beyond its current range. Line filling – company lengthens its product line by adding more items within the present range. Line modernization, featuring, and pruning – Companies continuous modernize product lines to encourage customer migration to higher-valued, higher-priced items; boost demand for certain product lines by featuring them; and optimize their brand portfolios by focusing on core brand growth and concentrating resources on the biggest and most established brands.
In product-mix pricing, the firm searches for a set of prices that maximizes profits on the total mix. Product line pricing – develop product lines rather than single products and introduce price steps. Optional-feature pricing – offer optional products, features, and services with their main product. Captive-product pricing – price the main products low and set high markups on the aftermarket products. Two-part pricing – consists of a fixed fee plus a variable usage fee. By-product pricing – charge low price for the main products and earn income on the by-products . Product-bundling pricing – offer goods as a bundles and charges less for the bundle than if the items were purchased separately.
The new-product development process starts with the search for ideas. Some marketing experts believe the greatest opportunities and highest leverage with new products are found by uncovering the best possible set of unmet customer needs or technological innovation. New-product ideas can come from interacting with various groups and using creativity-generating techniques.
Encouraged by the open innovation movement, many firms are going outside their bounds to tap external sources of new ideas, including customers, employees, scientists, engineers, channel members, marketing agencies, top management, and even competitors.
INTERACTING WITH EMPLOYEES Employees can be a source of ideas for improving production, products, and services.55 Toyota claims its employees submit 2 million ideas annually (about 35 suggestions per employee), over 85 percent of which are implemented. Kodak, Milliken, and other firms give monetary, holiday, or recognition awards to employees who submit the best ideas.
STUDYING COMPETITORS Companies can find good ideas by researching the products and services of competitors and other companies. They can find out what customers like and dislike about competitors’ products. They can buy their competitors’ products, take them apart, and build better ones. Company sales representatives and intermediaries are a particularly good source of ideas. These groups have firsthand exposure to customers and are often the first to learn about competitive developments.
ADOPTING CREATIVITY TECHNIQUES Internal brainstorming sessions also can be quite effective—if conducted correctly
The following list is a sampling of techniques for stimulating creativity in individuals and groups.
• Attribute listing. List the attributes of an object, such as a screwdriver. Then modify each attribute, such as replacing the wooden handle with plastic, providing torque power, adding different screw heads, and so on.
• Forced relationships. List several ideas and consider each in relationship to each of the others. In designing new office furniture, for example, consider a desk, bookcase, and filing cabinet as separate ideas. Then imagine a desk with a built-in bookcase or a desk with built-in files or a bookcase with built-in files.
• Morphological analysis. Start with a problem, such as “getting something from one place to another via a powered vehicle.” Now think of dimensions, such as the type of platform (cart, chair, sling, bed), the medium (air, water, oil, rails), and the power source (compressed air, electric motor, magnetic fields). By listing every possible combination, you can generate many new solutions.
• Reverse assumption analysis. List all the normal assumptions about an entity and then reverse them. Instead of assuming that a restaurant has menus, charges for food, and serves food, reverse each assumption. The new restaurant may decide to serve only what the chef bought that morning and cooked; may provide some food and charge only for how long the person sits at the table; and may design an exotic atmosphere and rent out the space to people who bring their own food and beverages.
New contexts. Take familiar processes, such as people-helping services, and put them into a new context. Imagine helping dogs and cats instead of people with day care service, stress reduction, psychotherapy, funerals, and so on. As another ofexample, instead sending hotel guests to the front desk to check in, greet them at curbside and use a wireless device to register them.
• Mind mapping. Start with a thought, such as a car, write it on a piece of paper, then think of the next thought that comes up (say Mercedes), link it to car, then think of the next association (Germany), and do this with all associations that come up with each new word. Perhaps a whole new idea will materialize.
Attractive ideas must be refined into testable product concepts. A product idea is a possible product the company might offer to the market. Concept development is a necessary but not sufficient step for new product success. A product concept is an elaborated version of the idea expressed in consumer terms. Marketers must also distinguish winning concepts from losers.
CONCEPT DEVELOPMENT Let us illustrate concept development with the following situation: A large food-processing company gets the idea of producing a powder to add to milk to increase its nutritional value and taste. This is a product idea, but consumers don’t buy product ideas; they buy product concepts. A product idea can be turned into several concepts. The first question is: Who will use this product? It can be aimed at infants, children, teenagers, young or middle-aged adults, or older adults. Second, what primary benefit should this product provide: Taste, nutrition, refreshment, or energy? Third, when will people consume this drink: Breakfast, midmorning, lunch, midafternoon, dinner, late evening?
• Concept 1. An instant drink for adults who want a quick nutritious breakfast without preparation. • Concept 2. A tasty snack for children to drink as a midday refreshment. • Concept 3. A health supplement for older adults to drink in the late evening before they go to bed.
Consumer preferences for alternative product concepts can be measured with conjoint analysis, a method for deriving the utility values that consumers attach to varying levels of a product’s attributes.
With conjoint analysis, respondents see different hypothetical offers formed by combining varying levels of the attributes, then rank the various offers. Management can identify the most appealing offer and its estimated market share and profit. In a classic illustration, academic research pioneers Green and Wind used this approach in connection with developing a new spot removing, carpet-cleaning agent for home use.67 Suppose the new-product marketer is considering five design elements: • Three package designs (A, B, C—see Figure 20.4) • Three brand names (K2R, Glory, Bissell) • Three prices ($1.19, $1.39, $1.59) • A possible Good Housekeeping seal (yes, no) • A possible money-back guarantee (yes, no)
Although the researcher can form 108 possible product concepts (3 3 3 2 2), it would be too much to ask consumers to rank them all from most to least preferred. A sample of, say, 18 contrasting product concepts is feasible.
