Marketing Management

Module – 4
Ms. Archana Vijay
Topics to be covered:
Product management and Pricing: Importance and primary objective of product management,
product levels, product hierarchy, Classification of products, product mix, product mix strategies,
Managing Product Life Cycle. New Product Development, packing as a marketing tool, Role of labeling
in packing. Concept of Branding, Brand Equity, branding strategies, selecting logo, brand extension-
effects. Introducing to pricing, Significance of pricing, factor influencing pricing (Internal factor and
External factor), objectives, Pricing Strategies-Value based, Cost based, Market based, Competitor
based, Pricing Procedure.

Components of the Market Offering

Product is anything that can be offered to a market to satisfy a want or need, including physical goods,
services, experiences, events, persons, places, properties, organization, information or ideas.

Value based prices

Attractiveness of
the market offering

Product features Service mix and

and quality quality

Ashok Leyland – An Example

 Ashok Leyland – Great Brand and Great Product
 Offer products and services of superior quality. Leader in India’s commercial vehicle industry.
Pioneered concepts like full air brakes, power steering, CNG powered engines buses in India.
 Wide range of products from 18 seater passenger buses to larger 82 seater buses. Trucks with
carrying capacity of 7.5 to 45 tons.
 Long term plan of becoming a global player. Benchmarked the quality and technology
according to global standards.
 In-house R&D, increasing investments in infrastructure and people, supplemented by strategic
alliances with internationally renowned technological leaders for engines, gear boxes and
other important vehicle parts and systems.
 Supplier of vehicles for Indian Military’s logistic operations.

Product Levels
1. Core Benefit
This is the benefit that your customers are getting from the product, at its most basic level.
For instance, when you buy a raincoat, the core benefit is that you'll stay dry in the rain. When
you buy a car, the core benefit is that you'll be able to get from place to place.

2. Basic Product

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At the second level, you turn the core benefit into an actual product, and you define the basic
features that the product must have.
So, if we continue with our examples above, the raincoat must be waterproof and may have
a hood to keep your head dry. A car must have doors, an engine, wheels, and a solid frame so
that you can get into it and drive it.

3. Expected Product
The Expected Product is the set of attributes or features that customers expect when they
purchase the product. This is in addition to Basic Product features identified at the second
level.
For instance, you might expect a raincoat to be made of breathable material, so that you don't
sweat, and for it to be cut in a presentable style.
Similarly, you might expect a new car to have airbags, anti-lock brakes, an up-to-date media
player, and a built-in navigation system. You'd also expect it to be reliable, and to have a fair
warranty.

4. Augmented Product
Here, you identify any features that will exceed customer expectations. This is where you can
really start distinguishing your product from your competitors' products.
In our raincoat example, the manufacturers could offer an Augmented Product by offering a
free map case, or by using top-of-the-line lightweight materials.
In our car example, the manufacturers could offer side airbags, top -of-the-range tires, or a
self-defrosting windshield.

5. Potential Product
With the "Potential Product," you think about the possible transformations the product could
go through in the future, and the features and value that you could add.
For our raincoat, a potential product extension could be a small bag that people could carry
their folded raincoat in, so that it can easily fit into a bag or briefcase, or a new design that
allows you to see more around you when using the hood.
For our car, potential product extensions could include apps for smartphones that allow you
to open and start your car without a key, a new engine design that consumes less fuel, or a
navigation system that uses voice recognition.

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Classification of Goods :
 Durability and Tangibility
1. Nondurable goods – Consumed in one or few uses. Eg. Soap, Soft drinks etc.
2. Durable goods – Normally survive many uses. Eg. Refrigerator, Clothing etc.
3. Services – Intangible products.

Consumer goods classification

1. Convenience goods – purchased frequently, immediately and with a minimum of effort. Eg.
Rice (Staples), Chocolates (Impulse goods), Rain coats ( Emergency).
2. Shopping goods – Compared on such bases as suitability, quality, price and style. Eg.
Furniture

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 3. Specialty goods – Unique characteristics or brand identification for which sufficient number
of buyers are willing to make a special purchasing effort. Eg. Cars
4. Unsought goods – Buyers normally does not think of buying. Eg. Insurance.

 Industrial goods classification

1. Materials and parts – Goods that enter the manufacturer’s product completely. Eg. Raw
materials.
Raw Materials may be farm products (wheat, cotton) and natural products (fish, crude petroleum
oil)
a) Manufactured materials and parts may be component materials (iron, yarn) and component
parts (screws, small motors).
2. Capital Items – Long lasting goods that facilitate developing or managing the finished product. Eg.
Buildings, Heavy equipment etc.
3. Supplies and business services – Short term goods and services that facilitate developing or
managing the finished product. Eg. Paint, Writing pen, paper etc.

