MODULE-2

• PRODUCT DECISIONS
CONCEPT OF A PRODUCT

•What is a product?
• Anything of value that fulfils the requirement of the end-user is known
as a product. It can be goods or services, tangible or intangible,
physical or psychological. The customers and competitors largely
depend upon the products offered by the company.
Layers or Levels of Product
Layers or Levels of Product
•

• Core or Generic Product: It is the raw product that satisfies the

customer’s primary need. The core product is at its raw form, not bearing any
brand name and remains undifferentiated.
For example: – Wheat is a grain that one can consume.
• Basic Product: The core products differentiated from the rest become the basic
product. It adds some necessary features to the products like Brand Name,
Packaging and Label, etc.
For example: – Fortune Chakki Fresh Atta (wheat flour).
Layers or Levels of Product-contn.,
•

• Expected Product: These products include the key features that customers look
forward to. It also contains standard features that a product should have.
For example: – Chapati is prepared from wheat flour.
• Augmented Product: To differentiate products from competitors, companies
add distinctive features to them. These additions depend on the market survey
conducted for the product. They try to create a Unique Selling Proposition (USP) for
their products.
For example -Brown Bread and Cookies.
• Potential Product: It refers to all the possible features that a product can have in the
future. These features depend on the market conditions and economic changes.
Product Decision

• Definition: Product Decision in marketing refers to the company’s mindful decisions, major or
minor regarding their product. It ranks first among the 4P’s of Marketing- Product, Price, Place
and Promotion. The organizations take these decisions to attain their objectives and become
profitable in the long run.

•Product Decisions are vital marketing decisions to be made at various levels. These decisions
broadly cover:
 New Product Development
 Modification or Elimination of existing ones
 Variants and Visual elements
 Product Mix and Line, etc.
The factors affecting product decisions
•The factors affecting product decisions are:
• Growth
• Market-share
• Cash flow
• Profitability
Major Product Decisions
The major product decisions, which are also the types of product decisions
New Product Decision
•New Product Decision
•A new product incorporates the elements of newness and varies from the existing
ones. It may include new features, qualities or be introduced differently. Adding
new products can result in growth, profitability, increased market share and more.
•To remain profitable and maintain sales, organizations need to launch new
products. The products may fail, so the marketers must take new product decisions
wisely.
•The product decisions may include:
• Original Product
• Improved Product
• Modified Product
• Development of Product
• Launching Product, etc.
•Product Mix
•It refers to the aggregate range of products that a company owns. In other words,
the total number of products that a company offers for sale is the product mix of the
company.
•Product mix decisions depend upon the following four characteristics:
• Length
• Width
• Depth
• Consistency
•There are various decisions the marketers have to take regarding products mix. It
may include:-
• Expansion
• Contraction
• Product Differentiation
• Deepening and Alteration, etc.
•Product line
•This refers to a range of closely-related products belonging to the same class. They
are sold to the same customers, having identical attributes marketed by the same
distribution channel but for different segments.
•The product decision relating to a product line are:
• Line Stretching
• Line Filling
Design
It indicates the appearance or personality of the
product. The marketers have to decide whether
to go for the standard design or the creative
design.
Changing the product’s design may be effective
but can be risky too. The customer may or may
not like the design and face problems while
using the product.
•Branding
•Branding is one of the vital decisions taken under product decisions. It involves the visual and
symbolic elements of the product.
•Branding helps in monitoring the Brand Image, Loyalty and Acceptance.
•The marketers distinguish the product using:
• Brand Name
• Trade Marks
• Logo
• Brand Marks, etc.
•Packaging
•Packaging is the outermost covering of the product. It enables product
protection, conveys information and creates sale appeal. And is not
restricted to just the safety of the product
Packaging has evolved as the medium of marketing. Marketers use packaging
to reposition or renovate their products.
•Packaging decisions include:
• Size
• Design
• Innovation
• Aesthetics
• Convenience
• Material
• Environmental factors
•Labelling
•The label is a part of the packaging. It contains all the essential details about the product in written
form. Also, it conveys information regarding performance, features, quality and price, etc.
•The marketers must perform an in-depth analysis at the time of Labelling. It is a medium of
communicating with customers. Vital decisions based on labelling are:
• Brand Label
• Descriptive Label
• Grade Label
• Informative Labels
•Positioning
•Positioning builds a unique image of the product in the target audience’s mind. It
differentiates products from others using benefits and attributes in the customer’s
mental space.
•The product decision concerning positioning are:
• Segmentation
• Differentiation
• Aggregation
•Support
•Support or Customer Support is the company’s added benefit for the customers. It
may be offered to the end-user by after-sale services, grievances management, and
so on. It assists in creating loyal customers and recurring sales.

