Overview of Product

Management

1
 Product and Major Classifications
• What is a Product?
• Tangible goods Vs Service
• Levels of Product and Services

• Core Product
• Formal Product
• Augmented Product

• Product and Service Classifications

• Consumer Products
• Industrial products
2
 Product Decisions
• Product Line Decisions
• A product line is a group of products that are closely
related
• Product line length is the number of items in the
product line.
• The line can be lengthened by:-
• Product line stretching
• Product-line filling

3
 Product Decisions
• Product Mix Decisions
• A product mix (or product assortment) consists of all
the product lines and items that a particular seller
offers for sale.
• A company’s product mix can be described in terms of
the following through which the company can increase
its business:-
• Width
• Length
• Depth
• Consistency
4
New Product Development Strategy
• Defining a New Product.
• A product that has been introduced in the market place
for the very first time.
• A product that is new to the company.
• The product can be a radical innovation which is
entirely new in its category or a minor/ major
upgrades to the existing products in terms of features/
packaging/ marketing.
• Eg:- Ipad, Ipod Classic, Ipad2, Ipod Nano, Crocin
Advance etc.

• Why develop new products? 5

New Product Development Strategy
• Two ways to obtain new products by the organization:-
• Acquisition
• Eg:- Microsoft acquisition of Nokia
Facebook acquisition of Instagram & WhatsApp
• New Product Development
• Eg:- Ipad, Ipod, 3D TV, IBM Mainframes, Sewing
Machines, Microsoft Windows Operating System.
• Innovation can be very risky. Why?
• How to overcome difficulties and pitfalls is to identify
successful new products? 6
New Product Development Strategy
• Various Steps in New Product Development Process
• Idea Generation
• Idea Screening
• Concept Development and Testing
• Marketing Strategy Development
• Business Analysis
• Product Development
• Test Marketing
• Commercialization 7
New Product Development Strategy
• Idea Generation (Stage 1)
• Systematic search for new product ideas
• Idea Vs Commercialization
• Sources for new product ideas:- Internal sources,
customers, competitors, distributors, suppliers and
others in the distribution chain
• Idea Screening (Stage 2)
• One of the most important step in the overall strategy
• companies must proceed only with product ideas that
will turn into profitable products 8
New Product Development Strategy
• Concept Development and Testing (Stage 3)

• Concepts may take on several forms

• Identifying attractiveness of each concept to consumer

• Testing the concepts with a group of target consumers

• New ways to make product concepts more real to

concept-test subjects
• Caselet: DaimlerChrysler's

9
New Product Development Strategy
• Marketing Strategy Development (Stage 4)
• Designing an initial marketing strategy
• A marketing strategy statement should be produced
which consists of three parts:-
• Target market
• product's planned price, distribution, and
marketing budget for the first year
• planned long-run sales, profit goals, and marketing
mix strategy

10
New Product Development Strategy
• Business Analysis (Stage 5)
• Review of the sales, costs, and profit projections and
the break even point for a new product
• Ensuring the projections are in line with the company
objectives
• Survey for the market opinion
• To estimate sales, the company might look at the
sales history of similar products and conduct surveys
of market opinion

11
New Product Development Strategy
• Product Development (Stage 6)
• Developing the product concept into a physical product

• Investment is paramount at this stage

• This stage can be time consuming and multiple versions
of the product concept could be developed
• Prototypes must have the required functional features
and convey the intended psychological characteristics

• Caselet: Gillette 12
New Product Development Strategy
• Test Marketing (Stage 7)
• Product and marketing program are introduced into
more realistic marketing settings
• Objective:- To test the product itself in real markets
• The effort in the stage varies with each new product
• Costs can be high during this stage for the company
• Approaches used by consumer product companies:-
• Standard test markets
• Controlled test markets
• Simulated test markets
13
New Product Development Strategy
• Standard Test market
• Identification of Test Cities
• conducting a full marketing campaign
• Drawbacks:- Costs and lengthy period

• Eg:- Clorox vs P&G

• Controlled test markets

• uses controlled panels of stores that have agreed to
carry new products for a fee.
• Less costly than the earlier procedure
• Takes less time period than standard test markets 14
 New Product Development Strategy
• Simulated Test market
• Less expensive and requires short time period
• simulated test markets are as accurate or reliable
as larger, real-world tests.
• Still, simulated test markets are used widely, often
as "pretest" markets

