FM-AA-CIA-15 Rev.

0 10-July-2020

Study Guide in Advertising and Sales Promotion Module No. 4

STUDY GUIDE FOR MODULE NO. 4

Chapter 4: Product and Price Planning

MODULE OVERVIEW

Hi again! You’re now in your 4th module, well done! Let’s now proceed with another fundamental in
marketing and this time, we will look for the two elements of marketing mix – the product and price
planning - and its role and function in developing effective advertising campaign.

As you go along the module, try your best to read and answer the exercises and quizzes. You will
be given enough time to accomplish and submit your outputs. We will be having a virtual meeting
for clarification and virtual recitation to assess your learning once a week all throughout the
semester (Reading habit and asking for clarification is the key). Do not memorize every single word
but understand and familiarize them instead.

*Contents are drawn from the references at the end of the module for further reading. PDF file of
Ken Kaser 2013 Advertising and Sales Promotion. Cengage Learning Asia Pte Ltd. Philippines
will be provided.

MODULE LEARNING OBJECTIVES

At the end of the module, you should be able to:

1. Identify the stages of new product development.

2. Explain the various levels of products and the components that make up the product mix.
3. Explain the stages of the product life cycle.
4. Describe and apply real-world applications of the product life cycle.
5. Discuss and compare pricing objectives and strategies used by businesses when setting
prices.

LEARNING CONTENT 1: PRODUCT DEVELOPMENT

A product is a good or service produced and sold to consumers or other businesses.

Stages of New Product Planning

1. Generate Ideas
Finding ideas for new products is the most difficult stage in new product planning. Ideas
come from many sources. They often originate from problems that customers have that
cannot be solved with products that are currently on the market. New products are
developed to meet consumer needs. Businesses must gather information from consumers
and involve them in the development process.
2. Screen Ideas
After new product ideas have been identified, the second stage of the product planning
process involves carefully screening the ideas. Businesses must reject ideas that are not
workable for any reason. They should determine which ideas have the greatest potential for
success. Factors to consider during the screening process include the following:
 sales and profit potential
 production costs and time

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Study Guide in Advertising and Sales Promotion Module No. 4

 legal and safety issues

 competition
3. Prepare a Business Analysis
Product ideas that survive the screening process will move on to the next stage—the
business analysis. The business analysis is a much more detailed study of some of the
factors examined in the product screening process. It is used to determine the size of the
market, costs of production and marketing, and sales and profit projections. Market research
plays an important role in this stage because markets, competition, and costs must be
studied.
4. Develop a Marketing Strategy
When a business determines that a product idea is realistic, a sample marketing strategy is
created. Research is conducted during this stage to identify a target market and to ensure
there is a demand for the product. Marketers should decide on the product’s packaging,
branding, and labeling. They should also develop a strategy for the other marketing mix
components—promotion, price, and distribution.
5. Develop and Test the Product
If research and analysis indicate that a product idea has a good chance of success, it will
enter the development stage. The development stage can take many years and can be very
expensive. The production process often involves many team members, including
researchers, marketers, engineers, and production employees.
6. Market the Product
Introduction of the new product into the market is the final stage of the product planning
process. This stage requires extensive preparation. All of the marketing mix components
must be carefully planned. Manufacturers must produce the product, transportation
companies must ship the product, wholesalers must store the product, advertising agencies
must promote the product, and retailers must sell the product.

Product Mix

Most businesses sell more than one type of product. The product mix, or product assortment,
includes all of the different products a business sells.

Product Mix Components

Whether a business offers only one product or an assortment of products, there are three things it
must consider when developing its product mix—the product line, package and label, and brand.

 Product line is a group of closely related products with slight variations developed by the
same business. A business that manufactures dinnerware may offer a wide array of colors,
levels of quality, and prices. A soup manufacturer offers different kinds of soups and sizes of
soups in its product line. By adding items to their product line, businesses are able to meet
more consumer needs, thus increasing their number of potential customers.
 Package and label. The two main functions of the package are protection and promotion.
There is a risk of damage to the product as it is shipped and stored. Packages should
protect the product. Packages also should use designs, colors, and shapes to attract
consumers’ attention and differentiate products from competitors’ products. Label contains
information about the product, is an important part of the package. The label has two
functions— promotion and distribution of information.
 Brand is the combination of unique qualities of a company, product, or product line. It is the
main way businesses differentiate their products from competitors’ products. A trademark
grants a business the exclusive right to use a brand name, symbol, or design. A licensed
brand is a well-known brand owned by one company that is sold for use by another
company.

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LEARNING ACTIVITY 1

Assessment/ Guide question:

1. Why is it important to perform a business analysis when planning a new product?

2. Select a product that you regularly purchase and recommend ways to improve the
packaging and labeling.

LEARNING CONTENT 2: PRODUCT LIFE CYCLE

The Stages of a Product

A new product goes through a sequence of stages, known as the product life cycle, during its time
on the market.

1. Introduction Stage. When a new product is launched.

2. Growth Stage. If a product survives the introduction stage.
3. Maturity Stage. Sales continue to increase but at a slower pace than sales in the growth
stage.
4. Decline Stage. Sales drop rapidly.

