UNIT – II
PRODUCT PLANNING
MEANING
Product planning is the starting point in the overall marketing program. It
is a very wide activity. It involves the innovation of new product, improvement of
existing product, adding new product to the product line and dropping
uneconomic product form the product line.
Defined by Karl H. Tietjen:
In the opinion Karl H. Tietjen, "Product planning is the ct of making out and
supervising the search, screening, development and commercialization of new
product, modification of the existing lines and discontinuance of marginal or
unprofitable items."
The above definition reveals the following aspects of product planning:
1. Deciding about the production of new products.
2. Increase or decrease in product line
3. Improvement of existing products
4. Discontinuance of unprofitable products
5. Product innovation
STAGES IN NEW PRODUCT PLANNING PROCESS
One of the major challenges in marketing planning is to develop ideas for a
new product and to launch them successfully. The company will have to find
replacement for each product that has declined stages.
1. Generation of New Idea:
The very first step of product planning process is the generation of new idea.
The sources of product generating ideas include - consumers, scientists, and
technology, competitors, consultant dealers, sales force, top management etc.
2. Screening of New Idea:
Screening means critical evaluation of product ideas generated by a
company. All new ideas and inventions are evaluated. The poor and bad ideas are
dropped while the most profitable ideas are picked up for further detailed research
and investigation.
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3. Concept Development and Testing:
After screening, the survived ideas are studied in details. They are
developed into matured product concept. The concept testing helps the company
to choose the best among the available alternative product concepts.
4. Business Analysis:
Once the concept s picked up, it is subject to rigorous scrutiny to evaluate its
market potential, capital investment etc. Business analysis is the combination of
market research and cost benefit analysis. It proves the economic prospect of the
product concept.
5. Product development Program:
This stage has three steps:
1. Photo type development or giving visual image of the product.
2. Consumer testing of the model or photo type
3. Branding, packaging and pricing
Consumer testing of the model product will provide the ground for final
selection of the most profitable model.
6. Test Marketing:
Test marketing is necessary to find out the viability of the full marketing
program for national distribution.
Test Marketing can answer the question such as:-
1. Is the new product leveled and packed properly?
2. Is the new product licked by the consumers?
3. Is the firm justified in spending sums on productive capacity?
Positive answers will re-assure the marketers.
7. Commercialization:
After passing the test marketing, the company finalizes all the features of the
product. Full fledged marketing and promotion campaign is launched for mass
distribution of the product. The product is then said to be born and starts its life
cycle in new Course.
PRODUCT MIX
Product mix, also known as product assortment, is the total number of
product lines that a company offers to its customers. The product lines may range
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from one to many and the company may have many products under the same
product line as well. All of these product lines when grouped together form the
product mix of the company.
The product mix is a subset of the marketing mix and is an important part
of the business model of a company. The product mix has the following dimensions
Width
The width of the mix refers to the number of product lines the company has
to offer. For example – if a company produces only soft drinks and juices, this
means its mix is two products wide. Coca-Cola deals in juices, soft drinks, and
mineral water, and hence the product mix of Coca-Cola is three products wide.
Length
The length of the product mix refers to the total number of products in the
mix. That is if a company has 5 product lines and 10 products each under those
product lines, the length of the mix will be 50 [5 x 10].
Depth
The depth of the product mix refers to the total number of products within
a product line. There can be variations in the products of the same product line. For
example – Colgate has different variants under the same product line like Colgate
advanced, Colgate active salt, etc.
Consistency
Product mix consistency refers to how closely products are linked to each
other. Less the variation among products more is the consistency. For example, a
company dealing in just dairy products has more consistency than a company
dealing in all types of electronics.
PRODUCT MIX EXAMPLE
Coca-Cola has product brands like Minute Maid, Sprite, Fanta, Thumbs up,
etc. under its name. These constitute the width of the product mix. There are a total of
3500 products handled by the Coca-Cola brand. These constitute the length. Minute
Maid juice has different variants like apple juice, mixed fruit, etc. They constitute
the depth of the product line ‘Minute Maid’. Coca-Cola deals majorly with drinking
beverage products and hence has more product mix consistency. Product Mix
depends on many factors like
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• Company Age
• Financial Standing
• Area of Operation
• Brand identity, etc.