• Different customer support services possess varied cost structures. The marketers
must make decisions to reduce costs and improve customer experience.
•Product Marketing Ethics
•Product marketing ethics is a minor term than Marketing ethics. The marketers
must pay attention to the following ethical issues while marketing:
 Deceitful Practices: The marketers often put faulty or low-quality products for
sale without informing customers. They also ask for additional charges in the
name of customer services.
The customers acknowledge it while consuming and are left with no other option
than to pay for it.
 Ecofriendly Products: The companies must carry out production considering
the statutory guidelines for pollution control. The product must not harm the
environment at any stage, from production to post-consumption.
The marketers should convey instructions on the packaging about the product
disposal.
• Quality Products: The companies should produce quality products and disclose
complete details. They should contain important information like ingredients, uses
and precautions.
Also, the packaging must mention all the areas of concern related to the product.
Conclusion
•While market planning, product-related decisions are vital decisions the marketer
makes. It includes all the critical decisions for existing and new products, from
development to launch.
•The marketers must decide the compelling product mix, packaging, branding,
labelling and positioning. It enables organizations to remain competitive and thrive
in the long run.
PRODUCT LIFE CYCLE
•
•The term product life cycle refers to the length of time a product is introduced to
consumers into the market until it's removed from the shelves. The life cycle of a
product is broken into four stages—introduction, growth, maturity, and decline.
This concept is used by management and by marketing professionals as a factor in
deciding when it is appropriate to increase advertising, reduce prices, expand to
new markets, or redesign packaging. The process of strategizing ways to
continuously support and maintain a product is called
product life cycle management.
How Product Life Cycles Work

• Products, like people, have life cycles. A product begins with

an idea, and within the confines of modern business, it isn't
likely to go further until it undergoes research and
development (R&D) and is found to be feasible and
potentially profitable. At that point, the product is produced,
marketed, and rolled out.
PRODUCT LIFE CYCLE
Definition of New Product
Development

• According to Musselman and Jackson :

• "A product is said to be a new product when it serves an
entirely new function or makes a major improvement in a
present function."
• As mentioned above, there are four generally accepted stages in the life cycle of a
product—introduction, growth, maturity, and decline.
• Introduction: This phase generally includes a substantial investment in
advertising and a marketing campaign focused on making consumers aware of
the product and its benefits.
• Growth: If the product is successful, it then moves to the growth stage. This is
characterized by growing demand, an increase in production, and expansion in its
availability.
• Maturity: This is the most profitable stage, while the costs of producing and
marketing decline.
• Decline: A product takes on increased competition as other companies emulate its
success—sometimes with enhancements or lower prices. The product may lose
market share and begin its decline.
Need for New Product Development
PROCESS FOR PRODUCT
DEVELOPMENT
• 1) Meeting Changes in Consumer Demand :
• Change is a universal phenomenon in today's time of science and technology. For
example, a quick change in the food habits, comfort preferences, tastes, customs
and traditions, needs and expectations, etc. can be seen. The organizations need to
keep an eye on these changes taking place in their surroundings.
• Customers always give preference to the products which are better in terms of
quality, fashion, price, etc. An organization has to proactively respond to such
vibrant demands, which in turn results in innovations in products and services. By
doing this, the organizations can keep themselves updated and can strengthen their
relationship with the customers.
2) Making New Profits :
Manufacturing new products is important for earning profits; since
existing products have less scope for enhancing profit levels, while
new products have vast scope for it. On reaching the maturity stage
of PLC, the gains acquired from the existing products start decreasing
and diminishes gradually till the product reaches the decline stage.
Hence, it becomes quite necessary for the organizations to come up
with the new and innovative products that can replace the old product
which is on the verge of declining. Such new products play an
important role in growth of the organization and sometimes they are
the only source for the organization to find new prospects of profit.
3) Handling the Environmental Threats :
There are various environmental threats faced by a
business organization. One way to handle these threats is
to find out a new product which is capable enough to
combat against it. These threats spring from various
environmental factors, like socio-economic,
technological, political, and demand and supply, etc.
Moreover, the biggest threat that is always present in
such environment is competition in the market and
products.
Hence, it becomes vital to fight these risk factors by
introducing new products. More prospects of growth and
development are opened through it, which further ensures
endurance and feasibility for the organization.. I also
distributes the risk factor among the old and new
products.
4) Other Necessities :
The other strategic needs for new product development are as follows :
•New products can provide the organization a source for gaining competitive edge.