• Example: Mistake by McDonalds: McLean Deluxe

15
New Product Development Strategy
• Commercialization (Stage 8)
• This step is introducing a new product into the market
• Full scale implementation of advertising and
promotional strategies
• Decisions related to timing and place for the launch of
products is decided and implemented.
• Launch in the global markets could be done in the initial
launch or in a phased approach.
• E.g.:- Most of the foreign players introduce new mobile
phones in developed countries and then later on
launch them in developing countries.
16
 Consumer Adoption Process
• Adoption is defined as the decision by an individual to
become a regular user of the product
• Adoption Process was described by Bourne in 1959
• This process is a type of decision making and occurs over
a period of time.
• It is during this adoption process the consumer decides
to become a new customer or not.
• The stages in the consumer adoption process become
the set of rules for the consumer at the beginning of
new product.
• There are 5 stages in the consumer adoption process
17
 Consumer Adoption Process
• Stages in the Adoption Process
• Awareness (Stage 1) • Trial (Stage 4)
• Interest (Stage 2) • Adoption (Stage 5)
• Evaluation (Stage 3)

• Different Adopter Categories

• Innovators • The late majority
• Early adopters • Laggards
• The early majority

18
 Consumer Adoption Process
• Influence of Product Characteristics on Rate of
Adoption
• Superiority (Innovation’s relative advantage )
• Values and Experience (Innovation’s compatibility )
• Ease of use (Innovation’s complexity )
• Limited basis trial (Innovation’s divisibility )
• Results being observed or described to others
(Innovation’s communicability )
• Other factors/ characteristics such as costs, risk,
uncertainty, social approval, customs and behaviour
may affect the rate of adoption. 19
Product Life Cycle and Strategies
• Each product seems to go through a life cycle
• Two major challenges of PLC
• Problem of new-product development
• Problem of product life cycle strategies
• The product life-cycle (PLC) is the course of a product’s
sales and profits over its lifetime
• The PLC has become one of the central topic to
Marketing and is utilized by many firms as a part of
their forecasting process.
20
Product Life Cycle and Strategies
• Product Life Cycle involves five distinct stages
• The product development Stage
• The introduction stage
• The growth stage
• The maturity stage
• The decline stage

21
 Product Life Cycle and Strategies
• The product development Stage
• Starts with a a new-product idea
• sales are zero
• company’s investment costs mount

22
 Product Life Cycle and Strategies
• The Introduction Stage
• Product is new and available for purchase
• Profits are negative or low
• Lower number of sales (with exceptions, eg: Apple
products)
• High distribution costs

• Prices tends to be high (Again depends on the pricing

strategy of the company)
• Higher Promotion & Advertising costs (to improve
awareness level) 23
 Product Life Cycle and Strategies
• The Introduction Stage
• Usually few competitors
• More focus on buyers (Early adopters)
• Low market size (Until the awareness level improve)

• High investment costs

• Market Growth Rate will be highest (over a course of

time)
• Company can have the 1st mover advantage if the
strategy is executed properly 24
 Product Life Cycle and Strategies
• The Growth Stage
• In this stage product’s sales start climbing quickly
• Word of Mouth, advertising and promotional
strategies result in increased sales at this stage
• New competitors may enter the market place
• Entry of paratroopers with same or enhanced features

• Market expansion takes place

• Competition may result in a price war
• Advertising and promotion budget increases
25
 Product Life Cycle and Strategies
• The Growth Stage
• Profits will increase, due to higher sales.
• Firm would trade off between high market share and
high current profit
• Growth rate would be high
• At this stage the company may want their current
subscribers to purchase the new product
E.g.:- Amazon promoting Kindle Paper white
Apple exchanges iPhone 4/4s for iPhone
5
26
 Product Life Cycle and Strategies
• The Maturity Stage
• Sales growth slows or levels off
• Hunt for new users and segments
• Introduction of loyalty programs to retain existing
customers
• Reposition of the brand to appeal a larger segment
• E.g:- Repositioning strategy by Moov
• Product modification may happen

• Marketing mix modifications to sustain growth

• Market players consolidation 27
 Product Life Cycle and Strategies
• The Maturity Stage
• No. of competitors remain stable
• Market growth rate will be low
• Profits start to decrease or remain stagnant every
quarter
• Market size would be largest
• Investment would remain stable
• Continued reduction in costs of product due to
economies of scale and improvement in production
mechanisms over time 28
 Product Life Cycle and Strategies
• The Decline Stage
• Product sales and profit figures decline
• Market share would also decline
• Companies need to pay more attention to their
aging products
• Carrying the product may impact the company
• Companies look towards other manufacturing options to
lower the cost or will be willing to exit the market place.

