MARKETING MANAGEMENT

Shaping the Market Offering: Product

Marketing

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What is a product?
• Product is anything that can be offered to a market to satisfy a want
or need.

 Physical goods E.g. Car

 Services E.g. AMC
 Experiences E.g. WonderLa
 Events E.g. IPL sponsorship by Tata
 Persons E.g. Hospitals promoting doctors
 Places E.g. Promotion of states tourism departments
 Properties E.g. Apartments and office spaces being sold
 Organizations E.g. Acquisition of companies
 Information E.g. Nielsen provides market information
 Ideas E.g. Start ups sell ideas to investors
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Components of the Market Offering

• Marketing planning begins with formulating an offering to

meet target customers needs or wants.

The customer will judge the offering by three basic elements:

1. Product features & quality
2. Services mix & quality
3. Price

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Product Levels: The customer value hierarchy

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Product classifications
Durability and Tangibility Classification:
1. Nondurable goods
2. Durable goods
3. Services

Consumer Good Classification

1. Convenience Goods: Staple, Impulse, Emergency goods
2. Shopping Goods – Homogeneous, Heterogeneous goods
3. Specialty Goods
4. Unsought Goods

Industrial Goods Classification

1. Material and Parts
2. Capital Items
3. Supplies and Services

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Product Mix/Assortment

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Product Mix/Assortment - HUL

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Product Mix/Assortment

Depth for Lifebuoy Bar sops

• Lifebuoy Total 10 with Active 5
• Lifebuoy Mild Care with Milk Care and Active 5
• Lifebuoy Cool Fresh with Menthol and Active 5
• Lifebuoy Betel Leaf and Active 5
• Lifebuoy Vita Protect with Vitamin A, C and E and Active 5
• Lifebuoy Lemon Fresh with Lemon and Active 5
• Lifebuoy Active 5 fresh Bar Soap
• Lifebuoy Nature Bar Soap

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Packaging
• All the activities of designing and producing the container for a product.

• Packages might have up to three layers.

• Ex: Davidoff Cool water comes in a bottle (primary package) in a cardboard box
(secondary package) in a corrugated box (shipping package) containing six bottles
in cardboard boxes.

• The package is the buyer’s first encounter with the product.

• A good package draws the consumer in and encourages product choice.

• In effect they can act as “five second commercials” for the product.

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Packaging

Packaging has been influenced by:

• Self-service
• Consumer Affluence
• Company and Brand Image
• Innovation Opportunity

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Packaging

Packaging objectives:
• Identify the brand
• Convey descriptive and persuasive information
• Facilitate Product Transportation and Protection
• Assist at-home storage
• Aid Product Consumption

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Labelling
• The label can be a simple attached tag or an elaborately designed
graphic that is part of the package.

 A label performs several functions.

1. It identifies the product or the brand – for instance ‘Kinnaur’

stamped on apples. It might also grade the product; olive oil is
graded “extra virgin” “virgin” & “pure”

2. The label describes the product: who made it, where & when, what
it contains, how it is to be used and how to use it safely

3. Finally, the label promotes the product through attractive graphics.

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Warranties & Guarantees

• All sellers are legally responsible for fulfilling a buyer’s normal or

reasonable expectations.

• Warranties are formal statements of expected product performance

by the manufacturer or designated repair centre for repair.

• Guarantees reduce the buyer’s perceived risk. They suggest that the
product is of high quality and the company & its service
performance are dependable.

• They can be especially helpful when the company or product is not

well known or when the product’ quality is superior to that of
competitors.
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Service

• Any act or performance that one party can offer another

that is essentially intangible and does not result in the
ownership of anything. Its production may or may not be
tied to a physical product.