•They can ensure long-term financial return on the investments made. They also help in optimum
utilization of the available resources.

•New products make best use of research and development.

•They can provide new opportunities for making changes in the strategic plans of the company.

•New products can bring most out of the marketing practices and brand equity.

•It enhances the corporate image of the organization/brand.

STAGES OF PRODUCT DEVELOPMENT PROCESS

• It is important to understand that there is no one generic

product development process and that each rendition of such
a process will vary depending on the depth and detail that
each explanation covers. This article explains 8 stages of the
product development process and these are listed below.
[Link] Generation: The first stage in the product development process
is idea generation. In this stage, the company comes up with many
different and unique ideas based on both internal and external sources.
Internal idea sources more often than not refer to the in-house research
and development teams of the company and external sources refer to
competitor innovations, the customer wants, distributors and suppliers,
and so on. The company thereby focuses on coming up with as many
feasible ideas as possible.
[Link] Screening: The next stage
involves the screening of this often-
large set of ideas. The primary
objective of this stage is to focus on
ideas that are in line with the
company’s customer value and
financial goals. The stage focuses on
the filtering out of ideas that are poor
or are not feasible and retain those
that have good potential. This is to
ensure that the company does not
face losses by moving ahead with
fickle ideas that do not promise
adequate returns.
[Link] Development and Testing: The
third of the product development process
steps is concept development and testing. In this
stage, the good product ideas must be
developed into detailed product concepts that
are conveyed in consumer-oriented terms. The
concept must be made in order to project the
product in terms of how it is perceived by
consumers and how it will potentially be
received in the market and by which set of
potential customers. This concept must then be
tested by presenting it to the target consumers
and their response must be taken into account.
[Link] of Marketing Strategy: The
new product development process in
marketing is covered in stage four. In this step,
the company tries to come up with strategies to
introduce a promising product into the market.
The company must therefore come up with the
price, potential revenue figures as well as
advertising and distributing channels in this
step.
[Link] Analysis: The product concept is
put through a vigorous business analysis or test
in order to ascertain projected sales and revenue
and also assess risk and whether the production
of the product is financially feasible. The
company’s objectives are considered and if
these are satisfied, the product is moved on to
the next step.
[Link] Development: This is the step that
comes after the management of a company
declares a product concept to be in line with the
goals of the company and issues green light for
development. The research and development
wing of the company then works on the product
concept for many months and even years in
some cases, to come up with a working and
functional prototype of the product concept.
[Link] Marketing: This is the penultimate stage
of the new product development process and
involves the testing of the product and its
suggested marketing program in realistic
market settings. This stage provides an insight
into how the product will be introduced into the
market, advertised, produced, packaged,
distributed, and eventually sold to the
customers, and therefore any optimizations if
required can be made by the company.
[Link]: The final step of the
product development process is that of
commercialization. Based on the information
gathered during the test marketing process, the
business management may either decide to go
ahead with the launch of the product or put it on
the backburner. In case the go-ahead is given,
the product is finally introduced into the market
and this process is called commercialization.
This stage often leads to massive costs in terms
of initial infrastructural investments as well as
sales promotions and advertisements.
Failure of New Products
1)Over-estimation of Market Size :
A product will not be able to perform in the market, if the market size is
over-estimated. This may lead to less revenue generation than the desired level,
even if the quality of the product is good.