Product Development Process

 Idea Generation – Ideas come from many sources : a) Customers needs and wants, b) Their
scientists, engineers, designers and other employees c) Examining their competitor’s products
and services, d) Sales representatives and intermediaries as they have got first hand exposure
to customer’s needs and complaints e) Top management.
A number of creative idea generation techniques :
1. Attribute listing – Listing an existing product’s major attributes and then modifying each
attribute in the search for an improved product.
2. Need/Problem Identification – It starts with consumers. Consumers are asked about needs,
problems and ideas.
3. Brainstorming – Group consisting of six to ten people discussing a specific problem and new
ideas are taken from each of the members.

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  Idea screening –
1. Ideas are submitted to idea chairman.
2. Ideas written down and reviewed by idea committee.
3. Ideas are sorted into three groups – promising ideas, marginal ideas and rejects. Promising
ideas to be researched by a committee member, who then reports back to committee.
4. Promising ideas then move into a full scale screening process.
 Concept Development and Testing
Product concept is an elaborated version of the idea in meaningful consumer terms. Concept testing
refers to the process in which a concept statement is presented to potential buyers or users to obtain
their reactions. Video clips on the internet might show a virtual prototype and the way it works so that
potential customers can evaluate the product or service.
Eg. The concept for an electric scooter:
The product is a lightweight electric scooter that can be easily folded and taken with you inside a
building or on public transportation. The scooter weighs 18 kgs. It travels at a speed of upto 1o kms
per hour and can be recharged in about 2 hours. It sells for 15000 Rs.
 Marketing strategy development – Consists of three parts:
a) Target market’s size, structure and behavior, The planned product positioning , The sales, market
share, and profit goals sought in the first few years.
b) Planned price, distribution strategy and marketing budget for the first year
c)Long-run sales and profit goals and marketing-mix strategy over time.
 Business Analysis –
Evaluate the proposal’s business attractiveness by preparing sales, cost and profit projections.
a) Estimating total sales – Estimated first time sales + estimated replacement sales
(automobiles, clothes) + estimated repeat sales (FMCG products).
Depend on whether product is one time purchase product (house), an infrequently purchased
product (automobile) or a frequently purchased product (soap, toothpaste).
b) Estimating costs and profits – Costs estimated by R&D, manufacturing, marketing and finance
departments.
Profit = Revenue – Cost
 Product Development – Moves to R&D and Engineering departments to be developed into a
physical product. Develop one or more physical versions of the product concept.
Functional Tests – Conducted under lab or field conditions to make sure that the product performs
safely and effectively.
Consumer Testing – Bringing consumers into a lab, to give them samples to use in their homes.
 Market Testing – The goals are to test the new product in more authentic consumer settings
and to learn how large the market is and how consumers and dealers react to handling, using
and repurchasing the actual product. Company seeks to estimate four variables – trial, first
repeat, adoption and purchase frequency. The company hopes to find all these variables at
high levels.
 Commercialization – When (Timing) The company faces three choices-
1. First entry – enjoys the first mover advantages of locking up key distributors and customers.
2. Parallel entry – coincide with the competitor’s entry.
3. Late entry – delay its launch until after the competitor has entered.
Where – Single locality, a region, several regions, the national market or the international market.
To Whom – Early adopters, Heavy users, opinion leaders.
How – Develop an action plan for introducing the new product.

Diffusion of Innovation
Diffusion of Innovations is a theory of how, why, and at what rate new ideas and technology spread
through cultures.
Elements of diffusion of innovations

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  Innovation
Rogers defines an innovation as "an idea, practice, or object that is perceived as new by an individual
or other unit of adoption" .
 Communication channels
A communication channel is "the means by which messages get from one individual to another.”
 Time
"The innovation-decision period is the length of time required to pass through the innovation-decision
process" . Rate of adoption is the relative speed with which an innovation is adopted by members of
a social system.
 Social system
"A social system is defined as a set of interrelated units that are engaged in joint problem solving to
accomplish a common goal“.

Diffusion of Innovations is a theory of how, why, and at what rate new ideas and technology spread
through cultures.
Elements of diffusion of innovations
 Innovation
Rogers defines an innovation as "an idea, practice, or object that is perceived as new by an individual
or other unit of adoption" .
 Communication channels
A communication channel is "the means by which messages get from one individual to another.”
 Time
"The innovation-decision period is the length of time required to pass through the innovation-decision
process" . Rate of adoption is the relative speed with which an innovation is adopted by members of
a social system.
 Social system
"A social system is defined as a set of interrelated units that are engaged in joint problem solving to
accomplish a common goal“.