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Categories of Service Mix

• The service component can be a minor or a major part of

the total offering. We distinguish five categories of
offerings:
• Pure tangible good: Where no service is needed E.g. Soap,
toothpaste

• A tangible good with accompanying services: Here the

product may need some service for usage E.g. Cars,
computers, cell phones

• Hybrid : Here a product is part of the service

E.g. Restaurants meal

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Categories of Service Mix

• A major service with accompanying minor goods and

services: E.g. Air travel with supporting goods such as
snacks and drinks

• Pure service: with no accompanying product

E.g. Babysitting, teaching

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Tangibility Spectrum

 Soft Drinks
 Detergents
 Automobiles
 ComputersFast-food
 Outlets
 Intangible
Dominant

Tangible

Dominant Fast-food
Outlets 
Advertising
Agencies

Airlines 
Investment
Management 
Consulting 
Teaching
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Distinctive Characteristics of Services

• Intangibility
• Inseparability
• Inconsistency (Variability)
• Inventory (Perishability)

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Managing Service Quality

• The service quality of a firm is tested at each service encounter.

• Flawless service delivery is the ideal state for any service
organization.
• Two important considerations in service delivery are managing
customer expectations and incorporating self – service
technologies.

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Factors leading to Customer Switching Behaviour

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Managing Customer Expectations

• Customers form service expectations from many sources, such as

past experiences, word of mouth & advertising.
• Customers compare the perceived service with the expected
service.
• If the perceived customer service falls below the expected service,
customers are disappointed.
• Successful companies add benefits to their offering that not only
satisfy customers but surprise and delight them
• Delighting customers is a matter of exceeding expectations.

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Service Quality Model

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Service Quality Model

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Service Quality Model

• Gap between perceived service & expected value: This gap occurs
when the consumer misperceives the service quality. The physician
may keep visiting the patient to show care, but the patient may
interpret that something really is wrong.

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Developing Pricing Strategies and Marketing Channels

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Introduction to Pricing
• Price is the one element of the marketing mix that produces revenue ;
the other elements produce costs.
• Price also communicates to the market the company’s intended value
positioning of its product or brand.
• A well designed & marketed product can command a price premium
& reap big profits.
• However, South Asian consumers, normally perceived by outsiders as
extremely price sensitive are value sensitive. They seek more benefits
for the same price.

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A Changing Pricing Environment

• Pricing practices have changed significantly.

• At the turn of 21st century consumers have easy access to credit,
so by combining unique product formulations with enticing
marketing campaigns, many firms successfully traded consumers
up to more expensive products & services.
• In South Asia, marketers have always faced the pricing dilemma of
dealing with a relatively small segment of affluent customers, a
large segment of aspiring customers & a larger segment of
strugglers & survivors.
• Companies with aspirations of both sales growth & profits target
customer groups with different value propositions.
• The changing technological environment has also impacted pricing
decisions.
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Understanding Pricing

Setting the price

• A firm must set a price for the first time when
1. It develops a new product
2. It introduces its regular product into a new distribution
channel
3. It introduces its regular product into a new geographical
area
• Firms device branding strategies to help convey the price-
quality tiers of their products or services to consumers

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Understanding Pricing
Most markets have three to five price points or tiers.

For example:

Marriott Hotels is good at developing different brands or variations of

brands for different price points.

 Vacation Villas – Highest Price

 Marriott Marquis – High Price
 Marriott – High medium Price
 Renaissance – Medium high price
 Courtyard – Medium price
 TownePlace Suites – Medium low price
 Fairfield Inn - Low Price
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Developing pricing strategies

Steps in setting a pricing policy

1. Selecting the pricing objective

2. Determining Demand
3. Estimating Costs
4. Analysing Competitor’s Cost, Prices & Offers
5. Selecting a Pricing method
6. Selecting the Final Price

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Developing pricing strategies

Step 1: Selecting the pricing objective

• The five major objectives are:
(a) Survival
• It is suitable when company has overcapacity, intense
competition or changing consumer wants

(b) Maximum current profit

• Company estimates the demand and costs associated with
alternative prices and choose the price that produces
maximum current profit

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Developing pricing strategies
(c) Maximum market share
• Here the company believes higher sales volume will lead to
lower unit costs and higher long-run profits
• They set the lowest price, assuming the market is price
sensitive

(d) Maximum market skimming

• Companies unveiling a new technology favour setting this type
of pricing
• This strategy can be fatal, if a worthy competitor decides to
price low
• Consumers who buy early at the highest price may be
dissatisfied if they compare themselves to those who buy
later at a lower price
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Developing pricing strategies
(e) Product-quality leadership
• Here the company strives to build brands which are “affordable
luxurious” – products or services characterized by high levels of
perceived quality, taste and status.