CONCEPT TESTING Concept testing means presenting the product concept to target consumers, physically or symbolically, and getting their reactions. The more the tested concepts resemble the final product or experience, the more dependable concept testing is. Concept testing of prototypes can help avoid costly mistakes, but it may be especially challenging with radically different, new-to-the-world products.61 Visualization techniques can help respondents match their mental state with what might occur when they are actually evaluating or choosing the new product.
Following a successful concept test, the new-product manager will develop a preliminary three-part strategy plan for introducing the new product into the market. The first part describes the target market’s size, structure, and behavior; the planned product positioning; and the sales, market share, and profit goals sought in the first few years. The second part outlines the planned price, distribution strategy, and marketing budget for the first year. The third part of the marketing strategy plan describes the long-run sales and profit goals and marketing-mix strategy over time.
Up to now, the product has existed only as a word description, a drawing, or a prototype. The next step represents a jump in investment that dwarfs the costs incurred so far. The company will determine whether the product idea can translate into a technically and commercially feasible product. If not, the accumulated project cost will be lost, except for any useful information gained in the process.
Product Development The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD). The methodology takes the list of desired customer attributes (CAs) generated by market research and turns them into a list of engineering attributes (EAs) that engineers can use. For example, customers of a proposed truck may want a certain acceleration rate (CA). Engineers can turn this into the required horsepower and other engineering equivalents (EAs).
Market Testing After management is satisfied with functional and psychological performance, the product is ready to be branded with a name, logo, and packaging and go into a market test. Not all companies undertake market testing. Many companies believe market testing can yield valuable information about buyers, dealers, marketing program effectiveness, and market potential. The main issues are: How much market testing should be done, and what kind(s)?
CONSUMER-GOODS MARKET TESTING Consumer-products tests seek to estimate four variables: trial, first repeat, adoption, and purchase frequency. Many consumers may try the product but not rebuy it, or it might achieve high permanent adoption but low purchase frequency.
Commercialization Commercialization incurs the company’s highest costs to date.75 The firm will need to contract for manufacture or build or rent a full-scale manufacturing facility. To introduce a major new consumer packaged good into the national market can cost $25 million to $100 million in advertising, promotion, and other communications in the first year. For new food products, marketing expenditures typically represent 57 percent of first-year sales. Most new-product campaigns rely on a sequenced mix of market communication tools.
PHYSICAL PROTOTYPES The goal of the R&D department is to find a prototype that embodies the key attributes in the product-concept statement, performs safely under normal use and conditions, and can be produced within budgeted manufacturing costs. In the past, developing and manufacturing a successful prototype could take weeks or even years. Sophisticated virtual reality technology and the Web now permit more rapid prototyping and more flexible development processes. Simulations, for example, give companies the flexibility to respond to new information and resolve uncertainties by quickly exploring alternatives.
CUSTOMER TESTS When the prototypes are ready, they must be put through rigorous functional and customer tests before they enter the marketplace. Alpha testing tests the product within the firm to see how it performs in different applications. After refining the prototype further, the company moves to beta testing with customers.
Sales-Wave Research Consumers who initially try the product at no cost are reoffered it, or a competitor’s product, at slightly reduced prices. The offer may be made as many as five times (sales waves), while the company notes how many customers select it again and their reported level of satisfaction.
Simulated Test Marketing Thirty to 40 qualified shoppers are asked about brand familiarity and preferences in a specific product category and attend a brief screening of both well-known and new TV commercials or print ads. One ad advertises the new product but is not singled out for attention. Consumers receive a small amount of money and are invited into a store where they may buy any items.
Controlled Test Marketing The company with the new product specifies the number of stores and geographic locations it wants to test. A research firm delivers the product to a panel of participating stores and controls shelf position, pricing, and number of facings, displays, and point-of-purchase promotions. Electronic scanners measure sales at checkout. The company can also evaluate the impact of local advertising and promotions and interview a sample of customers later to get their impressions of the product. It does not have to use its own sales force, give trade allowances, or “buy” distribution. However, controlled test marketing provides no information about how to sell the trade on carrying the new product. It also exposes the product and its features to competitors’ scrutiny.
Test Markets The ultimate way to test a new consumer product is to put it into full-blown test markets. The company chooses a few representative cities and puts on a full marketing communications campaign, and the sales force tries to sell the trade on carrying the product and giving it good shelf exposure. Test marketing also measures the impact of alternative marketing plans by implementing them in different cities. A full-scale test can cost over $1 million, depending on the number of test cities, the test duration, and the amount of data the company wants to collect.
WHEN (TIMING) Suppose a company has almost completed the development work on its new product and learns a competitor is nearing the end of its development work. The company faces three choices: 1. First entry—The first firm entering a market usually enjoys the “first mover advantages” of locking up key distributors and customers and gaining leadership. But if rushed to market before it has been thoroughly debugged, the first entry can backfire. 2. Parallel entry—The firm might time its entry to coincide with the competitor’s entry. The market may pay more attention when two companies are advertising the new product. 3. Late entry—The firm might delay its launch until after the competitor has borne the cost of educating the market, and its product may reveal flaws the late entrant can avoid. The late entrant can also learn the size of the market.