 Innovators – Those buyers who want to be the first on the block to have the new product or
service. These buyers enjoy taking risks and are regarded as highly knowledgeable and
venturesome. Innovators keep themselves well informed about the product category by

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 subscribing to trade magazines. They are crucial to the success of any new product category
because they help the product gain market acceptance.
 Early Adopters – The second subgroup that begins to use a product or service innovation is
the early adopters. They generally don’t like to take as much risk as innovators do but instead
wait and purchase the product after careful review. Early adopters tend to enjoy novelty and
often are regarded as the opinion leaders for particular product categories.
 Early Majority – They are crucial because few new products and services can be profitable
only when this large group buys them. Its members don’t like to take as much risk and
therefore tend to wait until the problems are worked out of a particular product or service.
When early majority customers enter the market, the number of competitors in the
marketplace usually also has reached its peak, so these buyers have many different price and
quality choices.
 Late Majority – The last group of buyers to enter a new product market; when they do, the
product has achieved its full market potential. By the time, the late majority enters the
market, sales tend to level off or may be in decline.
 Laggards – These consumers like to avoid change and rely on traditional products until they
are no longer available. In some cases, laggards may never adopt a certain product or service.

Product Life Cycle

To say that a product has a life cycle is to assert four things:
1. Products have a limited life.
2. Product sales pass through distinct stages, each posing different challenges, opportunities and
problems to the seller.
3. Profits rise and fall at different stages of the PLC.
4. Products require different marketing, financial, manufacturing, purchasing and human
resource strategies in each stage of their life cycle.

Sales history of a typical product follows a bell-shaped curve. The curve is typically divided into four
stages: introduction, growth, maturity and decline.
 Introduction – A period of slow sales growth as the product is introduced in the market. Profits
are nonexistent in this stage because of the heavy expenses incurred with product
introduction like manufacturing cost, transportation cost and promotion costs.. For eg. 3D TV
and Smart TV.
 Growth – A period of rapid market acceptance and substantial profit improvement. For [Link]
TV & Plasma TV.
 Maturity – A period of a slowdown in sales growth because the product has achieved
acceptance by most potential buyers. Profits stabilize or decline because of increased
marketing outlays to defend the product against competition. For eg. Flat Screen, CRT TVs.
 Decline – The period when sales show a downward drift and profits erode. Eg. Black & White,
Portable TV.

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Marketing Strategies throughout PLC
 Introduction Stage – Takes time to roll out the product in several markets and to fill the dealer
pipelines, sales growth is apt to be slow at this stage.
Slow Growth – due to delays in the expansion of production capacity, technical problems, delays in
obtaining adequate distribution through retail outlets and customer reluctance to change established
behaviors.
Profits are negative or low – Low sales, heavy distribution and promotion expenses. High level of
promotion to inform potential customers, induce trial of the product, secure distribution in retail
outlets.
High cost – Relatively low output rates, technical problems in production, high margins to support
heavy promotional expenditures.

Strategies in Introduction Stage

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  Rapid skimming – Launching new product at a high price and high promotion [Link] price
to recover maximum profit and high promotion to convince the market of the product’s merit.
High technology products like mobile phones, laptops, televisions.
 Slow skimming – Launching the new product at high price and low promotion in order to
recover maximum profit and keep promotional expenses down. It is appropriate when the
market is limited in size, customers aware of the product, buyers willing to pay a high price
and there is no potential competition. Branded products like Gucci, Mercedes etc.
 Rapid Penetration strategy – Launching new product at low price and high promotion. Fastest
market penetration and largest market share. Market is large and unaware of the product,
price sensitive and strong competition. Eg. Low cost airlines, Retail outlets like Walmart.
 Slow Penetration strategy – Low price and low promotion. Rapid product acceptance and
profits are up. Market is large, aware of the product, price sensitive and moderate
competition is there. Eg. Non branded products like Haier Television.
Growth Stage
Rapid climb in sales, early adopters like the product and additional consumers start consuming the
product. New competitors enter the market, attracted by opportunities for large scale production and
[Link] increase as i) promotion costs are spread over a larger volume. Ii) unit manufacturing
costs fall faster owing to the producer learning effect.
Strategies
 It improves product quality and adds new product features and improved styling.
 It adds new models and flanker products (i.e. products of different sizes, flavors and so forth).
 It enters the new market segments.
 It increases its distribution coverage and enters new distribution channels.
 It shifts from product awareness advertising to product preference advertising.