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Developing pricing strategies
Step 2: Determining demand
• Each price will lead to different level of demand and have a
different impact on a company’s marketing objectives
(a) Price sensitivity
• The demand curve shows the market’s probable purchase
quantity at alternative prices
• It sums the reactions of many individuals with different price
sensitivities

(B) Estimating demand curves

• A survey method can be used to explore how many units
consumers would buy at different proposed prices

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Developing pricing strategies
(c) Price elasticity of demand
• Marketers need to know how responsive, or elastic, demand it
to a change in price
• If demand hardly changes with a small change in price, demand
is inelastic. If demand changes considerably, demand is elastic

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Developing pricing strategies
Step 3: Estimating cost
• 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
• The different types of costs can be
• Fixed costs
• Variable costs
• Total costs
• Average cost

Experience curve or learning curve

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Developing pricing strategies
Step 4: Analysing competitors’ costs, prices and offers
• A firm has to check the competitors’ price before deciding its
price

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Developing pricing strategies
Step 5: Selecting a pricing method
• Given the customers’ demand schedule, the cost function, and competitors’ prices,
the company is now ready to select a price
• There are six price-setting methods
(a) Mark-up pricing
• It is the most basic method of price setting
• Here a standard markup is added to the product’s cost

(b) Target- returning pricing

• In this method, the firm determines the price that yields its target rate of return
on investment
TRP= Cpu + (R x I)
Su
Where
TRP = target return price, Cpu = cost per unit, R = expected return
I = capital invested Su = unit sales
If the cost per unit is Rs 16 and an organization has employed a capital of Rs 10 lacs. If the
total units sold is 50,000. What is the TRP at expected return of 20%. 58
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Developing pricing strategies
(c) Perceived value pricing
• Here the company will base its price on the customers’
perceived value
• The perceive value depends on buyer’s image of the product
performance, the channel deliverables, the warranty quality,
customer support, supplier’s reputation, trustworthiness and
esteem

(d) Value pricing

• This method used the principle of charging a fairly low price for
a high-quality offering
• Everyday low pricing (EDLP) is an important type of value
pricing.

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Developing pricing strategies
(e) Going –Rate pricing
• In this method a company bases its price largely on competitors’
price

(f) Auction-type pricing

• Different types of auctions are used to decide the price
• English auction
• Dutch auctions
• Sealed-bid auction

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Developing pricing strategies
Step 6: Selecting the final price
• While selecting the price, a company must consider the following
factors:
(a) Impact of other marketing activities
• It involves understand the brand’s quality and advertising
relative to competition

(b) Company pricing policies

• The price must be consistent with company pricing policies

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Developing pricing strategies
(c) Gain-and-risk-sharing pricing
• Buyers may resist accepting a seller’s proposal because of a
high perceived level of risk
• The seller has the option of offering to absorb part of all of the
risk if it does not deliver the full promised value

(d) Impact of price on other parties

• How will distributors and dealers feel about the contemplated
price?
• Will the sales force be willing to sell at that price?

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Developing pricing strategies
Promotional pricing
1. Loss-leader pricing
• Supermarkets and department stores often drop the price on
well-known brands to stimulate additional store traffic
2. Special event pricing
• Sellers will establish special prices in certain seasons to draw in
more customers.
3. Special customer pricing
• Sellers offer special prices exclusively to certain customers.
4. Cash rebates
• Offering cash rebates to encourage purchase of the
manufacturers products within a specified time period.

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Developing pricing strategies
5. Low-interest financing
• Instead of cutting its price, the company can offer customers
low-interest financing.

6. Longer payment terms

• Sellers stretch loans over longer periods and thus lower the
monthly payments.

7. Warranties and service contracts

• Companies can promote sales by adding a free or low-cost
warranty or service contract.

