THEME 9.

PRODUCT AND PRICE

POLICIES
Contents
9.1. THE MARKETING POLICY AND THE MARKETING MIX
9.2. THE PRODUCT POLICY
9.3. THE PRICE AND TARIFFS POLICY
 9.1. The marketing policy

• Has at its core the marketing strategy;

• The implementation mechanism is the
marketing mix;
• Through the marketing mix, the
enterprise exerts an impact on the
market.
 9.1. The Marketing mix

• Represents the coherent handling and combination of

the 4 variables that make up the marketing mix:
product, price, placing, and promotion;
• Refers to the share of each element in the mix, as well
as how the enterprise’s resources are used;
• The number of possible combinations that a tourism
enterprise can make is very large;
• Only the combination that ensures the appropriate
use of resources and the achievement of its objectives
should be taken into consideration.
 The MARKETING MIX

Source: http://marketingmix.co.uk
 9.2.1. Tourism product
- concept
• PRODUCT = anything that can be offered to a market for attention,
procurement, use or consumption and which satisfies a desire or
need (Phillip Kotler);
• TOURISM PRODUCT = A combination of tangible goods and services
which satisfy the needs of a particular target market;
 Tourism product
- concept

• CORE product – the main advantages of the

product, identified by the buyer as personal needs
that are satisfied as a result of the purchase and
consumption;
• ACTUAL product – includes the product’s
characteristics, brand, style, quality and packaging;
 Tourism - product
levels
• AUGMENTED PRODUCT – includes all the services and
additional advantages of the product, which the consumer
receives and which may influence his/her purchasing decision.
• Encompasses, among others:
ACCESIBILITY – geographical location, operating schedule etc.
CLIMATE – appreciated through the 4 senses (sight, hearing,
smell, touch)
CONSUMER’S INTERACTIONS WITH THE SYSTEM OF SERVICES;
INTERACTIONS AMONG CONSUMERS;
CONSUMER’S PARTICIPATION TO THE DELIVERY OF SERVICES –
increases his/her satisfaction and may reduce costs.
THE LEVELS OF THE TOURISM PRODUCT
 THE PRODUCT MIX
• The portfolio of products offered by an enterprise
• 5 options for the market-product mix:
More markets with several products for each;
More markets with one product for each;
More markets with one product for all of them;
One market with several products;
One market with one product.
 9.2.2.Product - planning,
positioning,creating and renewal
• The decision to provide one or more products on one or more markets
depends on several factors:
Prevision of the strength and value of consumer demand on different
markets;
Competitive advantages on the products and substitutes provided by
competitors;
The enterprise’s identity, its expertise and image on the market.
 Product planning
• The starting point in the analysis and planning of a tourism product is
the analysis of consumers’ demand and competitors’ offer in relation
to the enterprise’s capacity to provide that product
• Successful products need to be developed having in mind the specific
needs for the appropriate markets
 Product positioning

• Represents the way in which the enterprise and it

products are positioning themselves in relation to
competing enterprises and products
• A psychological element that helps establish the
consumer’s perception
 Product positioning
Burke and Resnck identitied 4 main positioning
strategies :
1. In relation to a target market (e.g. business tourists,
tourists with children)
2. In relation to price and quality (e.g. premium
products)
3. In relation to a type of products (e.g. sea side stays,
cultural circuits)
4. In relation to competitors (e.g. pointing the
consumer’s attention to the higher price or lower
quality practiced by the consumer
 Creating a new product - stages

According to Kotler (1994), the process of creating new products

consists of the following strategies:
• Generating ideas
• Selecting the appropriate ideas
• Creating and testing the product concept
• Elaboration of the marketing strategy
• Analysis of the business
• Creating the actual product
• Testing the product on the market
• Selling the product
 Creating a new product - stages

Selecting the Creating and Elaboration of

Generating
appropriate testing the the marketing
ideas
ideas product concept strategy

Testing the
Selling the Creating the Analysis of the
product on the
product actual product business
market
 Product renewal
• Involves the creation of new tourism products
• Is imposed by:
Changing of preferences
New technologies
High competition
 Product renewal

• New products might mean either original products or improved products

• The process of creating new products involves innovation, whose scope may
vary from fundamental (transformational change) to incremental (slight
changes):
Major innovations (completely new products);
Substitute products;
New services for the existing market (but already implemented on other markets);
Extending the service line (new services added to the current market);
Improving existing products
Change of style
9.2.3. The product’s life cycle
Includes 5 stages:
•Conception/development
•Launch/introduction
•Growth
•Maturity
•Decline
 The product’s life cycle