29
 Product Life Cycle and Strategies
• The Decline Stage
• Management may decide to maintain its brand
without change in the hope that competitors will
leave the industry
• Management may decide to reposition or
reformulate the brand.
Eg:- Frito-Lay’s Cracker Jack brand

30
 Product Life Cycle and Strategies
• Does PLC curve remains same for all the products ?
• Not all products follow the S-shaped PLC
• The PLC can describe a product class, a product
form, or a brand
• The PLC can also be applied to styles, fashions, and
fads

31
 Product Life Cycle and Strategies
• Difficulties with PLC
• Trouble identifying which stage of the PLC the product is
in
• Difficult to forecast the sales level of the PLC stage, the
length of each stage, and the shape of the PLC curve
• PLC concept to develop marketing strategy can also be
difficult because strategy is both a cause and a result of
the product’s life cycle

32
Case Study
Red Bull: Waking a New Market

33
 Branding
• Introduction:-
• Branding started to develop and came to the picture in
USA around early 20th century

• Brand was a guarantee of homogeneity and a signal

of product quality
• Definition of Brand
• Aaker (1991), Keller (1998) Kotler (1994) & Lovelock
(1999) defines brand as “Distinguishing name and/or
symbol intended to identify and differentiate”.
34
 Branding
• Definition of Brand
• Peter Doyle of Warwick University has given a
comprehensive definition: “A name, symbol, design, or
some combination which identifies the product of a
particular organization as having a substantial,
differentiated advantage

• Development Of Branding
• Brands can also reduce the risk consumers face
• Consumerisation increases the focus changes from the
primitive selling to the advanced concept of brand

35
 Branding
• Development Of Branding
• Peter Doyle has classified this development of brand
management in six eras namely:-
• Stage 1: Unbranded Goods
• Stage 2: Brand As Reference Or Awareness
• Stage 3: Brand As Bundle Of Ideas, Thoughts And
Images Or Personality
• Stage 4: Brand As Icon Or An Identity
• Stage 5: Brand As A Position
• Stage 6: Brand as Policy

36
 Branding
• Stage 1: Unbranded Goods
• Goods are treated as commodities
• Goods are not branded
• Demand is more, supply is less
• Rarely seen in developed economies

• Stage 2: Brand As Reference Or Awareness

• competitive pressures stimulate producers to
differentiate their goods
• Changes in physical product attributes
37
 Branding
• Stage 3: Brand As Bundle Of Ideas, Thoughts And
Images Or Personality
• Differentiation becomes exceedingly difficult
• marketers begin to give their brands personalities
• value of the brand becomes self-expression

• Stage 4: Brand As Icon Or An Identity

• brand is "owned by consumers”
• Consumers use brands it to create their self-identity

38
 Branding
• Stage 5: Brand As A Position
• This stage marks the change to modern marketing
• Brand has a complex identity and has complex
interaction with the consumer

• Stage 6: Brand as Policy

• Few companies to date have entered this stage
• Distinguished by an alignment of company with
Ethical, Social And Political Causes

39
 Branding
• From Products to Brands
• Lewis has suggested that a product becomes a brand
through a process of formalization.
• Formalization creates emotional interphase between
the product and customer.
• Involves conscious effort by the company to
categorically detail out rational & emotional features
of a brand
• Brand Equity is value the brand generates to a product.
This value effort is the output of the entire branding
effort

• Case Studies: a) Dr. Batra’s Postive Health Clinic Ltd

b) Navratna Oil 40
 Branding
• Build Strong Brands
• Brands as the major enduring asset of a company
• The brand is more valuable than the totality of all
these assets
• Brands are more than just names and symbols
• Brands reside in the minds of consumers
• A powerful brand has high brand equity
• Brand valuation is the process of estimating the total
financial value of a brand
• Apple is $98 billion, Coca-Cola is $79 billion,
Microsoft is $59 billion, and IBM is $78 billion
(Interband.com, 2013)
41
 Branding
• Build Strong Brands
• Branding poses challenging decisions to the
marketer
• major brand strategy decisions involve brand
positioning, brand name selection, brand
sponsorship, and brand development

42
 Branding
• Brand Positioning
• Defined as the Distinct Space a Brand occupies in the
customers mind.
• This can be done at any of three levels:
• Product attributes.
• Name association with a desirable benefit.
• Positioned on beliefs and values
• A brand can be better positioned by associating its
name with a desirable benefit.
• Volvo (safety), Hallmark (caring), Harley-Davidson
(adventure)

43
 Branding
• Brand Name Selection
• finding the best brand name is a difficult task.
• Begins with a careful review of the following:-
• product and its benefits, the target market and
proposed marketing strategies
• Desirable qualities for a brand name include:-
• Name suggesting the product's benefits and
qualities. E.g:- Ujala, Hajmola .
• Easy to pronounce, recognize, and remember
Examples: Tide, Crest, Lux, Bata, Airel etc.
• should be distinctive, extendable and easily
transferable into foreign languages. Eg: cinthol,
Amazon, Oracle
44
 Branding
• Brand Sponsorship
• A manufacturer has four sponsorship options:-
• Manufacture’s Brands, Private Brands, Licensing
andCo-Branding
• Increasing number of retailers and wholesalers have
created their own private brands
• Eg: Sears, Walmart and Future group
• Private brands can be hard to establish and costly to
stock and promote.
• Private brands generally have higher profit margins.