8. Psychological discounting
• This strategy sets an artificially high price and then offers the
product at substantial savings.
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Developing pricing strategies
Differentiated Pricing
1. Customer-segment pricing
• Different customer segments pay different prices for the same
product or service for eg museum tickets for children vs elderly

2. Product-form pricing
• Different versions of the product are priced differently, but not
proportionately to their costs for eg shampoo bottles vs sachets

3. Image pricing
• Some companies price the same product at two different levels
based on image differences for eg sweaters from Ludhiana,
shoes from Kanpur
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Developing pricing strategies
4. Channel pricing
• Here the company changes different prices for the same
product sold through different channels for eg coke prices sold
at bus stand vs airports

5. Location pricing
• The same product is priced differently at different locations
even though the cost of offering it at each location is the same
for eg theatre seats

6. Time pricing
• Prices are varied by season, day or hour for eg airplane prices

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Initiating and responding to price changes
Initiating price cuts
• Reasons for initiating price cuts:
• Excess plant capacity (cannot sell below break even point)
• Drive to dominate the market through lower costs

How to calculate breakeven?

Fixed Costs ÷ (Price - Variable Costs) = Breakeven Point in Units

A price cutting strategy can lead to other possible traps:

• Low-quality trap
• Fragile-market-share trap
• Shallow-pockets trap
• Price-war trap
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UM22MB644A

Marketing Channels

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Introduction - Managing marketing channels
• Successful value creation needs successful value delivery.
• Holistic marketers are increasingly taking a value network view of
their businesses.
• Instead of limiting their focus to their immediate suppliers,
distributors and customers, they are examining the whole supply
chain that links raw materials, components and manufactured
goods and shows how they move toward the final consumers.
• Most producers do not sell their goods directly to the final users ;
between them stands a set of intermediaries performing a variety
of functions.
• These intermediaries constitute a marketing channel also called a
trade channel or distribution channel.
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Managing marketing channels
What is a Marketing Channel?
• A marketing channels are sets of interdependent organizations
involved in the process of making a product or service available for
use or consumption.
• It is also known as Distribution Channel
• It is the intermediary between the manufacturers and end-users

Who are merchants?

• Intermediaries who buy, take title to, and resell the merchandise
are called merchants.

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Managing marketing channels

Who are agents?

• They search for customers and may negotiate on the
producer’s behalf but do not take title to the goods.

Who are facilitators?

• They assist in the distribution process but neither take
title to goods nor negotiate purchases or sales.

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Managing marketing channels

What is a marketing channel system?

• It is the particular set of marketing channels a firm employs.
Why is it important?
• The collective margins of channel members can account for 30 to 50
percent of the ultimate selling price.
What is a push strategy?
• It uses the manufacturer’s sales force, trade promotion money, or other
means to induce intermediaries to carry, promote and sell the product to
end users.
What is a pull strategy?
• The manufacturer uses advertising, promotion and other forms of
communication to persuade consumers to demand the product from
intermediaries.
What is a hybrid or multichannel marketing?
• It occurs when a single firm uses two or more marketing channels to
reach customer segments. 72
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Managing marketing channels
The Role of marketing channels:
• Intermediaries make goods widely available and accessible to
target markets.
• They offer more effectiveness and efficiency than a firm can
achieve on its own.
Channel member functions:
• Gather information about potential and current customers,
competitors, and other actors and forces in the marketing
environment
• Develop and disseminate persuasive communications to stimulate
purchasing
• Place orders with manufactures

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Managing marketing channels
• Negotiate and reach agreements on price and other terms so that
transfer of ownership or possessions can be affected
• Acquire the funds to finance inventories at different levels in the
marketing channel
• Assume risks connected with carrying out channel work
• Provide for the successive storage and movement of physical
products
• Provide for buyers’ payment of their bills through banks and other
financial institutions
• Oversee actual transfer of ownership from one organization or
person to another
• Help in market development
• Provide technical support to products
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Channel Levels

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Managing marketing channels

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Managing marketing channels
Number of intermediaries
• Three strategies based on the number of intermediaries
are:

Exclusive distribution
• It severely restricts number of intermediaries
• It is appropriate when producer wants to maintain
control over the service level and outputs offered by
resellers
• Producer wants to get dedicated and knowledgeable
selling
• It requires closer partnership between seller and
reseller
• For eg designer wear, new automobiles, some major
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Managing marketing channels

Selective distribution
• Relies on only some of the intermediaries willing to
carry a particular product
• Producer can get adequate market coverage and more
control at less cost than intensive distribution