WHERE (GEOGRAPHIC STRATEGY) Most companies will develop a planned market rollout over time. In choosing rollout markets, the major criteria are market potential, the company’s local reputation, the cost of filling the pipeline, the cost of communication media, the influence of the area on other areas, and competitive penetration. Small companies select an attractive city and put on a blitz campaign, entering other cities one at a time. Large companies introduce their product into a whole region and then move to the next. Companies with national distribution networks, such as auto companies, launch new models nationally.
TO WHOM (TARGET-MARKET PROSPECTS) Within the rollout markets, the company must target initial distribution and promotion to the best prospect groups. Ideally they should be early adopters, heavy users, and opinion leaders it can reach at low cost. Few groups include all these, so the company should rate prospects and target the best group. The aim is to generate strong sales as soon as possible to attract further prospects.
HOW (INTRODUCTORY MARKET STRATEGY) Because new-product launches often take longer and cost more than expected, many potentially successful offerings suffer from underfunding. It’s important to allocate sufficient time and resources—yet not overspend—as the new product gains traction in the marketplace
Adoption is an individual’s decision to become a regular user of a product and is followed by the consumer-loyalty process. New-product marketers typically aim at early adopters and use the theory of innovation diffusion and consumer adoption to identify them.
Stages in the Adoption Process An innovation is any good, service, or idea that someone perceives as new, no matter how long its history. Everett Rogers defines the innovation diffusion process as “the spread of a new idea from its source of invention or creation to its ultimate users or adopters.” The consumer-adoption process is the mental steps through which an individual passes from first hearing about an innovation to final adoption. They are: 1. Awareness—The consumer becomes aware of the innovation but lacks information about it. 2. Interest—The consumer is stimulated to seek information about the innovation. 3. Evaluation—The consumer considers whether to try the innovation. 4. Trial—The consumer tries the innovation to improve his or her estimate of its value. 5. Adoption—The consumer decides to make full and regular use of the innovation.
Factors Influencing the Adoption Process Marketers recognize the following characteristics of the adoption process: differences in individual readiness to try new products, the effect of personal influence, differing rates of adoption, and differences in organizations’ readiness to try new products.
READINESS TO TRY NEW PRODUCTS A person’s level of innovativeness can be defined (based on Everett Rogers) as “the degree to which an individual is relatively earlier in adopting new ideas than the other members of his social system.” Some people are the first to adopt new clothing fashions or new appliances; some doctors are the first to prescribe new medicines.
The five adopter groups differ in their value orientations and their motives for adopting or resisting the new product. • Innovators are technology enthusiasts; they are venturesome and enjoy tinkering with new products and mastering their intricacies. In return for low prices, they are happy to conduct alpha and beta testing and report on early weaknesses. • Early adopters are opinion leaders who carefully search for new technologies that might give them a dramatic competitive advantage. They are less price sensitive and willing to adopt the product if given personalized solutions and good service support. • Early majority are deliberate pragmatists who adopt the new technology when its benefits are proven and a lot of adoption has already taken place. They make up the mainstream market. • Late majority are skeptical conservatives who are risk averse, technology shy, and price sensitive. • Laggards are tradition-bound and resist the innovation until the status quo is no longer defensible.
CHARACTERISTICS OF THE INNOVATION Some products catch on immediately (roller blades), whereas others take a long time to gain acceptance (diesel engine autos). Five characteristics influence an innovation’s rate of adoption. We consider them for digital video recorders (DVRs) for home use, as exemplified by TiVo. The first characteristic is relative advantage—the degree to which the innovation appears superior to existing products. The greater the perceived relative advantage of using a DVR, say, for easily recording favorite shows, pausing live TV, or skipping commercials, the more quickly it will be adopted. The second is compatibility—the degree to which the innovation matches the values and experiences of the individuals. DVRs are highly compatible with the preferences of avid television watchers. Third is complexity—the degree to which the innovation is difficult to understand or use. DVRs are somewhat complex and will therefore take a slightly longer time to penetrate into home use. Fourth is divisibility—the degree to which the innovation can be tried on a limited basis. This provides a sizable challenge for DVRs—sampling can occur only in a retail store or perhaps a friend’s house. Fifth is communicability—the degree to which the benefits of use are observable or to others. The fact that DVRs have some clear advantages can help create interest and curiosity.
The typical PLC is bell-shaped. However, for some products the curve will vastly different.
For products, strategies must change as the product, market, and competitors change over the product life cycle. The PLC can be used to analyze a product category (liquor), a product form (white liquor), a product (vodka), or a brand (Smirnoff).
Sales growth is slow, profits are negative, and promotional expenses are at their highest in terms of ratio to sales. Inform potential consumers Induce product trial Secure retail distribution.
Early adopters like the product which helps to bring new customers into the market. Competitors, attracted by the opportunity, enter the market with new product features and further expand distribution. This results in prices stabilizing, or even falling. Promotional expense levels are maintained or increased (to meet competition). The rapid sales growth causes a welcomed decline in the promotion-sales ration. The volume increase results in lower manufacturing costs per unit.
The maturity stage poses the most challenges to market members. Slowing sales creates overcapacity (capacity was increased in the growth stage), which intensifies competition. Weaker competitors exit the market leaving a few dominant players – perhaps a quality leader, service leader, and a cost leader. Firms must decide whether to work to be come one of the big three players and achieve profits through high volume and low costs, or to pursue a niching strategy, profiting through low volume and high margins.