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  It lowers prices to attract the next layer of price-sensitive buyers.
 Steps taken to improve it quality control standards. Quality will help to improve sale of its
product further.
Maturity Stage
Product’s rate of sales growth will slow down and the product will enter a stage of relative maturity.
Creates overcapacity in the industry. Leads to intensified competition. Increase advertising and R&D
budgets to develop product improvements and line extensions.
Strategies –
 Market modification –
Volume of sales = No. of brand users x Usage rate per user
No. of brand users can be increased by converting non users, entering new market segments, and
winning competitor’s consumers.
Eg. Tapping rural market, Fair and Handsome cream by Emami targeting males.
Usage Rate can be raised by convincing consumers for more frequent use, more usage per occasion
and introducing new and more varied uses.
Earlier Kellogs positioned as a breakfast meal and then later positioned as a nutritious meal which a
person can have throughout the day..
More use of soap, shampoo for keeping hygiene factors and deodorants for pleasant effect.
 Product Modification
Quality improvement – Improving Durability, Reliability, Speed and Taste of the product. Eg. More
spacious cars, Ultra White Surf, Parachute Hair Oil in new packaging.
Feature improvement – Improvement in color, shapes, sizes, weights etc. Eg. Sony Vaio Pocket Laptop.
Style improvement – New models of car. Samsung Galaxy SII, SIII, SIV..
 Marketing Mix Modification
Modification in price , distribution channel, advertising, sales promotion and services. Eg. Pantaloons
opening an online store, Nissan Micra at a lower price, Reliance Fresh offering home delivery services.
Decline Stage
 Sales of most product forms and brands eventually decline due to technological advances,
shifts in consumer tastes and increased domestic and foreign competition.
 Weak products are being identified first.
Strategies –
1. Harvesting the firm’s investment – Cut down R&D expenses, advertising expenses, reduce the
sales force etc.
2. Divesting the business quickly- Sell off the business and exit from the market.
3. Increase the firm’s investments in R&D, advertising in order to improve the product
4. Maintaining the firm’s investment
5. Decreasing the firm’s investment

Product Hierarchy

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  Need Family – Core need that underlies the existence of product family. Eg. Security,
transportation from one place to another.
 Product Family – All the product classes that satisfy core need. Eg. Savings and income,
Vehicles.
 Product Class –Group of products within the family having certain functional coherence. Eg.
Financial instruments, Four wheeler
 Product Line – Group of products within class that are closely related in terms of similar
function, sold to same customer groups, marketed through same channels and fall within
given price range. Eg. Life Insurance, Cars
 Product Type – Share one of several forms of the product. Eg. Term Life Insurance, SUV,
premium segment cars
 Item – Distinct unit distinguishable by size, price, appearance or some other attribute. Eg. ICICI
Prudential Renewable Term Life Insurance, Mercedes C Class.

Product Mix

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 Set of all products and items that a particular seller offers for sale to [Link] eg. HUL offers Home
& Personal Care and Food Products.
Width of a product mix refers to how many different product lines the company [Link] eg. HUL
carries product lines of Shampoo, Soap, Detergent, Cream, Lotion, Tea, etc.
Length of a product mix consists of the total no. of items in the mix. For eg. Lux, Fiama Di-wills, Tide
etc.
Depth of a product mix refers to how many variants are offered of each product in the line. For eg.
Lux in four variants (exotic flower petals and jojoba oil, almond oil & milk cream, fruit extracts & honey)
and in two sizes (50g & 100 g), so it has a depth of 8.
Consistency of the product mix refers to how closely related the various product lines are in end use,
production requirements, distribution channels etc.
For eg. HUL is consistent as they are consumer goods and go through the same distribution channel.
They are inconsistent as they perform different functions.

Product Line Length

Line Stretching – Company lengthens its product line beyond its current range.

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  Downward stretch – Companies initially located at the upper end and subsequently stretch
their line downward. Companies often add models to the lower end to advertise their brand
as starting at a lower price. For eg. Mercedes with C Class version entered into lower end.
 Upward stretch – Companies initially in the lower end and subsequently enter the higher end.
For eg. Maruti first targeted lower middle class with Maruti 800 and then later launched SX4
and Swift for upper class people.
 Two way stretch – Stretching both ways upward as well as downward. For eg. Titan was
initially into medium quality segment and then later launched Edge, Nebula, Raga in premium
segment and Sonata, Fastrack in economy segment.
 Line Filling – Launching the product in order to fill the gaps. For eg. Pantene launching Hair
color to fill the line.
 Line Modernization – All the product lines need to be modernized from time to time. For eg.
Microsoft and Oracle continuously launch more advanced versions of their product.
 Line featuring – Selects one or a few items in a product line to feature. For eg. Companies
feature low priced items to attract traffic. (Starting at Rs. 99)
 Line Pruning – Cut down items in a product line when depressing profits. Eg. Maruti has
decided to prune Maruti Omni because of depressing profits.

Merchandise Planning & Strategies

Merchandise Planning is the process that defines the resources required to meet particular company
sales, margin and inventory objectives for a specific season or period.
Various components of Merchandise planning
• Set sales targets
• Determine product mix (width, depth, assortment, imports vs. domestic)
• Control inventory levels
• Control cash flow
• Manage margins
• Indicate space needs
• Create individual store plans
• Define promotional events
• Monitor performance.