2) Under-estimation of Market Competition :

When a marketer fails to estimate the actual competition level and
competitors' strengths, then the product may have to deal with severe competition in
the market. This often leads to failure of new products.
• 3)Inadequate Market Research :
If a marketer is unable to study the market and makes erroneous predictions about the
customers needs and wants, then this may fail to satisfy the potential customers.

• 4) Lack of Uniqueness :
If a product is incompetent in comparison with the competitor's product, then customers
have no reason to purchase a new product.

• 5) Poor Product Design :

A poorly designed product may cause inconvenience to customers in using the product.
This is one of the major reasons of customers to dislike about a product.
6)Lack of Superiority :
It is essential for a product to prove itself superior in contrast to other similar products
available in the market. Sale of new products cannot be made on the basis of superfluous claims
made by the marketers. Hence, leading to the failure of new products.

7) Incorrect STP Approach :

A product may fail to capture the market, when a marketer incorrectly segments the market,
targets the target audience and positions the new product.

8) Technical Issues :
While using a new product, if a customer faces any technical issues, then he may
discontinue purchasing the same product again.
9)High Production Costs :
When the price of a product is high compared to the
other products in the market, then this may lead to product
failure. This occurs, when the actual production cost exceeds
the expected production cost.
10) Wrong Entry Timing :
If a new product enters the market at the wrong time by making
hasty decisions or by entering late in the market, then also the product
may fail to establish its position in the market.

11) Ineffective Promotion :

Ineffective utilization of promotional tools lead to new product
failure. The customers remain unaware of the product's attributes and
functions, due to which customers do not purchase the product.
DIFFUSION OF INNOVATION
• Diffusion of Innovation (DOI) Theory, developed by E.M. Rogers in 1962, is one
of the oldest social science theories.
• It originated in communication to explain how, over time, an idea or product gains
momentum and diffuses (or spreads) through a specific population or social
system.
• The end result of this diffusion is that people, as part of a social system, adopt a
new idea, behavior, or product. Adoption means that a person does something
differently than what they had previously (i.e., purchase or use a new product,
acquire and perform a new behavior, etc.). The key to adoption is that the person
must perceive the idea, behavior, or product as new or innovative. It is through
this that diffusion is possible.
CATEGORIES OF ADOPTERS
• Adoption of a new idea, behavior, or product (i.e., "innovation")
does not happen simultaneously in a social system; rather it is a
process whereby some people are more apt to adopt the
innovation than others.
• Researchers have found that people who adopt an innovation
early have different characteristics than people who adopt an
innovation later. When promoting an innovation to a target
population, it is important to understand the characteristics of
the target population that will help or hinder adoption of the
innovation.
• There are five established adopter categories, and while the
majority of the general population tends to fall in the middle
categories, it is still necessary to understand the characteristics
of the target population.
• When promoting an innovation, there are different strategies
used to appeal to the different adopter categories.
[Link] - These are people who want to be the first to try the
innovation. They are venturesome and interested in new ideas. These
people are very willing to take risks, and are often the first to develop
new ideas. Very little, if anything, needs to be done to appeal to this
population.
[Link] Adopters - These are people who represent opinion leaders.
They enjoy leadership roles, and embrace change opportunities. They
are already aware of the need to change and so are very comfortable
adopting new ideas. Strategies to appeal to this population include
how-to manuals and information sheets on implementation. They do
not need information to convince them to change.
[Link] Majority - These people are rarely leaders, but they do adopt new ideas before the
average person. That said, they typically need to see evidence that the innovation works
before they are willing to adopt it. Strategies to appeal to this population include success
stories and evidence of the innovation's effectiveness.
[Link] Majority - These people are skeptical of change, and will only adopt an innovation
after it has been tried by the majority. Strategies to appeal to this population include
information on how many other people have tried the innovation and have adopted it
successfully.
[Link] - These people are bound by tradition and very conservative. They are very
skeptical of change and are the hardest group to bring on board. Strategies to appeal to
this population include statistics, fear appeals, and pressure from people in the other
adopter groups.
Limitations of Diffusion of Innovation
Theory
•
There are several limitations of Diffusion of Innovation Theory, which
include the following:
• Much of the evidence for this theory, including the adopter categories, did
not originate in public health and it was not developed to explicitly apply to
adoption of new behaviors or health innovations.
• It does not foster a participatory approach to adoption of a public health
program.
• It works better with adoption of behaviors rather than cessation or
prevention of behaviors.
• It doesn't take into account an individual's resources or social support to
adopt the new behavior (or innovation)
• Key Points
• Everett Rogers, a professor of rural sociology, popularized the theory in his
1962 book Diffusion of Innovations.
• Four main elements that influence the spread of a new idea are the
innovation, communication channels, time, and the social system.
• Diffusion of innovations manifests itself in different ways in various cultures
and fields and is highly subjective to the type of adopters and innovation
decision process.
• Marketers are particularly interested in the diffusion process as it determines
the success and failure of any new product introduced in the market.
• Key Terms
• innovation: As used here, innovation describes an idea or product that is
new to the company in question.
PRICING DECISIONS
• INTRODUCTION
• PRICE:-
Pricing is a key element of the marketing mix. All
the other elements – Product, Packaging, and Promotion
are cost generators, i.e. they cost the company money.
But pricing is an income generator.
• the amount of money that you must pay in order to buy
something.
• PRICING
A price is a value in monetary terms that one party pays to another in a
transaction in exchange for some goods or services. So the definition of price is
the amount of money the buyer will pay as consideration to the seller in
exchange for goods or services.