Mature markets can be highly profitable. Marketers have three courses of action in a mature market including (a) market modification (expand the market), (b) product modification (improve quality, features, or styles), or (c) marketing program modification (alter price, distribution, communications).
The decline can be either slow, such as with sewing machines and newspapers, or it can be sudden such as with computer floppy disks. Remaining firms often reduce the number of products they offer, withdraw from smaller segments, cut marketing budgets and reduce prices further. Companies can remain in the market by strengthening the investment in the product category; or it can harvest the product by gradually reducing expenses (promotional, advertising, and other business costs); or by exiting the market by selling or dropping the product altogether.
Branding is endowing products and services with the power of a brand. Its about creating differences between products. Ultimately though, a brand resides in the minds of consumers.
Good brand elements play a role in brand-building. For low involvement products, good which are purchased often and with little thought, brand elements should be easy to recall, descriptive, and persuasive. The Keebler elves reinforce home-style baking and a sense of magic and fun. Likable brand elements, such as a slogan or character, can lead to increased awareness and can capture intangible characteristics.
Marketers must select brand elements that allow for brand building. To do so, brand elements should be memorable, meaningful, and likable. Brand elements must also be defendable that help leverage and preserve brand equity against challenges. To do so marketers must ensure that brand elements are also transferable, adaptable, and protectable.
Brand elements are devices, which can be trademarked, that identify and differentiate the brand. Most strong brands employ multiple brand elements. Nike has the distinctive “swoosh” logo, the empowering “Just Do It” slogan, and the “Nike” name from the Greek winged goddess of victory.
Brands can often build brand equity by borrowing it from others. They can link their brand to other information contained in customers memories. Figure 9.5 (next slide) outlines how consumers gain brand knowledge from secondary sources.
Brand Revitalization – First, understand what the sources of brand equity were to begin with. Are positive associations losing their strength or uniqueness? Have negative associations become linked to the brand? Second, decide whether to retain the same positioning or create a new one, and if so, which new one. Expanding Brand Awareness Brand awareness among the customers should be expanded by identifying additional or new usage opportunities of the brand. The customers will feel a new experience of the brand and the brand will be rejuvenated in the minds of the customers. Improving Brand Image The Brand Image should be improved by repositioning the Brand in the market. The brand should be placed to occupy a new niche in the market. The brand elements should be changed to achieve this. Entering New Markets Revitalising of brands can also be done by venturing into new markets and exploring the possibility of establishing the brand in completely different arenas.
Brand Reinforcement – consistently conveying the brand’s meaning in terms of: (1) What products it represents, what core benefits it supplies, and what needs it satisfies, and (2) how the brand makes products superior, and which strong, favorable, and unique brand associations should exist in consumers’ minds. Maintaining Brand Consistency It is important to maintain brand consistency throughout and to continuously improve the brand to build and sustain the brand equity. Protecting Sources of Brand Equity It is important to protect and maintain consistently the sources of brand equity, as sustaining the sources will ensure the sustenance of the brands over the long term. Fortifying versus Leveraging It is vital that the strengths of the brand should be leveraged upon and the weaknesses should be fortified against any kind of pitfalls. Fine-tuning the Supporting Marketing Program The supporting marketing programs should be fine-tuned so that they cater to both the marketing needs of a brand- the Product-Related Performance Associations and the Non Product-Related Imagery Associations.
Product Branding Strategy - This strategy focuses on promoting the brand exclusively so that it reflects its own personality, identity, associations, and image. The brand does not take on company associations and any benefits from its name. Line Branding Strategy - In line branding, products share a common concept. Line brands start with a single product conveying a concept and later the brand name extends to other complementary products. E.g.,Adidas, Nike Umbrella Branding Strategy - The approach is driven by economic considerations. The company name itself is the brand name for all products across diverse categories. Double Branding Strategy - Along with the product brand name, the company name is associated to create double branding, such as Tata Indica and, Bajaj Pulsar. Endorsement Branding Strategy - This is a minor variation of double branding strategy. The product brand name gains a dominant position, while the company name merits a lower profile.
Employee differentiation: train employees to provide superior customer service. Singapore Airlines is well regarded in large part because of its flight attendants. Channel differentiation: design distribution channels’ coverage, expertise, and performance to make buying the product easier and more enjoyable and rewarding. Dayton, Ohio–based Iams found success selling premium pet food through regional veterinarians, breeders, and pet stores. Image differentiation: craft powerful, compelling images that appeal to consumers’ social and psychological needs. E.g., Marlboro’s Services differentiation: design a better and faster delivery system that provides more effective and efficient solutions to consumers.
Price is the only one of the 4 P’s that produces revenue, all over elements produce costs. Price is also the easiest element of the marketing mix to adjust, and communicates the intended value of the offering.
Instant price comparisons: mySimon.com. PriceSCAN.com, Intelligent shopping agents (“bots”). Name your own price: Priceline.com. Free products: Open Source, the free software movement.
Effectively designing and implementing pricing strategies requires a thorough understanding of consumer pricing psychology and a systematic approach to setting, adapting, and changing prices.
A firm must consider many factors in setting its pricing policy.31 The chart above summarizes the six steps in the process.