Many new companies start with limited width, length, depth, and high
consistency of the product mix, while companies with good financial standing have
wide, long, deep, and less consistency of the product mix. The area of operation
and brand identity also affects its product mix.
PRODUCT LIFE CYCLE
We have a life cycle, we are born, we grow, we mature, and finally we pass
away. Similarly, products also have life cycle, from their introduction to decline
they progresses through a sequence of stages. The major stages of the product life
cycle are - introduction, growth, maturity, and decline. Product life cycle describes
transition of a product from its development to decline.
The time period of product life cycle and the length of each stage varies from
product to product. Life cycle of one product can be over in few months, and of
another product may last for many years. One product reach to maturity in years
and another can reach it in few months. One product stay at the maturity for years
and another just for few months. Hence, it is true to say that length of each stage
varies from product to product. Product life cycle is associated with variation in the
marketing situation, level of competition, product demand, consumer
understanding, etc., thus marketing managers have to change the marketing
strategy and the marketing mix accordingly. Product life cycle can be defined
as "the change in sales volume of a specific product offered by an organisation, over the
expected life of the product."
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Stages of the Product Life Cycle
The four major stages of the product life cycle are as follows :-
1. Introduction,
2. Growth,
3. Maturity, and
4. Decline.
Introduction Stage
At this stage the product is new to the market and few potential customers are
aware with the existence of product. The price is generally high. The sales of the
product is low or may be restricted to early adopters. Profits are often low or losses
are being made, this is because of the high advertising cost and repayment of
developmental cost. At the introductory stage :-
• The product is unknown,
• The price is generally high,
• The placement is selective, and
• The promotion is informative and personalised.
Growth Stage
At this stage the product is becoming more widely known and acceptable in
the market. Marketing is done to strengthen brand and develop an image for the
product. Prices may start to fall as competitors enters the market. With the increase
in sales, profit may start to be earned, but advertising cost remains high. At the
growth stage :-
• The product is more widely known and consumed,
• The sales volume increases,
• The price begin to decline with the entry of new players,
• The placement becomes more widely spread, and
• The promotion is focused on brand development and product image
formation.
Maturity Stage
At this stage the product is competing with alternatives. Sales and profits
are at their peak. Product range may be extended, by adding both withe and depth.
With the increases in competition the price reaches to its lowest point. Advertising
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is done to reinforce the product image in the consumer's minds to increase repeat
purchases. At maturity stage :-
• The product is competing with alternatives,
• The sales are at their peak,
• The prices reaches to its lowest point,
• The placement is intense, and
• The promotion is focused on repeat purchasing.
Decline Stage
At this stage sales start to fall fast as a result product range is reduced. The
product faces reduced competition as many players have left the market and it is
expected that no new competitor will enter the market. Advertising cost is also
reduced. Concentration is on remaining market niches as some price stability is
expected there. Each product sold could be profitable as developmental costs have
been paid at earlier stage. With the reduction in sales volume overall profit will also
reduce. At decline stage :-
• The product faces reduced competition,
• The sales volume reduces,
• The price is likely to fall,
• The placement is selective, and
• The promotion is focused on reminding
PRODUCT POLICIES: ADDITION, MODIFICATION AND ELIMINATION
Product policies guide an organization in managing its product mix
throughout the product life cycle. A sound product policy ensures the business
introduces new products when needed, modifies existing ones to stay competitive,
and eliminates those that no longer serve customer needs or are unprofitable.
1. PRODUCT ADDITION POLICY
Meaning:
Product addition refers to the introduction of new products into the existing
product line or the launch of entirely new product lines to cater to emerging market
opportunities or to diversify.
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Objectives:
• To satisfy emerging customer needs
• To diversify product portfolio and reduce risk
• To capture new market segments
• To counter competitive pressures
• To take advantage of technological advancements
• To boost sales and profits
Types of Product Addition:
1. Line Extension: Adding a product in an existing category (e.g., a shampoo
brand adding a new variant).