Packaging

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Packaging includes the activities of designing and producing the container or wrapper for a product.
Container or wrapper is called the package. Packaging plays a major role in cosmetics and minor role
in hardware items.
Coke bottle packages are world famous.
Primary package – Old spice After shave lotion in a bottle.
Secondary package – Cardboard box in which the bottle is kept.
Shipping package – Corrugated box in which 6-7 bottles re being kept.
Create convenience value for the consumers and promotional value for the producers.
Factors contributing packaging’s growing use :
 Self service – Products are sold on self service basis in supermarkets and discount stores. 53%
of all purchases are made on impulse, and effective packaging acts as a 5 sec commercial. It
attracts attention, describe the product’s features, create consumer confidence and make a
favorable overall impression. Eg. MTR Ready to eat meals with tempting picture of dish.
 Consumer wealth – Consumers are willing to pay a little more for convenience, appearance,
dependability and prestige of better packages. Eg. Special luxury boxes for packaging of cakes.
 Company and brand image - Companies are recognizing the power of well designed packages
to contribute to instant recognition of the company or brand. Eg. Garnier Fructis products in
fluorescent green bottles.
 Innovation opportunity – Innovative packaging can bring large benefits to consumers and
profits to producers.
Soft Drinks in pop cans.
Liquid sprays in aerosol cans.
Functions of Packaging

 Utilitarian Function
1. Protection of Product – Package protects a product from spoilage due to moisture and
sunlight, for instant tea, hygroscopic material like salt, chemicals, food products, Juices in
Tetra Packs.
2. Convenience in Product usage – It enhances convenience of product use by keeping it clean
and undisturbed.
3. Product or Brand Identification- Brands like Coca Cola, Pepsi, Horlicks bottle, Fair & Lovely
Skin Care bottles, Colgate Toothpaste can be easily identified by consumers and the retail
people.

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 4. Easy and Safe to handle – Makes product handling easier and safe. Hair oil, shampoo and
medicines
 Communication Function
1. It promotes products at the point of purchase and usually helps in the purchase decision
[Link] eg. New products like Philips Electric Shaver , Maggi Tomato Ketchup, Kinder Joy
chocolates are easy to see or locate at the point of purchase.
2. The product display at the dealer’s shop becomes more relevant and useful and consumers
are drawn towards products or brands occupying prominent shelf space like Lux, Liril, Kelloggs
etc.
 Profit Functions : Consumers assigning relatively higher value to a package are usually
prepared to pay higher price for the product’s attribute.
3. Effective package cuts cost of handling and transportation and protects product from damage,
thereby saving a company from cuts in profits.
Steps in Packaging –
1. Designing the package.
2. Decisions on additional packaging elements such as size, shape, materials, color, text and
brand mark.
3. Testing – a) Engineering test – Package stands up under normal conditions.
b) Visual tests – Script is legible and color harmonious.
c) Dealer tests – Dealers find the packages attractive and easy to handle.
d) Consumer tests – Favorable consumer response.

Labeling

Label may be a simple tag attached to the product or an elaborately designed graphic that is
part of the package.
Functions of Labeling –
 Label identifies the product or brand.
 Grade the product – States the quality level of the product.
 Describe the product – who made it, where it was made, when it was made, what it contains,
how it is to be used and how to use it safely.
 Promote the product through its attractive graphics.

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Additional features of labeling –
 Open Dating – describes product freshness.
 Unit pricing – Product cost in standard measurement units.
 Grade labeling – Rate the quality level of certain consumer goods. Eg. Hallmark, Agmark, ISI
etc.
 Percentage labeling – Indicates the percentage of each important ingredient.

Brand
A brand is a name, logo, term, sign, symbol, jingle 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.
A brand is essentially a seller’s promise to consistently deliver a specific set of features,
benefits and services to the buyers.

Selecting Brand Names

 Individual Brand Names – Lux, Liril, Lifebuoy, Dove and Rexona in soap and Surf and
Wheel in Detergent by HUL.
 Blanket Family Name for all products – Companies like GE, Tata, Amul and Philips.
 Company trade name combined with individual product names – Eg Maruti Esteem,
Maruti 800, Maruti SX4, Tata Steel, Tata Tea, Tata Indicom.
 Alphanumeric Names –Nokia E71, Nokia 5132C, Nokia N8.
 Private Labels – Brands created by retailer. Eg. Reliance ATTA, Reliance Value Sugar.

Value of Branding for the Customer and the Marketer

 Brands Facilitate Purchasing – Brands are often easily recognized by consumers and,
because they signify a certain quality level and contain familiar attributes, brands help
consumers make quick decisions.