45
 Branding
• Licensing
• Creating a brand name is time consuming
• Some companies license names or symbols previously
created by other manufacturers, names of well-known
celebrities, or characters from popular movies and
books
• Apparel and accessories sellers pay large royalties to
adorn their products
• Almost half of all retail toy sales come from products
based on television shows and movies
• The fastest-growing licensing category is corporate
brand licensing, E.g:- Coca-Cola
46
 Branding
• Co-Branding
• Co-branding occurs when two established brand
names of different companies are used on the same
product.
• Kellogg & ConAgra
• Co-branding offers many advantages
• Co-branding also allows a company to expand
• licensing its Healthy Choice brand to Kellogg, ConAgra
entered the breakfast segment with a solid product
• Co-branding also has limitations (complex legal
contracts and licenses)

47
 Branding
• CO-BRANDING
• four choices when it comes to developing brands
namely:-
• Line Extensions
• Brand Extensions
• Multibrands
• New Brands

48
 Branding
• Line extensions:-
• A company might introduce line extensions as a low-
cost, low-risk way of introducing new products
in order to:-
• Meet consumer desires for variety.
• Meet excess manufacturing capacity.
• Simply command more shelf space.
• Risks include:-
• An overextended brand might lose its specific
meaning.
• Can cause consumer frustration or confusion.
• The extension could be at the expense of other items
in the line. 49
 Branding
• Brand Extensions:-
• Existing brand names are extended to new or
modified product categories.
• Helps a company enter new product categories
• Aids in new product recognition.
• Saves on high advertising cost.

• Drawbacks:-
• The extension may confuse the brand image.
• The brand name may not be appropriate for a
particular new product.
• The brand name may be because of special
positioning in the mind of the consumer.
50
 Branding
• Multi Brands
• New brand names are introduced in the same product
category
• They gain more shelf space.
• The company can establish flanker or fighter brands
• helps to develop healthy competition & each brand
has a separate following

• Drawbacks:-
• Each brand may only obtain a small market share
and be unprofitable
51
 Branding
• New Brands
• New brand names in new categories are
introduced
• Helps move away from a brand that is failing.
• Can get new brands in new categories by
corporate acquisitions

• Drawbacks:-
• Spreading resources too thin

52
 Positioning & Differentiation
• Positioning involves implanting the brand's unique
benefits and differentiation in customers' minds.
• Eg:- Mercedes and Cadillac on luxury, and Porsche
and BMW on performance.

• Choosing a Positioning Strategy (3 Steps)

• Identifying a set of possible competitive advantages
• Choosing the right competitive advantages &
Selecting an overall positioning strategy.
• Effectively communicate and deliver the chosen
position to the market

53
 Positioning & Differentiation
• Identifying Possible Competitive Advantages
• Positioning begins with actually differentiating the
company's marketing offer.
• In what specific ways can a company differentiate its
offer from those of competitors?
• along the lines of product, services, channels,
people, or image
• Firm can also differentiate the services that
accompany the product
• Eg: Domino’s 30 min delivery

54
 Positioning & Differentiation
• Identifying Possible Competitive Advantages
• Installation can also differentiate one company from
another
• Firms that practice channel differentiation
• E.g:- Caterpillar, Dell, Amazon etc
• when competing offers look the same, buyers may
perceive a difference based on company or brand
image differentiation
• The company might build a brand around a famous
person
• Some companies even become associated with colors

55
 Positioning & Differentiation
• Choosing the Right Competitive Advantages
• How many differences to promote?
• company needs to avoid three major positioning
errors
• Under Positioning
• Over Positioning
• Confused Positioning

• Which differences to promote ?

• Promote those differences that are important,
distinctive, superior, communicable, preemptive,
affordable & profitable11
56
 Positioning & Differentiation
• Selecting an Overall Positioning Strategy
• This figure shows possible value propositions
upon which a company might position its
products.

57
 Positioning & Differentiation
• More for More
• involves providing the most upscale product or
service and charging a higher price to cover the
higher costs
• E.g:- Mont Blanc, Parker, Mercedes-Benz, Häagen-
Dazs, Starbucks etc.