2. Brand Extension: Using an existing brand name to enter a new category
(e.g., a clothing brand launching perfumes).
3. New Product Line: Entering into a completely new category.
4. Innovative Product: A completely new invention or breakthrough (e.g., the
first smartphone).
Factors to Consider Before Adding a Product:
• Customer demand analysis
• Market research and feasibility
• Cost and resource availability
• Impact on existing products
• Profit potential
• Capacity for production and marketing
Example: A company like Nestlé adding a new flavor of Maggi or introducing a
new health drink to tap into the wellness segment.
2. PRODUCT MODIFICATION POLICY
Meaning:
Product modification involves altering one or more attributes of an existing
product to improve its performance, appeal, or functionality in the eyes of the
customer.
Objectives:
• To meet changing consumer preferences
• To address technological changes
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• To correct product defects or complaints
• To enhance competitive advantage
• To extend the life cycle of a declining product
Types of Product Modifications:
1. Quality Modification:
o Improving durability, reliability, or performance.
o Example: A smartphone with a better camera or battery life.
2. Functional Modification:
o Adding new features or changing the use or operation.
o Example: Adding fingerprint unlocking to a phone.
3. Style or Aesthetic Modification:
o Changes in design, color, shape, or packaging.
o Example: Rebranding with a modern logo and packaging.
4. Technological Upgradation:
o Integrating new technology to stay relevant.
5. Packaging Modification:
o Making packaging more eco-friendly, attractive, or functional.
Benefits of Product Modification:
• Increased customer satisfaction
• Better product performance
• Competitive differentiation
• Reduced need for immediate new product development
Example: Coca-Cola changing the design and size of its bottles or Apple launching
updated iPhone models each year with new features.
3. PRODUCT ELIMINATION POLICY
Meaning:
Product elimination refers to the removal or discontinuation of a product
from the company’s portfolio due to poor performance, lack of demand, or strategic
restructuring.
Objectives:
• To avoid further losses
• To free up resources for profitable products
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• To maintain a relevant product portfolio
• To focus on core and high-performing products
Reasons for Elimination:
• Declining sales and demand
• Continuous financial losses
• Outdated or obsolete technology
• Negative customer feedback
• Regulatory or safety issues
• Shift in company strategy or focus
Steps in Product Elimination:
1. Performance Evaluation: Analyzing sales, profits, and market share.
2. Product Audit: Reviewing all aspects of the product and comparing with
alternatives.
3. Decision Making: Involving top management and stakeholders.
4. Communication Plan: Informing customers, suppliers, and employees.
5. Gradual Withdrawal: Offering replacements or incentives to switch.
Example:
• Microsoft discontinuing older versions of Windows or Office.
• Cadbury removing a chocolate variant with low demand.
PRICING
Price is the value that is put to a product or service and is the result of a
complex set of calculations, research and understanding and risk-taking ability.
A pricing strategy takes into account segments, ability to pay, market conditions,
competitor actions, trade margins and input costs, amongst others.
IMPORTANCE OF PRICING
1. Price is the Pivot of an Economy:
In the economic system, price is the mechanism for allocating resources and
reflecting the degrees of both risk and competition. In an economy particularly free
market economy and to a less extent in controlled economy, the resources can be
allocated and reallocated by the process of price reduction and price increase.
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2. Price regulates demand:
The power of price to produce results in the market place is not equalled by
any other component in the product-mix.
3. Price is competitive weapon:
Price as a competitive weapon is of paramount importance. Any company
whether it is selling high or medium or low priced merchandise will have to decide
as to whether its prices will be above or equal to or below its competitors.
4. Price is the determinant of profitability:
Price of a product or products determines the profitability of a firm, in the
final analysis by influencing the sales revenue. In the firm, price is the basis for
generating profits. Price reflects corporate objectives and policies and it is an
important ingredient of marketing mix.