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Managing marketing channels

Intensive distribution
• This distribution places the goods or service in as many
outlets as possible
• It is suitable for products bought frequently or in a
variety of locations
• It increases coverage and sales
• It may encourage retails to compete aggressively
• Price wars can harm brand equity

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Managing marketing channels

Channel integration and systems

Vertical Marketing Systems
• It includes the producer, wholesaler(s), and retailer(s)
acting as a unified system
• One channel member, the channel captain, owns or
franchises the others or has so much power that they all
cooperate
• The channel captain attempts to control channel
behaviour and eliminate conflict over independent
members pursuing their own objectives

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Managing marketing channels
There are three types of VMS:
Corporate VMS
• It combines successive stages of production and distribution
under a single ownership
• For years, Sears obtained more than half the goods it sells
from companies it partly or wholly owned
• Reliance Oil and gas

Administered VMS
• It coordinates successive stages of production and
distribution through the size and power of one of the
members
• Thus, Frito-Lay, Procter & Gamble, and Campbell Soup
command high levels of cooperation from their resellers in
the matter of displays, shelf space, promotions, and price
policies
• ITC, HUL etc 81
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Managing marketing channels

Contractual VMS
• It involves a formal agreement between the various
levels of the distribution or production channel to
coordinate the overall process
• This system allows companies to benefit from
economies of scale and marketing reach
• These relationships are a popular form of vertical
marketing
• Toyota

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Managing marketing channels

Horizontal Marketing Systems

• Here two or more unrelated companies put together
resources to exploit an emerging marketing opportunity
• Each company lacks the capital, know-how, production,
or marketing resources to venture alone, or it is afraid
of the risk
• The companies might work together on a temporary or
permanent basis or even create a joint venture
company

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Managing marketing channels

Integrated Multichannel Marketing Systems

• Multichannel distribution system is a method or
structure in which a single company sets up two or
more sales and marketing channels
• It increases market coverage. Customers are able to
shop for the company’s products in more places
• It lowers channel cost
• It helps in customized selling

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Managing marketing channels

Managing channel conflicts

• Channel conflict is generated when one channel
member’s actions prevent another channel from
achieving its goal

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Managing marketing channels

Types of conflict
Vertical channel conflict
• This conflict occurs between different levels of the
channel
• Greater retailer consolidation has led to increased price
pressure and influence from retailers

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Managing marketing channels

Horizontal channel conflict

• This conflict occurs between channel members at the
same level

Multichannel conflict
• It happens when the manufacturer has established two
or more channels that sell to the same market

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Managing marketing channels

Managing channel conflict

Strategic justification
• When there is a conflict between channel members
who are serving different segment of customers, this
strategy can be adopted
• Here the manufacturer has the responsibility to explain
to the channel members about the cause for the
conflict and reason with the members to stop conflict
• Developing special versions of products for different
channel members can help in demonstration the
distinctiveness of each channels

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Managing marketing channels

Dual compensation
• Here the manufacturer pays existing channels for sales
made through new channels

Superordinate goals
• Channel members can come to an agreement on the
superordinate goal they are jointly seeking, such as
survival, market share, high quality or customer
satisfaction
• Channel members usually do this when the channel
faces an outside threat, such as shift in consumer
desires
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Managing marketing channels

Employee exchange
• Here there is exchange of persons between two or
more channel levels
• This participation can help channel members to
appreciate each other’s point of view

Joint membership
• Here the members can take joint membership in trade
associations
• Such associations can consider issues between
members and resolve them in an orderly way

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Managing marketing channels

Co-optation
• It is an effort by one organization to win the support of
the leaders of another by including them in advisory
councils, board of directors, etc.
• If the organization listens to the invited leaders
opinions, it can reduce conflict
• But the initiator organization may need to compromise
its policies and plans to win outsider’s support

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Diplomacy, Mediation, and Arbitration

• Diplomacy takes place when each side sends a person
or group to meet with its counterparts to resolve the
conflict
• Mediation relies on a neutral third party skilled in
conciliating the two parties’ interests
• In arbitration two parties to present their arguments to
one or more arbitrators and accept their decision

Legal Recourse
• When all the efforts fail to bring about a reconciliation
among the warring members, then legal recourse is
sought
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THANK YOU

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