Survival is a short-run objective for firms to deal with overcapacity, intense competition, or changing consumer wants. Maximize current profits emphasis current performance . But firms may sacrifice long-run performance by ignoring the effects of other marketing variables, competitors’ reactions, and legal restraints on price. Maximum market share utilizes a market-penetration pricing strategy, in which a higher sales volume will lead to lower unit costs and higher long-run profit. Maximum market skimming utilizes a market-skimming pricing strategy, in which prices start high and slowly drip over time. This strategy can be fatal if competitors price low. A firm striving to be a product-quality leader offers brands that are “affordable luxuries” –products or services characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumers’ reach. Other objectives: Nonprofit and public organizations may have other pricing objectives.
Demand sets the price ceiling while costs set the floor. Costs include production, distribution, and selling expenses, plus a fair return (profit) to cover effort and risk. The company wants to charge a price that covers its cost of producing, distributing, and selling the product, including a fair return for its effort and risk. Yet when companies price products to cover their full costs, profitability isn’t always the net result.
Within the range of possible prices determined by market demand and company costs, the firm must take competitors’ costs, prices, and possible price reactions into account. If the firm’s offer contains features not offered by the nearest competitor, it should evaluate their worth to the customer and add that value to the competitor’s price. If the competitor’s offer contains some features not offered by the firm, the firm should subtract their value from its own price. Now the firm can decide whether it can charge more, the same, or less than the competitor.
Prices fall between the price floor (costs) and price ceiling (customer demand based on their assessment of unique features). The price of competitive offerings and substitute goods serve as an orientation point.
Customer’s perceived value is determined by the buyer’s image of the product performance, the channel deliverables, the warranty quality, customer support, and softer attributes such as the supplier’s reputation, trustworthiness, and esteem. Companies must deliver the value promised by their value proposition, and the customer must perceive this value. Firms use the other marketing program elements, such as advertising, sales force, and the Internet, to communicate and enhance perceived value in buyers’ minds.
Auction-type pricing is growing more popular in the electronic marketplaces. English auctions (ascending bids) have one seller and many buyers. E.g., eBay, Amazon.com. Dutch auctions (descending bids) feature one seller and many buyers (an auctioneer announces a high price for a product and then slowly decreases the price until a bidder accepts) , or one buyer and many sellers (the buyer announces something he or she wants to buy, and potential sellers compete to offer the lowest price. E.g., FreeMarkets.com. Sealed-bid auctions let would-be suppliers submit only one bid; they cannot know the other bids. The U.S. government often uses this method to procure supplies.
Companies rarely realize the same profit from each unit of a product that it sells due to variations in geographical demand and costs, market-segment requirements, purchase timing, order levels, delivery frequency, guarantees, service contracts, and other factors. Several price-adaptation strategies company usually use are: geographical pricing, price discounts and allowances, promotional pricing, and differentiated pricing.
Companies increase prices to raise profits, to reduce rising cost due to cost inflation, or when facing overdemand. Companies must carefully manage customer perceptions when raising prices.
Companies cut prices to utilize excess plant capacity, to dominate the market through lower costs, or to deal with declining market share or economic recession.
Companies must anticipate competitor price changes and prepare contingent responses. The firm facing a competitor’s price change must try to understand the competitor’s intent and the likely duration of the change. Strategy often depends on whether a firm is producing homogeneous or nonhomogeneous products. A market leader attacked by lower-priced competitors can seek to better differentiate itself, introduce its own low-cost competitor, or transform itself more completely.
ajaykumarta-Unit 4 product & price
PRODUCT & PRICE
Unit - 4
1. What are the characteristics of a product, and how
do marketers classify products?
2. How can companies differentiate products?
3. How can a company build and manage its product
mix and product lines?
4. How can companies use packaging, labeling,
warranties, and guarantees as marketing tools?
5. How a product management organization will
6. What are strategies followed by a market leader to
hold the position?
1. Product Management - Donald R. Lehmann and Russell S.
Winer - 4ed.
2. New Product Management - Merle Crawford and Anthony
Di Benedetto - 9ed.
3. Product Management - S.A. Chunawalla - 7ed.
Marketing begins with the identification of consumer
needs & wants
A marketer can satisfy these needs & wants by Offering
Something for money
Offering is basically a product
A product can be a Good or Service Or an idea
Consumers buy for specific benefit & for their
It can be defined as set of attributes assembled
in a distinct & identifiable form
• In general, the product is defined as a "thing produced by
labor or effort”
• In marketing, a product is anything that can be offered
to a market that might satisfy a want or need
Design is the totality of features that affect how a product looks,
feels, and functions to a consumer
important aspect of luxury products.
Product Line Analysis
Product Line Length
Product Mix Pricing
stretches from basic needs to particular items
a group of diverse but related items
Different customer requirements and
lower production costs
tend to lengthen over time.
set of prices that maximizes profits
two or more well known brands are combined
Product Systems and Mixes
Group of diverse but related items that
function in a compatible manner
Product line – a group of closely related product items.
Product mix – all products that a firm sells.