5. Price is a decision input:
In the areas of marketing management, countless and crucial decisions are
to be made. Comparatively marketing decisions are more crucial because, they
have bearing on the other branches of business and more difficult as the decision-
maker is to shoot the flying game in the changing marketing environment.
PRICING OBJECTIVES
Pricing policies are aimed at achieving various objectives. They are
i. Maximum Current Profit:
One of the objectives of pricing is to maximize current profits. This objective
is aimed at making as much money as possible.
ii. Target Return on Investment:
Most companies want to earn reasonable rate of return on [Link]
return may be:
(1) fixed percentage of sales,
(2) return on investment, or
(3) a fixed rupee amount.
iii. Sales Growth:
Company’s objective is to increase sales volume. It sets its price in such a
way that more and more sales can be achieved.
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iv. Target Market Share:
A company aims its pricing policies at achieving or maintaining the target
market share.
v. Increase in Market Share:
Sometimes, price and pricing are taken as the tool to increase its market
share.
vi. To Face Competition:
Pricing is primarily concerns with facing competition.
vii. To Keep Competitors Away:
To prevent the entry of competitors can be one of the main objectives of
pricing.
viii. To Achieve Quality Leadership by Pricing:
Pricing is also aimed at achieving the quality leadership. The quality
leadership is the image in mind of buyers that high price is related to high quality
product.
TYPES OF PRICING
1. Odd Pricing
When the price of a product is an odd number, such a pricing method is
known as odd pricing. E.g. Rs. 999/-
2. Psychological Pricing
When the price of a product is a round number, such a method of pricing is
known as psychological pricing. E.g. Rs. 1,000/-
3. Ruling Price :
The price which is followed by those marketers who want to fall in line with
their competitors is known as Ruling Price.
4. Prestige Pricing :
This method is followed by those who deal in luxury goods. E.g. Leather
goods,, electronic items
5. Customary Pricing :
Certain products are sold almost at the same price by different marketers.
Eg. Milk, Coffee, etc.
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6. Free on Board (FOB)
Such a pricing has relevance when goods are to be transported to the buyer’s
place.
7. CIF (Cost, Insurance and Freight) Price
The price is inclusive of Cost, Insurance and Freight.
8. Dual Pricing :
It refers to the practice of some marketers who quote two different prices for
the same product, one may be for bulk buyers and one for small quantity buyers.
9. Administered Pricing :
The price determined by a marketer based mainly on personal
considerations is known as administered pricing. Factors like cost, demand and
competition are ignored.
10. Monopoly Pricing :
The price fixed by a marketer who has no competition in the market is
known as monopoly pricing.
11. Skimming Pricing :
➢ It refers to the practice of setting a very high price for a product, when it is
introduced into the market for the first time.
➢ Profits are high.
➢ Market is not really sensitive to price.
12. Penetration Pricing :
➢ It refers to the practice of setting a very low price for a product, when it is
introduced into the market for the first time.
➢ Profits are low
➢ Market is sensitive to price.
FACTORS AFFECTING PRICING DECISIONS :
I. Internal Factors :
1. Costs :
Cost means all expenses incurred to produce and distribute the products.
Cost is a factor to determine the price of a product based on the cost of production
and distribution.
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2. Business Objectives :
The business has certain objectives other than earning profit. They are
(i) Return on Investment
(ii) Market Share
(iii) Preventing competition
(iv) Meeting competition
(v) Stability in price
(vi) Maximising profits.
These objectives are the factors of determining the price of the products.
II. External Factors :
Those factors, which are beyond the control of the marketer, are called
external factors. They are
1. Demand
The demand for a product is nothing but a buyer’s desire to have a product
backed by his ability and willingness to pay for it.
2. Competition
The competition will determine the price of the products. The markets like
monopoly, oligopoly, duopoly, perfect shall have different pricing techniques.
3. Middlemen
All the charges involved by intermediaries have to be included in the price.
Longer the chain of intermediaries, greater will be price payable by the consumer.
4. Government Regulations
The Government does regulate business activities. Hence, all taxes shall be
included in the price of the products.
5. Political Conditions
The political conditions influence pricing. A change in the political
conditions may influence the price of the products.
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