Pricing is the process whereby a business sets the price at which it will
sell its products and services, and may be part of the business's marketing plan.
• Pricing objectives are the goals that guide your business in
setting the cost of a product or service to your existing or
potential consumers.
• Profit maximization
• Price stability
• Facing competition
• Achieving a target-return
• Capturing the market
• Firm’s wellbeing in the long-run
• Expansion of current profits-Most of the company tries to enlarge their
profit margin by evaluating the demand and supply of services and goods in
the market. So the pricing is fixed according to the product’s demand and
the substitute for that product. If the demand is high, the price will also be
high.

• Ruling the market- Firm’s impose low figure for the goods and services to
get hold of large market size. The technique helps to increase the sale by
increasing the demand and leading to low production cost.
• A market for an innovative idea- Here, the company charge a high
price for their product and services that are highly innovative and use
cutting-edge technology. The price is high because of high production
cost. Mobile phone, electronic gadgets are a few examples.
• Survival- The objective of pricing for any company is to fix a price that
is reasonable for the consumers and also for the producer to survive in
the market. Every company is in danger of getting ruled out from the
market because of rigorous competition, change in customer’s
preferences and taste. Therefore, while determining the cost of a product
all the variables and fixed cost should be taken into consideration. Once
the survival phase is over the company can strive for extra profits.
• FACTORS AFFECTING PRICE DETERMINATION
• 1] Cost of the Product
• The most important factor affecting the price of a
product is the product cost. The same principle also
applies in case of services. The product cost will be
inclusive of the cost of production, the distribution costs
and the selling and promotion costs. This cost will act as
a benchmark for setting the price.
• Fixed Cost: These costs are fixed. They have no relation to the
level of activity or production of the company. Even if there is
no production of goods these costs will occur. For example, the
rent of the factory is a fixed cost.
• Variable Cost: These are the costs that vary in direct
proportion to the production levels of an entity. Higher the
production, higher the cost and vice versa. The raw material is a
classic example of a variable cost
• Semi-Variable Costs: These costs also vary with the
production levels. But they are not directly proportional. Say for
example the salary of a manager is 10,000/- a month fixed and
then 10% of his sales. This is a semi-variable cost.
• 2] The Demand for the Product
• The cost of the product will only give you a benchmark to determine
the price. The upper limit of the price range will depend on the utility
the product has and hence its demand in the market. So the cost of the
product is the seller’s concern. The buyer’s concern is the utility of the
product. The demand for the product will depend on its utility and its
price. The law of demands states that lower the price higher the
demand.
• 3] Price of Competitors
• One factor that affects price termination is the price the
competition charges for their product. Not only their
price but their products, its features and other factors
like distribution channel, promotions etc. should also be
studied.
• 4] Government Regulation
• The government has a duty to protect its citizens from unfair practices
and pricing. So it may impose certain laws and regulations with
regards to the pricing of a product. It can even regulate the prices of
goods that it considers essential goods.
Pricing Procedure
• Pricing procedure is a way to determine prices in purchasing