Width – refers to how many different product lines the firm carries
P & G - Five lines - Detergents, Toothpaste, Bar soap, diapers, paper tissue
Length – the total number of item in that mix (25)
Avg length of line obtained by dividing total length by no of lines (5)
Depth – refers to how many variants of each product are offered
Pantene comes in 4 variants in 3 different sizes, the depth of the product mix
becomes 4 X 3 = 12
Consistency – how closely the product lines are related in usage
Proctor & Gamble Product Mix
Gleem Ivory Pampers Charmin
Dreft Crest Camay Luvs Puffs
Tide Zest Bounty
Product Mix Width
Product mix strategies
• Manufactures and middlemen use several
strategies to manage their product mix
– Expansion of product mix – by increasing its product
lines or depth
– Contraction of product mix – during economic
slumps – eliminate low profit yielding products
– Altering existing products – redesigning existing
product than new one – packaging – tetra pack
Product mix strategies
• Positioning the product – image projected by product-
various strategies to position
– Relation to competitors product - horlicks
– Relation to target market – J & J
– Relation to product class – tropicana
– Relation to Price and quality – big bazzar
• Trading up – offer prestige products to their existing
product line to increase sales of their low priced products
– enhance company image – Britania
• Trading down – add low priced items to their existing
line – Marriott introduced holiday inn
Product Line Analysis
Sales and Profit
Managing Product Lines
large percentage of sales
monitored and protected
positioned against competitors
helpful in two key decision areas – product
line length and product mix pricing.
Product Line Length
• A product line can be extended by adding more
items to the existing range.
• Reaching for more profits
• Trying to satisfy dealers who complain about lost sales
due to missing items in the line
• Trying to utilize excess capacity
• Trying to offer a full line of the production
• Trying to plug holes in the positioning map
• Product lines tend to lengthen over the years for
different reasons like manufacturing capacity,
new market opportunities, demand from sales
• Downward Line stretch
– Introducing new products with an objective
– Company may attack upper end to get reputation
– Lower end products due to competitor attack or to occupy
– P&G introduces sachets
– Car Manufacturers introducing E class, M class etc.,
• Upward Stretch
– It is when company enters Upper market through Line
• Both-way stretch
– From medium range they decide to target upper & low end
market for raising opportunities
• Cutting down some of the non moving products in
markets contains unnecessary variants & pack sizes
• Due to shortage of current production capacity
• Allocating budget to the products may setback the new
• Basically offering same product in different and
price combinations to tap diverse market opportunities
• Modernization is carried out continuously as competitors
are constantly growing and coming out with new products
• In this process an Organization should not be too early, if
so, It can harm the existing product or late so that
competitors already have a hold in the market.
Product Mix Pricing
Product line pricing
By-product pricing Product-bundling pricing
Develop product lines rather than single
price the main products high
offer optional products, features, and services fixed fee plus a variable usage
charge low price for the main products offer goods as a bundles and charges less
Factors influencing change
in product mix
• Changes in market demand
• Competitors actions and reactions
• Cost of production
• Quantity of production
• Changes in company desire
1. What challenges does a company face in
developing new products?
2. What are the main stages in developing
3. What is the best way to manage the new-
product development process?
4. What factors affect the rate of diffusion and
consumer adoption of newly launched
5. What is the concept of product life cycle?
• Advance in science & technology have changed the
lifestyle of people & their food habits, standard of
living, social customs, expectations etc.,
• Consumers also looking for better comfortable & ease
to use & storage, aesthetic appeal & value for money
• For higher level of growth, firms beyond their product
lines, product positioning & branding decisions
• A new product or any product which is perceived by
the customer as being new.
Developing New Product
New to the World’ Products
New Product Lines
Companies enter with a new product in established market
Additions to Existing Product Lines
Products are introduced into market with slight variations
Improvements in or Revisions of Existing Products
Improved version of existing products
Existing product to new market or newer segment
New products that provide Same benefits but lower cost
Other sources are scientists, resellers, marketing
personnel, researchers, sales people & engineers
attributes of an object, such as a screwdriver
several ideas and
consider each in
relationship to each of
Start with a problem
Reverse assumption ana
Start with a thought
• BRAINSTORMING is a process, where a small group of
people are encouraged to came up with their ideas on a
• Whereas in SYNECTICS, the real problem is kept away
initially from the group & only a broader framework of the
problem is given to them.
• The group is encouraged to think in all possible dimensions
and slowly the problem will be made clear to them, & their
ideas would get refined.
• New ideas sometimes arise quite by accidently in labs or in
• The aim of screening is to reject the poor ideas as early as possible
because the costs of new product development keep rising sharply
with each successive development phase.
• Thus an idea committee is formed to classify the proposed ideas into 3
categories, such as: promising, marginal & rejects.
– Market Size
– Product Price
– Development Time & Costs
– Manufacturing Costs
– Rate of Return
• Drop Error & Go error
Concept to Strategy
• Three package designs (A, B, C)
• Three brand names (ABC, XYZ, IJK)
• Three Prices (Rs.10, Rs.12, Rs.14)
• A possible Good Housekeeping seal (yes,
• A possible money-back guarantee (yes, no)
Respondents see different hypothetical
offers formed by combining varying levels
of the attributes, then rank the various
• Concept testing of a new product idea refers to a more detailed
version of the idea.
• It involves describing the product concept through oral or written
description and the benefits to a small number of potential
customers, and make an assessment of their responses regarding
• The company can fix one or more concept, the more clearly the
concept is presented & resembles the final product or helps
consumers visualize the experience with it, the more reliable its
1. Communicability and
2. Need level
3. Gap level
4. Perceived value
5. Purchase intention
6. User targets, purchase
• It is an assessment to determine the new product’s
potential contribution to the company’s sales, costs,
and profits and for this reason a financial analysis is
• This stage will decide whether from financial as well
as marketing point of view, the project is beneficial
• Here management needs to prepare sales as well as
cost & profit projections to determine whether
they satisfy company objectives.
Development to Commercialization
At this stage the company will determine whether the product idea
can be translated into technically & commercially feasible product.