• More for the same

• Companies can attack a competitor's more-for-more
positioning by introducing a brand offering
comparable quality but at a lower price
• Eg:- Lexus and Mercedes automobiles
58
 Positioning & Differentiation
• Same for Less
• Offering "the same for less" can be a powerful value
proposition—everyone likes a good deal.
• Dell Computers, wall-Mart, Big Bazaar
• Effort to lure customers away from the market leader

• Less for Much Less

• consumers will settle for less than optimal
performance in exchange for a lower price.
• Example:- ITC low cost hotels (Ginger), No firlls
economy Airlines (Spicejet, Indigo etc).
59
 Positioning & Differentiation
• More for less
• winning value proposition would be to offer "more
for less.
• Many companies like Procter & Gamble, Home Depot
claim to do this.
• Yet in the long run, companies will find it very
difficult to sustain such best-of-both positioning.

• Developing a Positioning Statement

• The statement should follow this form: To (target
segment and need) our (brand) is (concept) that
(point-of-difference). 60
 Positioning & Differentiation
• Communicating and Delivering the Chosen
Position
• company must take strong steps to deliver and
communicate the desired position to target
consumer
• Designing the marketing involves working out the
tactical details of the positioning strategy
• Companies find it easier to come up with a good
positioning strategy than to implement it.
• a product's position should evolve gradually as it
adapts to the ever-changing marketing environment.

61
 Brand Repositioning
• Brand Repositioning is changing the positioning of
brands.
• Brand Repositioning exercise may be due to the
following reasons:-
• Increasing Market Penetration (Moov, Lifebuoy, Kurl,
Marlboro cigarette )
• Increasing Relevance to Customer (Alto, Bournvita ,
Earlier Coca cola’s mello yello )
• Making Brand Contemporary (Bajaj, Tata Sumo,
Sugar-free)
• Change in Market or market Conditions (McDonald)

62
 Case Study

Repositioning
from
mass to Class

63
 Case Study

Establishing Alpenliebe as a
Brand

64
 Pricing Decisions
• What Is a Price?
• price is the amount of money charged for a product or
service
• price is the sum of all the values that consumers exchange
for the benefits of having or using the product or service.
• Objective of pricing: To find the price that will let the
company make a fair profit by harvesting the customer
value it creates.
• price has been the major factor affecting buyer choice
• Price is the only element in the marketing mix that produces
revenue

65
 Pricing Decisions
• Factors Affecting Pricing Decisions
• A company's pricing decisions are affected by both
internal company factors and external environmental
factors
• Internal factors affecting pricing decisions
• marketing objectives
• marketing mix strategy
• costs
• organizational considerations

66
 Pricing Decisions
• Marketing Objectives
• company must decide on its strategy for the product
before setting the price
• Common objectives include survival, current profit
maximization, market share leadership, and product
quality leadership
• Many companies use current profit maximization as their
pricing goal
• Other companies want to obtain market share leadership.
• company might decide that it wants to achieve product
quality leadership (Caterpillar , Gillette)

67
 Pricing Decisions
• Marketing Objectives
• A company might set prices low to prevent competition
from entering the market
• Prices can be reduced temporarily to create excitement
for a product or to draw more customers into a retail store
• Not-for-profit and public organizations may adopt a
number of other pricing objectives
• A not-for-profit hospital may aim for full cost recovery in
its pricing.
• A social service agency may set a social price geared to the
varying income situations of different clients

68
 Pricing Decisions
• Marketing Mix Strategy
• Decisions made for other marketing mix variables may
affect pricing decisions
• Price is a crucial product-positioning factor that defines
the product's market, competition & design
• Many firms support a price-positioning strategy technique
called target costing
• Pricing that starts with an ideal selling price, then targets
costs that will ensure that the price is met. E.g:-
Swatch Watch
• Other companies deemphasize price and use other
marketing mix tools to create nonprice positions.
69
 Pricing Decisions
• Costs
• Costs set the floor for the price that can be charged.
• A company's costs may be an important element in its
pricing strategy.
• Companies with lower costs can set lower prices that
result in greater sales and profits.
• A company's costs take two forms, fixed and variable
• Total costs are the sum of the fixed and variable costs for
any given level of production.
• The company must watch its costs carefully so that it
doesn’t be more than competitors.

70
 Pricing Decisions
• Organizational Considerations
• Companies handle pricing in a variety of ways.
• In small companies, prices are often set by top
management
• In large companies, pricing is typically handled by
divisional or product line managers.
• In industrial markets, salespeople may be allowed to
negotiate with customers within certain price ranges
• This pricing department reports to the marketing
department or top management

71
 Pricing Decisions
• External Factors Affecting Pricing Decisions
• Nature of The Market and Demand
• Competition
• Other relevant factors (economy, resellers, government
etc.)