documents. Pricing procedure gives functionality to assign
different calculation types for different requirements. Pricing
procedure used to determine all conditions into one procedure
where the sub-total finds for net amount.
PRICING POLICIES OR
METHODS
2/9
3/9
PRICING STRATEGIES
 product pricing strategy
• Pricing strategies refer to the processes and
methodologies businesses use to set prices for their
products and services. If pricing is how much you
charge for your products, then product pricing strategy
is how you determine what that amount should be.
The importance of nailing your
pricing strategy
• Portrays value
• The word cheap has two meanings. It can mean a lower price, but it can also
mean poorly made. There's a reason people associate cheaply priced products
with cheaply made ones. Built into the higher price of a product is the
assumption that it's of higher value.
•
Convinces customers to buy
• A high price may convey value, but if that price is more than a potential
customer is willing to pay, it won't matter. A low price will seem cheap and get
your product passed over. The ideal price is one that convinces people to
purchase your offering over the similar products that your competitors have to
offer.
A weak pricing strategy
Doesn't accurately portray the value of your product
• If you believe you have a winning product, and you should if you are selling it, then you need
to convince customers of that. Setting prices too low sends the opposite message.

Makes customers feel uncertain about buying

• Just as the right price is one that customers will pull the trigger on quickly, a price that's too
high or too low will cause hesitation.

Targets the wrong customers

• Some customers prefer value, and some prefer luxury. You have to price your product to
match the type of customer it is targeted towards.
Top 7 pricing strategies
[Link]-based pricing
With value-based pricing, you set your prices according to what consumers think
your product is worth. We're big fans of this pricing strategy for SaaS businesses.
[Link] pricing
When you use a competitive pricing strategy, you're setting your prices based on
what the competition is charging. This can be a good strategy in the right circumstances,
such as a business just starting out, but it doesn't leave a lot of room for growth.
[Link] skimming
If you set your prices as high as the market will possibly tolerate and then lower
them over time, you'll be using the price skimming strategy. The goal is to skim the top
off the market and the lower prices to reach everyone else. With the right product it can
work, but you should be very cautious using it.
[Link]-plus pricing
This is one of the simplest pricing strategies. You just take the product
production cost and add a certain percentage to it. While simple, it is less than ideal for
anything but physical products.

[Link] pricing
In highly competitive markets, it can be hard for new companies to get a foothold.
One way some companies attempt to push new products is by offering prices that are
much lower than the competition. This is penetration pricing. While it may get you
customers and decent sales volume, you'll need a lot of them and you'll need them
to be very loyal to stick around when the price increases in the future.
[Link] pricing
This strategy is popular in the commodity goods sector. The goal is to price a
product cheaper than the competition and make the money back with increased
volume. While it's a good method to get people to buy your generic soda, it's not a
great fit for SaaS and subscription businesses.

[Link] pricing
In some industries, you can get away with constantly changing your prices to
match the current demand for the item. This doesn't work well for subscription and
SaaS business, because customers expect consistent monthly or yearly expenses.