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  Brands establish loyalty – Over time and with continued use, consumers learn to trust
certain brands. They know, for instance, that Band-Aid bandages always perform in
the exact same way.
 Brands protect from Competition and Price Competition – Strong brands are
somewhat protected from competition and price [Link] such brands
are more established in the market and have a more loyal customer base, neither
competitive pressures on price nor retail level competition is as threatening to the
firm.
 Brands reduce Marketing Costs – Firms with well-known brands can spend relatively
less on marketing costs than firms with little known brands because the brand sells
itself.
 Brands are assets - Like the physical possessions of a firm, brands are assets the firm
can build, manage and harness over time to increase its revenue, profitability and
overall value.

Brand can convey upto six levels of meaning –

 Attributes – Mercedes suggests expensive, well built, well engineered, durable, high
prestige and fast.
 Benefits – Functional and emotional benefits.
Durable – I won’t have to buy a new car every few years.(Functional benefit)
Expensive – Car helps me feel important and admired.( Emotional benefit)
 Values – Depicts producer’s moral values.
Mercedes depicts high performance, safety and prestige.
 Culture – Mercedes shows German culture.(organized, efficient and high quality.)
 Personality – Mercedes shows the personality of ‘A royal palace’ and a ‘Well known
person’.
 User – Mercedes is meant for a 55 Year old top executive.

Types of brand
There are two main types of brand – manufacturer brands and own-label brands.

Manufacturer brands

Manufacturer brands are created by producers and bear their chosen brand name. The producer is
responsible for marketing the brand. The brand is owned by the producer.

By building their brand names, manufacturers can gain widespread distribution (for example by
retailers who want to sell the brand) and build customer loyalty .

Own label brands

Own-label brands are created and owned by businesses that operate in the distribution channel –
often referred to as “distributors”.

Often these distributors are retailers, but not exclusively. Sometimes the retailer’s entire product
range will be own-label. However, more often, the distributor will mix own-label and manufacturers
brands. The major supermarkets (e.g. Reliance, Star Bazaar, Spar) are excellent examples of this.

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Own-label branding – if well carried out – can often offer the consumer excellent value for money and
provide the distributor with additional bargaining power when it comes to negotiating prices and
terms with manufacturer brands.

Brand Equity
Amount of power and value (in monetary terms) the brands have in the market place and in
the minds of the consumers is known as brand equity. Like the physical possessions of a firm,
brands are assets the firm can build, manage and harness over time to increase its revenue,
profitability and overall value. Firms spend millions of dollars on promotion, advertising and
other marketing efforts throughout a brand’s life cycle.

Advantages of High Brand Equity

High brand equity provides a no. of competitive advantages –
 Company will enjoy reduced marketing costs because of the high level of customer
brand awareness and loyalty.
 Company will have more trade leverage in bargaining with distributors and retailers
since customers expect them to carry the brand.
 Company can charge a higher price than its competitors because the brand has higher
perceived quality.
 Company can more easily launch brand extensions since the brand name carries high
credibility.
 Brand offers the company some defense against fierce competition.

Four Aspects of a Brand to determine its Equity

 Brand Awareness- Brand awareness measures how many customers in a market are
familiar with the brand and what it stands for and have an opinion about that brand.
The more aware or familiar customers are with a brand, the easier their decision
making process will be.
 Perceived Value – Perceived value of a brand is the relationship between a product or
service’s benefits and its cost. Customers usually determine the offering’s value in
relationship to that of its close competitors. Good marketing raises customer’s quality
perceptions relative to price; thus it increases perceived value.
 Brand Associations – Reflect the mental links that consumers make between a brand
and its key product attributes, such as a logo, slogan, or famous personality. These
brand associations often result from a firm’s advertising and promotional efforts.
 Brand Loyalty – Occurs when a consumer buys the same brand’s product or service
repeatedly over time rather than buy from multiple suppliers within the same
category. Such customers are less sensitive to price, marketing costs of reaching such
customers are much lower, spread positive word of mouth publicity and insulates the
firm from competition.

Importance of Pricing
 Price is the amount of money charged for a product or service.
 Total value that customers exchange for the benefits of having or using products or services.
 Of all the elements, price is the only one that generates revenue. All other generates only cost.
 Most important determinant of the profitability of any company.
 By manipulating the price, the company adjusts the level of cash flow and funds available for
other elements of the marketing mix.

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Pricing Concepts for establishing Value
 Premium Pricing – The firm deliberately prices a product above the prices set for competing
products to capture those consumers who always shop for the best or for whom the price
does not matter. For eg. Companies like BMW can charge high price because of the image it
has got in the minds of the customers and the customers don’t mind paying little extra for the
high brand value.
 EDLP (Every Day Low Pricing) – Companies charge low price on an everyday basis as compared
to the competitors. By reducing consumer’s search costs, EDLP adds value; consumers can
spend less of their valuable time comparing prices at different stores.
 High/Low Pricing – Relies on the promotion of sales, during which prices are temporarily
reduced to encourage purchases. Consumers perceive that stores that use EDLP carry lower-
quality goods, whereas high/low pricing stores tend to carry better-quality items.