Find a prototype that performs safely under normal use &
200 Gillette employees tested the products & gave feedback
who initially try the product at no cost are
qualified shoppers are asked about brand
• Test marketing is essentially a limited introduction in some carefully
selected geographic area that is viewed as representing the intended
• Test marketing is a sample launching of the entire marketing mix.
Companies use various testing methods. Some of the more popular ones
Sales-Wave – free samples for trial & advertisements & offers products for
reduced price & who select the product again will be recorded
Controlled Test Marketing – placing the product in specific geographic area &
tested helps to decide the promotion, price & responses
Simulated Test Marketing – firms try to identify the consumers other brand
awareness, then the product is shown with advertisement & customers who
select the product are interviewed, helps in advertising effect
Test Market – it is quite expensive where firm select a few cities representing
the target market & product is launched like national launch of product
• At this stage the company takes decision to go in for large scale
production & marketing of the new product.
• Various marketing strategies are employed by the company at this
stage, when it starts commercialization of a new product idea.
• The important factors to which strategists should focus here are:
• Market entry timing period.
• Whether to lunch the product in a single locality, a region, several
regions, nationally or internationally, i.e. geographic strategy.
• To whom the new product should target for i.e. targeting &
• Factors to be considered
• Always start with the consumer. Do consumers
want/need this product?
• Assess the opportunity:
– Size of the market—How big is the consumer need?
– Competition—Have they entered? Are they likely to?
– Estimate of your market share—Will this product have a fast
– Cost/ease of entry (capital investment and manufacturing,
branding, distribution, company skills, etc.)
New Product Launch
New Product Launch
• Determine marketing strategy for new product
• Price – set to reflect positioning (premium, popular, or value)
and drive profit
• Product – which attributes to offer (flavor, size, etc.)
• Promotion – how will you create awareness and trial of product
(advertising, coupons, sampling, product demos, etc.)
• Placement – where will consumers buy product (grocery, mass,
drug, club, convenience, etc.)
Only 10% of new consumer products succeed in the
Why Customers Switch Products
Reasons for New-Product Failures
Don’t fulfill a real need or want
of market size
Pushed despite poor marketing research
findings Design problems that
Why do most products fail?
Reasons for New-Product Failures
Product Design Problems
Why do most products fail?
Product Incorrectly Positioned
Costs of Product Developmen
Reasons for New-Product Failures
Why do most products fail?
go over budget
The Consumer-Adoption Process
Stages in the Adoption Process
New product introductions and their adoption,
particularly in case of new-to-the-world products
often takes a very long time. Customers are
sometimes suspicious, even skeptical about adopting
New to world products bring changes in use &
consumption of consumers
Recent trend is Internet Shopping, 3G, 4G etc.,
The Consumer-Adoption Process
Other Influencing Factors
• Time of Adoption
• Personal Influence
• Organizations Readiness
Time of Adoption
benefits are proven
Relative Advantage Compatibility
Divisibilitydegree to which the
degree to which
appears degree to which the
innovation can be tried
degree to which the benefits of use are
which the innovation is
difficult to understand
product life cycle is the course of a product’s sales and profits
product life cycle(PLC) deals with the life of a product in the
market with respect to business or commercial costs and sales
The five stages of each product lifecycle are product
development, introduction, growth, maturity and decline.
Product Life-Cycle Strategies
• Products have a limited life
• Sales pass through stages
• Profits rise, then fall
• Different strategies needed
Slow sales growth, negative profits
PLC: Introduction Stage
2.Induce product trial
3.Secure retail distribution.
Which is more profitable over 5 years?
• 6 months late, but on budget?
• On time, but 50% over budget?
Speed to Market
Order of Market Entry
First Mover Advantage
• Brand name association
• Define product class
• Customer inertia
• Producer advantages
Time & Cost saved
PLC: Growth Stage
Rapid sales growth; New competitors
1.Improve product quality; add new features
2.Add new models and flanker products
3.Enter new market segments
4.Focus advertising on preferences
5.Increase distribution coverage
6.Lower price; Attract price-sensitive buyers
CHARACTERISTICS OF THE PLC
Growth Maturity Decline
Sales Low Rapidly rising Peak Declining
Costs/customer High Average Low Low
Profits Negative Rising High Declining
Customers Innovators Early Adopters
Competitors Few Increasing Stable number Declining
“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.”
- American Marketing Association
Rs. 50Rs. 250
Scope of Branding
Creating difference between
Types of Brand
• There are several brand options that include
manufacturer brand (also called national brand), private
brand (also called distributor, reseller, store, or house
brand), or a licensed brand.
• Manufacturer brands are initiated by manufacturers
and identify the producer.
• Private brands is that they are resellers initiated
• Licensed brand is a relatively new trend and involves
licensing of trademarks – allows approved manufacturers
to use its trademark
Developing Brand Elements
Easy to recall
What was the
name of that
cookie I like?
Brand Element Choice Criteria
Memorable - Easily Recognized, Easily Recalled
Meaningful - Descriptive, Persuasive
Likable - Fun and Interesting
Transferable - Across Geographical Boundaries
Adaptable - Flexible, Updateable
Protectable - Legally Protected,
which the function is
described literally in brand
Use a new term for the real word
Use catchy phrases
Slogans are short
phrases that are
persuasive in nature
These are musical
slogans that help
in reminding by
It helps to identify the brand,
also be used as
“Brand equity is defined in terms of marketing effects uniquely attributed
to the brands – for example, when certain outcomes result from the
marketing of a product or service because of its brand name that would
not occur if the same product or service did not have the name.”