• Nature of the market and demand

• Economists recognize four types of markets, each
presenting a different pricing challenge.
• pure competition, monopolistic competition,
oligopolistic competition and pure monopoly

72
 Pricing Decisions
• Pure Competition
• the market consists of many buyers and sellers
• No single buyer or seller has much effect on the going
market price
• A seller cannot charge more/ less than the going price
• In a purely competitive market, marketing research,
product development, pricing, advertising, and sales
promotion play little or no role

73
 Pricing Decisions
• Monopolistic Competition
• market consists of many buyers and sellers who trade over
a range of prices
• A range of prices occurs because sellers can differentiate
their offers to buyers
• Buyers see differences in sellers' products
• Sellers try to develop differentiated offers for different
customer segments
• less affected by competitors' marketing pricing strategies
than in oligopolistic markets

74
 Pricing Decisions
• Oligopolistic Competition
• Market consists of a few sellers who are highly sensitive to
each other's pricing
• The product can be uniform (steel, aluminum) or
nonuniform (cars, computers).
• There are few sellers due to high entry barriers
• Each seller is alert to competitors' strategies and moves
• If an oligopolist raises its price, its competitors might not
follow this lead.

75
 Pricing Decisions
• Pure Monopoly
• market consists of one seller
• Seller may be a government or private regulated or private
non regulated.
• Very few product categories are left with such markets
due to globalization and free trade
• A government monopoly can pursue a variety of pricing
objectives. In a regulated monopoly, the government
permits the company to set rates
• Nonregulated monopolies are free to price at what the
market will bear

76
 Pricing Decisions
• Competitors' Costs, Prices, and Offers
• company's pricing strategy may affect the nature of the
competition it faces
• If company follows a high-price, high-margin strategy, it
may attract competition.
• A low-price, low-margin strategy, however, may stop
competitors or drive them out of the market

• Other external factors

• Economic factors such as boom or recession, inflation, and
interest rates
• Impact of pricing on other parties in the environment
• social concerns 77
 Pricing Methods/ Approaches
• Companies set prices by selecting a general pricing
approach that includes one or more of these three sets of
factors:-
• Product costs
• Competitors prices and other internal and external
factors
• Consumer perception of value
• We shall examine basic three pricing approaches:-
• cost-based approach (cost-plus pricing)
• buyer-based approach (Value-based pricing )
• competition-based approach (going-rate and sealed-
bid pricing)
78
 Pricing Methods/ Approaches
• Cost Plus Pricing
• The simplest pricing method is cost-plus pricing
• Involves adding a standard markup to the cost of the
product.
• Markup pricing remains popular for many reasons
• Frequent adjustments are not necessary all the time
• When firm uses this method, prices tend to be similar and
price competition is thus minimized
• Many organizations perceive cost-plus pricing is fairer to
both buyers and sellers

79
 Pricing Methods/ Approaches
• Value Based Pricing
• Setting price based on buyers' perceptions of value rather
than on the seller's cost.
• Value-based pricing uses buyers' perceptions of value, not
the seller's cost, as the key to pricing.
• Cost-based pricing is product driven. Value-based pricing
reverses this process.
• A company using value-based pricing must find out what
value buyers assign to different competitive offers
• Measuring perceived value can be difficult.
• important type of value pricing at the retail level is
everyday low pricing (EDLP)
80
 Pricing Methods/ Approaches
• Competition Based pricing
• Consumers will base their judgments of a product's value
on the prices that competitors charge for similar products.
• The firm might charge the same as, more than, or less
than its major competitors.
• The smaller firms follow the leader
• Going-rate pricing is quite popular When demand
elasticity is hard to measure.
• Competition-based pricing is also used when firms bid for
jobs

81
 Pricing Strategies
• Pricing strategies usually change as the product passes
through its life cycle.
• During the Introductory Stage, companies choose between
two broad strategies: market-skimming pricing and market-
penetration pricing
• Market-Skimming Pricing
• Many companies that invent new products initially set
high prices to "skim" revenues layer by layer from the
market.
g:- Apple, Sony, Samsung

82
 Pricing Strategies
• Market Penetration Pricing
• set a low initial price in order to penetrate the market
quickly and deeply—to attract a large number of buyers
quickly and win a large market share.
• Eg:- Wal-Mart, Karbon, Spice Mobiles
• The high sales volume results in falling costs, allowing the
company to cut its price even further.
• Several conditions must be met for this low-price strategy
to work:- High Sensitive Market, low production &
distribution costs.
• Price advantage may be temporary many a times
• E.g:- Dell
83
 Price Adjustment Strategies
• Companies usually adjust their basic prices to account for
various customer differences and changing situations.