Setting the Price for new Product

 Marketers have to set the price for the first time when it develops a new product or when it
introduces its regular product into a new distribution channel or geographical area.
Steps for Setting the Price

Selecting the pricing objective

Determining demand

Estimating costs

Analyzing competitor’s costs,

prices and offers

Selecting a pricing method

Selecting the final price

I. Selecting the Pricing objective

1. Survival – Plagued with overcapacity, intense competition or changing consumer
wants and the motive is just to survive in the market. Eg. Asian paints reduced the price
across all the paint items to survive in the market.
2. Maximum current profit – Estimate the demand and costs associated with alternative
prices and choose the one that produces maximum current profit. Eg. British Airways
is concentrating more on premium class passengers by reducing economy class seats
to earn maximum profit.
3. Maximum market share – Higher sales volume lead to lower unit costs and higher long
run profit. Marketers set a large plant, set its price as low as possible, win a large

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 market share, experience falling costs and cut its price further as costs fall. Eg. LG came
with reasonably priced products in the beginning to gain maximum market share.
Determining Demand – 1. Price sensitivity – Buyers are less price sensitive to low cost items or items
they buy infrequently, there are few or no substitutes or competitors, they think high prices is justified
and price is only a small part of the total cost.
2. Price elasticity of demand – Products where change in price does not cause much
difference in the quantity demanded have inelastic demand. Marketers can charge high price
for these products.
If the change in price causes much difference in the quantity demanded, then such products have
elastic demand. A small reduction in price can increase the sales of the product.
III. Estimating Cost – Demand sets the ceiling and cost sets the floor. Manufacturer has to cover its
cost of producing, distributing and selling the product including return for its effort and risk.
1. Types of cost and production – Fixed Cost – Does not vary with production level or sales
revenue. Eg. Salary, light, rent, heat, interest etc.
Variable cost – Vary directly with the level of production. Eg. For calculators, cost of plastic,
microprocessor chip and packaging vary with the level of production.
Total cost = FC + VC
Average cost = Total Costs
No. of units produced
IV. Analyzing competitor’s costs, prices and offers – Firm should consider nearest competitor’s price.
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.
V. Selecting a pricing method –
1. Mark-up pricing – Add a standard markup for profit to the producer’s cost.
Variable cost per unit = Rs. 10
Fixed Cost = Rs. 300000
Expected unit sales = 50000
Unit cost is given by = VC + FC
Unit sales = 10 + 300000
50000 = Rs. 16
Earn 20% mark up on sales
Mark up price = Unit cost + .2 * unit Cost
= 16 + .2 * 16 = Rs 19.2
2. Target Return Pricing - Firm determines the price that would yield its target rate of a ROI. For eg.
Invested Rs. 10,00000 in the business and wants to set a price to earn a 20% ROI, specifically Rs.
200000.

Target Return price = Unit cost + Desired Return x Invested capital

Unit sales
= 16 + 0.20 x 1000000 = Rs. 20
50000
[Link] Value Pricing – Customer is ready to pay little amount extra if the product has
got high perceived value. Perceived value is made up of several elements : buyer’s image of
the product’ s performance, the channel deliverables, the warranty quality, customer support,
supplier’s reputation, trustworthiness and esteem.

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 4. Going – Rate Pricing – The firm bases its price largely on competitor’s price, charging
the same, more or less than its major competitors. Premium pricing involves pricing
above the competitor’s price. Discount pricing is pricing below such level. Parity pricing
is matching the price of competitors. For eg. In steel, paper or fertilizer industry, firms
charge the same price and follow the market leader.
VI Selecting the final price – Company must consider the additional factors :
i. Impact of other marketing activities – Brand quality, advertising, customer support, on time
delivery and product shipping and handling relative to the competitors are considered. Brands
with average relative quality but high relative advertising budgets were able to charge
premium prices.
ii. Impact of price on other parties – Impact on distributors, dealers, sales force competitors,
suppliers and government.
iii. Psychological pricing - Lower price threshold below which prices signal inferior quality and
upper price threshold above which prices are prohibitive. Bata quote price like 399, 499 in
order to affect the psychology of the customers.

Special Pricing Strategies

 Differentiated Pricing
i. First Degree price discrimination – Seller charges different price for different units of output
according to the consumer’s willingness and ability to pay. Eg. Doctors charging different fee
for lower class and upper class patients.
ii. Second Degree price discrimination – Seller charges less to buyers who buy a large volume.
Eg. Railway fare for the first few kilometers is higher which declines as the distance increases.
Electricity unit charges.
iii. Third Degree price discrimination – Seller charges different amounts to different classes of
buyers. Eg. Airlines ticket fare different for economy and business class passengers.