Advertising based on Product Life Cycle

A. Consumer Advertising
Most of the consumer goods producers engage in consumer product advertising. Marketers
of pharmaceuticals, cosmetics, scooters, detergents and soaps, cigarettes and alcoholic
beverages are examples. Baring a few, all these products are all package goods that the
consumer will often buy during the year. There is a heavy competition among the advertisers
to establish an advantage for their particular brand.
B. Industrial Advertising
Industrial executives have little confidence in advertising. They rely on this form of promotion
merely out of fear that their competitors may benefit if they stop their advertising efforts. The
task of the industrial advertiser is complicated by the multiple buying influence
characteristics like, the derived demand, etc. The objectives vary according to the firm and
the situation. They are:
 To inform,
 To bring in orders,
 To induce inquiries,
 To get the advertiser‟s name on the buyer‟s list of sources,
 To provide support for the salesman,
 To reduce selling costs,
 To help get items in the news column of a publication,
 To establish recognition for the firm or its product,
 To motivate distributors,
 To recognition for the firm or its products,
 To motivate distributors, to create or change a company‟s image,
 To create or change a buyer‟s attitude

The basic appeals tend to increase the profits of the buyer or help in achieving his non-monetary
objectives. Trade journals are the media most generally used followed by catalogues, direct mail
communication, exhibits, and general management publications. Advertising agencies are much
less useful in industrial advertising.

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Study Guide in Advertising and Sales Promotion Module No. 4

LEARNING ACTIVITY 2

Assessment Exercise:

1. Compare the product life cycle of the following:

*Pepsi and Coke
*Blockbuster and Netflix

LEARNING CONTENT 3: PRICE PLANNING

Pricing Objectives

 The amount customers pay for a good or service is the price. Consumers make many
buying decisions based on price. The price consumers are willing to pay is based on the
satisfaction they expect to receive from a product or service. Consumers want to get value
for their money.
 Revenue is the money earned from the sale of products and services (price 3 number of
units sold).
 Profit is the difference between the revenues earned and the expenses of operating a
business.

Pricing Strategies

 Product Life Cycle Pricing Strategies

 Price skimming involves setting a high price to emphasize the uniqueness of a
product and to recover the product development costs quickly.
 Penetration pricing involves setting a low price for new products to gain a larger
market share rapidly.

 Competition Pricing Strategies

 Price competition strategy, it tries to distinguish its product or service from
competing products based on low price. When emphasizing low prices, a business
must always strive to keep prices as low as possible.
 Nonprice competition strategy tries to distinguish a product or service from
competing products based on factors other than price, such as design, quality, and
workmanship.

 Supply and Demand Pricing Strategies. Supply is the quantity of a product or service that
a business is willing to produce at different prices. Demand is the quantity of a product or
service that consumers are willing to buy at different prices.
 The point at which demand and supply are equal is known as the price equilibrium.
If a product is priced above the equilibrium price, fewer people will buy it, meaning
supply exceeds demand. This often leads to price reductions. If a product is priced
below the equilibrium price, more people will buy it. This could lead to shortages,
meaning demand would exceed supply. Shortages lead to price increases.
 When the demand of a product is affected by its price, the product has elastic
demand. Consumers will buy more or less of a product when the price changes.
 When a change in price has very little effect on demand, the product has inelastic
demand. Inelastic demand is common among products that do not have good
substitutes, such as eggs, milk, and certain medications. Consumers will continue to
buy these products even if their prices increase. For products with inelastic demand,
price decreases will result in decreased revenue.

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 Using Credit as Part of the Pricing Strategy

 Consumer credit is made available by retailers to assist consumers in making
purchases.
 Trade credit is offered by one business to another business.

LEARNING ACTIVITY 3

Quiz No. 5:

We will have a quiz (objective type) covering Learning Contents 1-3.

*Reminder: Do not memorize every single word but understand and familiarize them instead.

Do some extra mile:

Review and refresh your mind with the basic and common concepts and terms in marketing for we
will be touch them again in the next few modules.

SUMMARY

When creating a marketing mix, a business usually starts with the product. A new product
must be entirely new or changed in an important and noticeable way. Most new products
involve changes and improvements to existing products.
The six stages of new product planning include (1) generating ideas, (2) screening ideas, (3)
preparing a business analysis, (4) developing a marketing strategy, (5) developing and
testing the product, and (6) marketing the product.
The product mix may include various levels of a product, including a basic product, an
enhanced product, and an extended product. Additional components of the product mix to
consider are the product line, package and label, and brand.
During the introduction stage of the product life cycle, there is little competition, sales are
low, prices are generally high, distribution is selective, and promotion is used to create
product awareness.
During the growth stage of the product life cycle, competition is increasing, sales are
growing, prices may remain high or be reduced, distribution is expanded, and promotion is
used to build brand preference.
During the maturity stage, competition is high, sales are increasing at a slower pace,
products are priced competitively, distribution is widespread, and promotion emphasizes
product differentiation and brand loyalty.
During the decline stage, sales are shrinking, prices are lowered to reduce inventory, and
distribution and promotion efforts are reduced while the business decides whether to
continue production of the product.
A business sets pricing objectives on the basis of maximizing profits, earning a return on
investment, increasing sales or market share, or creating a price-quality image.
When setting prices, factors to consider include the stages of the product life cycle, the
competition, and supply and demand.
Businesses often extend credit to customers to help them make purchases, especially high-
priced purchases.

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Study Guide in Advertising and Sales Promotion Module No. 4

REFERENCES

Chapter 4
Kaser, Ken. 2013. Advertising and Sales Promotion. Cengage Learning Asia Pte Ltd.
Philippines

markiv_asp.pdf at http://www.pondiuni.edu.in/storage/dde/downloads/markiv_asp.pdf

(17E00317) ADVERTISING AND SALES PROMOTION MANAGEMENT.pdf at

http://www.bimkadapa.in/materials/ASPM%20TOTAL%205%20UNITS%20MATERIAL.pdf

https://slideplayer.com/slide/7747786/

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