• Discount and Allowance Pricing

• A quantity discount
• A functional discount (also called a trade discount)
• A seasonal discount
• Allowances (Promotional money paid by manufacturers to
retailers in return for an agreement to feature the
manufacturer's products in some way.)

84
 Price Adjustment Strategies
• Segmented pricing
• Selling a product or service at two or more prices, where
the difference in prices is not based on differences in costs
• Several forms of segmented pricing:-
• customer-segment pricing
• product-form pricing
• location pricing
• time pricing
• The market must be segmentable, and the segments must
show different degrees of demand.
• Competitors should not be able to undersell the firm in
the segment being charged the higher price
85
 Price Adjustment Strategies
• Psychological Pricing
• A pricing approach that considers the psychology of prices
and not simply the economics; the price is used to say
something about the product.
• sellers consider the psychology of prices and not simply
the economics
• consumers usually perceive higher-priced products as
having higher quality
• But when they cannot judge quality because they lack the
information or skill, price becomes an important quality
signal. Caselet: Smirnoff
• Another aspect of psychological pricing is reference prices
86
 Price Adjustment Strategies
• Promotional Pricing
• Temporarily pricing products below the list price, and
sometimes even below cost, to increase short-run sales.
• Supermarkets and department stores will price a few
products as loss leaders
• Sellers will also use special-event pricing in certain
seasons to draw more customers
• Manufacturers will sometimes offer cash rebates to
consumers
• Some manufacturers offer low-interest financing, longer
warranties, or free maintenance to reduce the consumer's
"price."
87
 Response to Price changes
• Has competitor cut the price?
• Will lower price negatively affect our market share and
profits?
• Can/ should effective action be take?
• If the answer is no to the above questions, it is better to
hold the current price and monitor the competitior’s price
• If the answer is yes, then you have the following actions:-
• Reduce Price
• Raise Perceive Quality
• Improve Quality and increase price
• Launch low-price fighting brand

88
Response to Price changes

89
 Marketing /Distribution Channels
• A company's channel decisions directly affect every other
marketing decision.
• Many companies have used imaginative distribution
systems to gain a competitive advantage.
• E.g:- FedEx, Dell Computer, Charles Schwab & Company
etc.
• Distribution channel decisions often involve long-term
commitments to other firms
• Why do producers give some of the selling job to channel
partners?
• Members of the marketing channel perform many key
functions.
• Information, Promotion, Contact, Matching, Negotiation
etc. 90
 Channel Levels
• Channel levels are defined as layer of intermediaries that
performs some work in bringing the product and its
ownership closer to the final buyer.
• Number of Channel Levels
• Channel 1: direct marketing channel
• Channel 2: indirect marketing channels
• Multichannel Distribution Systems
• hybrid marketing channels
• single firm sets up two or more marketing channels to
reach one or more customer segments.
• E.g:- Charles Schwab, IBM
• Changing Channel Organization
• Develop new channel opportunities 91
 Channel Design Decisions
• In designing marketing channels, manufacturers
struggle between what is ideal and what is practical.
• For maximum effectiveness, however, channel analysis
and decision making should be more purposeful
• Designing a channel system includes:-
• Analyzing consumer needs
• Setting channel objectives
• Identifying major channel alternatives
• Evaluating major channel alternatives

92
 Channel Design Decisions
• Analyzing consumer needs
• finding out what target consumers want from the channel
• Do consumers want to buy from nearby locations or are
they willing to travel to more distant centralized locations?
• Would they rather buy in person, over the phone, through
the mail, or via the Internet?
• Do they value breadth of assortment or do they prefer
specialization?
• Do consumers want many add-on services

93
 Channel Design Decisions
• Setting Channel Objectives
• Which segments to serve and the best channels to use?
• Minimize the total channel cost of meeting customer
service requirements.
• Channel objectives are also influenced by the nature of
the company, its products, its marketing intermediaries, its
competitors, and the environment.
• To use same or different channels which the competitors
use.
• Environmental factors may affect channel objectives and
design.

94
 Channel Design Decisions
• Identifying major channel alternatives
• Types of Intermediaries (Company sales force,
Manufacturer’s agency, Industrial Distributors)
• Number of Marketing Intermediaries
• Intensive distribution (Coca-Cola, Kraft etc)
• Exclusive distribution (Bentley)
• Selective distribution (Whirlpool, GE, kitchenAid)
• Responsibilities of Channel Members
• The producer and intermediaries need to agree on the
terms and responsibilities of each channel member

95
 Channel Design Decisions
• Evaluating major channel alternatives
• Each alternative should be evaluated against economic,
control, and adaptive criteria.
• Using intermediaries usually means giving them some
control over the marketing of the product, and some
intermediaries take more control than others
• Company compares the likely sales, costs, and profitability
of different channel alternatives.
• company wants to keep the channel flexible so that it can
adapt to environmental changes