 Customer segment pricing – Different consumer groups pay different prices. Eg. Wonderla
charging a lower entrance fee to kids and senior citizens.
 Channel pricing – Coca Cola carries a different price depending on whether consumer
purchases it in a fine restraunt, a fast food restra or vending machine.
 Location pricing – Sellers charge more for consumers who are being located far away
geographically from the manufacturer’s location. Eg. Price of Ashirwaad Atta is different in
different states.
 Time pricing – Price of cinema hall tickets is low on weekdays and high on weekends.
 Market skimming pricing – Objective is to skim the market and take the cream, by pricing the
new product high and concentrating on market segments which are not price sensitive. This
strategy will bring in high profits which could be ploughed back for further market
development and promotion. It can be undertaken when the product is innovative and the
manufacturer generates the maximum amount of revenue from the various segments until
other competitors step in. Then the price is reduced gradually to attract the next price
sensitive layer of customers. Eg Sony charges high price for Hi-Definition TV in the beginning.
 Penetration pricing – If the new product is likely to be highly price sensitive and if there is no
wealthy market for it, penetration pricing is restored to. Here the objective is to penetrate a
large market using low prices. The large volume of sales generated will bring in economies in
unit cost of production and marketing cost. Eg. Walmart, LG quoting low price for its products.

Five C’s of Pricing

Five C’s of Pricing

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 Cost Company
Channel Objectives
Customer Competitor
Partners

 Cost – Cost forms the floor at the time of setting the price. Company must set the price which
can at least cover the production cost.
Variable Cost, Fixed Cost, Total Cost, Economies of Scale, Learning curve, Target Costing.
 Customer – Customers want value and the demand of the product by the customers forms
the ceiling at the time of setting the price. Companies can’t go far above the demand of the
product at the time of setting the price.
Price Elasticity of Demand, Price Sensitivity of the customers, Income effect ( High income leads to
purchase of expensive products.), Substitution effect ( eg. There are many substitutes of Amul
Butter in the market. If the company raises the price, the customers will turn to other substitutes
like jam, cheese etc.), Break-even Analysis.

 Competitors – Companies have to consider the price, discounts and offers offered by the
competitors at the time of pricing the product.
Going Rate Pricing, Perceived Value, Premium Pricing, Brand Perception.
 Company Objectives – It can be any of the following:
1. Profit-oriented – All products must provide profits. Earn maximum profits by targetting
premium class customers.
2. Sales-oriented – Set prices very low to generate new sales and take sales away from
competitors.
3. Competitor-oriented – To discourage the competitors from entering the market, set prices
very low.
4. Customer-oriented – Target a market segment of consumers who highly value a particular
product benefit and set prices relatively high.
5. Market-oriented – Setting the price in such a way so as to cover the maximum share of the
market.
 Competitors – Companies have to consider the price, discounts and offers offered by the
competitors at the time of pricing the product.
Going Rate Pricing, Perceived Value, Premium Pricing, Brand Perception.
 Company Objectives – It can be any of the following:
1. Profit-oriented – All products must provide profits. Earn maximum profits by targetting
premium class customers.
2. Sales-oriented – Set prices very low to generate new sales and take sales away from
competitors.
3. Competitor-oriented – To discourage the competitors from entering the market, set prices
very low.
4. Customer-oriented – Target a market segment of consumers who highly value a particular
product benefit and set prices relatively high.
5. Market-oriented – Setting the price in such a way so as to cover the maximum share of the
market.

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 6. Channel Partners – Pricing of a product should be done in consensus with the channel
members like wholesalers, retailers etc, otherwise sales of the product will get affected. These
channel members only promote and push the product to the target end customers.

Pricing Strategies
• Psychological Pricing – 599/-, 1099/-
• Dynamic Pricing – Changing the price as per market demand, like weekday and weekends, off
season and peak season
• Bundled Pricing – Combo offer for Burger, Fries and Coke
• Captive Pricing – Printer is priced less and cartridge is more, Gillette Razor is less but blade is
more

Important Questions
 Which are the various levels of product hierarchy? 7 marks
 What is total product concept? 7 marks
 Explain the classification of goods. 7 Marks
 What is product-mix? Explain the various product mix strategies. 7 Marks
 Explain the steps involved in new product development process. 10 marks
 What is product life cycle? Explain the strategies adopted by marketer in different stages. 10
marks
 Packaging acts as a silent salesman. Explain. 10 marks
 Explain diffusion of innovation. 7 marks
 What are the steps involved in setting price for a new product? 10 marks
 Which are the different pricing strategies adopted by a marketer for a new product? 7 marks
 Explain – Penetration Pricing , Price Skimming, Geographical Pricing, Going Rate Pricing, Off
pricing. 10 Marks
 Explain the five C’s of pricing. 7 marks
 How can value of a product be established with the help of price? 7 Marks
 Explain a Brand and various strategies of branding.

Thank You

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