-Kevin Lane Keller
Managing Brand Equity
understand what the sources of brand equity were to
Expanding Brand Awareness
by identifying additional or new usage opportunities of the brand.
Improving Brand Image
by repositioning the Brand in the market
Entering New Markets
by venturing into new markets and exploring
the possibility of establishing the brand in
completely different arenas
how the brand makes products superior unique brand associations should
exist in consumers’ minds.
Managing Brand Equity
Maintaining Brand Consistency
to continuously improve the brand to build and sustain
Protecting Sources of Brand Equity
Fortifying versus Leveraging
strengths of the brand should be leveraged upon and the
weaknesses should be fortified
Fine-tuning the Supporting Marketing Program
• Product Branding Strategy
• Line Branding Strategy
- products share a common concept
• Umbrella Branding Strategy
• Double Branding Strategy
• Endorsement Branding Strategy
Means of Differentiation
• An activity of designing & producing the container for a
• More than merely containing the product.
• Also referred to as the 5th P in the marketing mix.
• Packaging is the science, art and technology of enclosing or
protecting products for distribution, storage, sale, and use.
• Today, good package design is regarded as an essential part of
successful business practice Potent tool to differentiate
products from their competitors
PURPOSES OF PACKAGING
• Physical protection
• Barrier protection
• Containment or agglomeration
• Information transmission
• Portion control
• A label may be a part of package or it may be
a tag attached to the product.
• The labels perform a descriptive function
– a product’s source,
– its contents,
– important features and benefits,
– use instructions,
– cautions or warnings,
– storage instructions,
– batch number,
– date of manufacture, and
– date of expiry.
Universal product code
• Which consists of unique lines that identifies a
• The data’s are regarding the price, manufacturer &
retailer code used for inventory
• Also called as Bar code
• Which is done by bar code scanner & computer
Developments in Packaging
• Package design starts with the identification of all
the requirements: structural design, marketing, shelf
life, quality assurance, logistics, legal,
regulatory, graphic design, end-use, environmental,
• The traditional “three R’s” of reduce, reuse, and
Significance & Importance of price
• Only element that generates revenues for the company
• Adopting the right pricing strategy helps a company achieve its
• Price represents the value that exchanged in an marketing
• Some marketers do not give adequate importance to pricing due
to certain reasons
• The sale of a product have an impact on pricing mechanism
• The management of a company must establish a process to ensure
that all the relevant factors are taken into consideration
• Pricing exercise begins with an understanding of corporate
mission, target markets & marketing objectives
• Pricing decision should also involve the other items in
product line, promotional decisions, & distribution
• There are two types of pricing decisions
• New product pricing
• Adjusting prices of existing products
• The price reflects the buyers interest & satisfaction of the
Changing Price Environment
Instant Price Comparisons
Name Your Own Price
Get Products Free
Selecting the Pricing Objective
Maximum Current Profit
Maximum Market Share
Maximum Market Skimming
may have other
– Way to analyze demand curve are
– Past sales analysis, volumes sold etc.,
– Usually P - D & vice versa
– Classic demand curve shows products will be sold at
different prices keeping the other factors constant
– But in some cases like share markets price decreases,
demand also decreases & petrol
– Status reflecting products P increases Demand increases,
prestige products after a certain level the demand
Determination of demand
• If there is little or no change in demand, it is said to be price
• If there is significant change in demand, then it is said to be
(a) Inelastic Demand (b) Elastic Demand
Quantity Demanded per Period Quantity Demanded per Period
New Product Pricing
• Base price Recover the product cost quickly
• Need to analyze about competitors move, strength of entry
campaign, impact on primary demand
• Price skimming – generates much cash flows in absence of
• Penetration pricing - when entering into the competition to capture
high market share
• Low unit production decrease price added advantage
• Some marketers initially adapt skim and then to penetrate
• Consumers generally judge product quality by price
• Price will be more apparent when we see goods like perfume and
• If no other information is available to the customers then price
becomes a major factor in judging the quality
• Prices ending with 9 have a significant impact on the psychology
• When products cannot be differentiated on basis of features and
• Odd even pricing is basically a psychological way of pricing
Loss Leader Pricing
– Retail outlets use mainly to sell the volumes of routinely
– Compensates for the lower margin products
• Superficial Pricing
– Setting artificially high price & offering at a highly reduced price
• Special Event Pricing
– Seasonal or special occasions price cuts
Selection of pricing method
Target return pricing – ROI, the leaders in the industry will adapt
• TRP = unit cost + (Desired cost* Invested Capital/ Unit sales) cost 2oo,
invested 1,00,000 sells 500 & 15% ROI
Competition based pricing – Going rate pricing, simply follows
prevailing pricing patterns in the market
Demand Based pricing – considering the level of demand. The
marketers need to estimate the different product price the customers
Selection of pricing method
Product Range pricing – prices are determined based on other
products in the same range
• Optional additional items
• Captive product Pricing – Gillette
Perceived-Value Pricing – price of the product on basis of
customers perceived value in minds
• Marketers shows the brand image through advertising, sales
promotion etc., to enhance the value.
Selection of pricing method
Two-Part Pricing – charge a fixed price for basic service &
variable usage rate – BSNL
Discount Policies – price that sellers gives to buyers
• Cumulative & Non-Cumulative quantity discounts
• Seasonal discounts
Bid Pricing – more suitable for industrial products, price will
be quoted in a sealed cover. Government organizations