96
 Channel Management Decisions
• Channel management decisions involve:-
• selecting, managing, and motivating individual channel
members and evaluating their performance over time.
• Selecting Channel Members
• Some producers have no trouble signing up channel
members.
• Some producers have to work hard to line up enough
qualified intermediaries
• company should determine what characteristics
distinguish the better ones

97
 Channel Management Decisions
• Managing and Motivating Channel Members
• practice strong partner relationship management (PRM)
to forge long-term partnerships
• must convince distributors that they can succeed better by
working together as a part of a cohesive value delivery
system
• Caselet: General Electric
• Evaluating Channel Members
• regularly check channel member performance against
standards such as sales quotas, average inventory levels,
customer delivery time, treatment of damaged and lost
goods, etc.
• manufacturers need to be sensitive to their dealers 98
 Promotion Mix
• A company's total marketing communications mix also
called its promotion mix consists of the specific blend of the
following categories that the company uses to pursue its
marketing objectives:-
• Advertising
• Sales promotion
• Public relations
• Personal selling
• Direct-marketing
• Each category involves specific tools
• communication goes beyond these specific promotion tools

99
 Integrating the Promotion Mix
• Checklist for integrating firm's marketing communications:-
• Analyze trends—internal and external—that can affect your
company's ability to do business
• Audit the pockets of communications spending throughout the
organization
• Identify all contact points for the company & its brands
• Team up in communications planning
• Create compatible themes, tones, and quality across all
communications media
• Create performance measures that are shared by all
communications elements
• Appoint a director responsible for the company's persuasive
communications efforts 100
 Promotion Mix Strategy
• Marketers can choose from two basic promotion mix strategies
• Push promotion:- A promotion strategy that calls for using the
sales force and trade promotion to push the product through
channels. The producer promotes the product to wholesalers,
the wholesalers promote to retailers, and the retailers
promote to consumers.
• Pull promotion:- A promotion strategy that calls for spending a
lot on advertising and consumer promotion to build up
consumer demand.

• Case Study: P&G

101
 Developing an Advertising Program
• Marketing management must make four important
decisions when developing an advertising program:-
• Setting advertising objectives
• Setting the advertising budget
• Developing advertising strategy
• Evaluating advertising campaigns.

102
 Developing an Advertising Program
• Setting advertising objectives
• These objectives should be based on past decisions about the
target market, positioning, and marketing mix
• Informative advertising is used heavily when introducing a new
product category
• Persuasive advertising becomes more important as
competition increases.
• Reminder advertising is important for mature products
• Setting the Advertising Budget
• A brand's advertising budget often depends on its stage in the
product life cycle
• How does a company know if it is spending the right amount?
103
 Developing an Advertising Program
• Developing Advertising Strategy
• Advertising strategy consists of two major elements:
• Creating advertising messages and
• Selecting advertising media.
• Message Strategy
• Message Execution
• Selecting Advertising Media
• deciding on reach, frequency, and impact
• choosing among major media types
• selecting specific media vehicles
• deciding on media timing
104
 Developing an Advertising Program
• Evaluating Advertising Campaigns
• evaluate both the communication effects and the sales effects
of advertising regularly.
• copy testing
• compare past sales with past advertising expenditures
• More complex experiments could be designed to include other
variables, such as difference in the ads or media used

105
 Sales Promotion Tools
• Consumer Promotion Tools
• Samples
• Coupons
• Cash refund offers
• Price Packs
• Premiums
• Advertising Specialities
• Patronage rewards
• Point-of-purchase promotions
• Contests, sweepstakes and games

106
 Sales Promotion Tools
• Trade Promotion Tools
• Contests,
• Premiums
• Displays
• Price-off
• Allowance
• Business Promotion Tools
• same tools used for consumer or trade promotions
• Other major tools:- conventions and trade shows,
Sales contests.

107
 Develop Sales Promotion Program
• Marketer must decide on the size of the incentive
• The marketer also must set conditions for participation.
• marketer must then decide how to promote and distribute
the promotion program itself.
• The length of the promotion is also important
• Evaluation is also very important.
• Surveys can provide information on how many consumers
recall the promotion
• Marketer must define the sales promotion objectives, select
the best tools, design the sales promotion program,
implement the program, and evaluate the results

108
 Public Relation
• Public Relation Tools
• News
• Speeches
• Special events
• Written material
• Audio Visual material
• Corporate identity material
• Public service activities
• The firm's public relations should be blended smoothly with
other promotion activities within the company's overall
integrated marketing communications effort.
• Case Study: Pepsi: Promoting Nothing (Water Wars)
109
Thank You

110