Source: Kotler & Armstrong, 2012, p.274

 The product’s life cycle
Conception/development:
• A new product idea is generated
• High investment and promotion costs
• No sales
Launching/introduction:
• High promotion costs
• Sales are being incurred and increase slightly
 The product’s life cycle
Growth:
• Both sales and profits increase;
• Costs decrease;
• New market segments are attracted;
• The product is improve;
• New distribution channels are developed;
• Competition on the rise
 The product’s life cycle
Maturity:
• Prices are adjusted to the production costs;
• Decreases in price might appear so as to increase sales;
• The product is improved through additional services;
 The product’s life cycle
Decline:
• Sales and profits decrease;
• Clients lose interest in the product;
• The product is no longer promoted;
• Product renewal might be necessary.
 9.2.4. The brand. The
enterprise’s identity
A name, a term, a symbol or design, or a
combination of these elements, aimed at
identifying the goods and/or services provided by a
seller or a group of sellers and ensuring their
differentiation from the goods and services
provided by other sellers (Phillip Kotler)
A unique combination of characteristics and values
of the product, functional or not, which develop a
relevant meaning associated to the product.
 The brand
The brand’s identity created a consistent
image in the mind of the consumer and
guarantees recognition and quality;
Effects: providing value-added to the product,
which may transcend the product’s physical
attributes.
 The brand
The added values associated to the product are
generated by:
People’s experience with regard to the brand;
The groups or categories of people using the brand;
Trust in the brand;
Aspect/design of the brand.
 The brand
Advantages of the brand:
• The product is easily identifiable through the brand or registered trademark;
• The product is perceived as the best choice for that particular product;
• Quality and standards are easy to maintain;
• The demand for that particular type of product is high enough to support a
regional, national or international distribution chain.
 Brands in tourism
• The brand allows the physical differentiation of tourism products;
• Particularly in the case of hotels and restaurants, the brand facilitates
differentiation through architecture, design, physical features, service
style, location, target (business or leisure);
• Brands are also applicable to tourism destinations.
The image and the tourism enterprise’s
identity
• IMAGE of the enterprise – sum of potential consumer’s perception
regarding the enterprise and it organization
• IDENTITY of the enterprise – encompasses the perceptions of the
external audience on the enterprise (employees, services,
promotional activities etc.)
 9.3.The price and tariffs pollicy
• Enterprises selling their products and services on
competitive markets will try and attract their customers in
two ways:
Price-based competition – providing the product or
service at a lower price than competitors;

Non-price competition – does not involve a change in

prices, but rather convincing consumers that their product
is superior to that of competitors.
 The price - general considerations

• Sends a statement to potential consumers regarding the nature,

quality and the competitive advantages of the product;
• Provides consumers with clues/hints on the product’s perceived
quality;
• The level of the price is generally influences by the enterprise’s
objectives (maximizing profits, investments);
• Prices must be established based on the costs incurred in the
product’s production and provision (fixed and variable).
 The pricing strategy - factors
• The decision related to the price is a strategic decision
• The following factors influence the pricing decision (Dibb et al, 1994):
Other variables
Regulation and
of the
legal framework
marketing mix

Costs Competition

Consumer’s
Price objectives
perception

Marketing and
organizational
Pricing Expectations of
the distribution
channel
objectives strategy members
 The pricing strategy - factors
• Costs;
• Competition;
• Marketing and organizational objectives;
• Price objectives;
• Consumer’s perception;
• Regulation and legal framework;
• Other variables of marketing mix
• Expectation of the distribution channel members (Dibb et al, 1994):
 9.3.1.Techniques for establishing prices
When establishing the price for a product or service, an enterprise
must take into consideration:
• Determining the minimum price that allows the coverage of costs
(lower limit)
• Determining the maximum price that consumers would pay for the
product, while also having in mind the competition and the product’s
perceived value (upper limit)
!!The price needs to be situated between the 2 limits.
 Techniques for establishing prices
• Techniques for establishing prices:
Cost-oriented technique;
Demand-oriented technique;
Competition-oriented technique.
 Techniques for establishing prices
Cost-oriented technique:
• The most rational technique;
• Implies calculating the costs incurred with the product and
establishing the price so as to cover for the costs;
• Depends on technology and management practices.
 Techniques for establishing prices
Demand-oriented technique:
•Is only used when the demand is so high that increasing prices
becomes justified;
 Techniques for establishing prices
Competition-oriented technique:
• Frequently used
• Implies monitoring the prices of products provided by competitors
• The periodical renewal of technologies is necessary to obtain and
maintain competitive advantage
 9.3.2. Pricing strategies
• Prices determine the enterprise’s prifitability;
• Prices have become more important in times of financial instability,
when demand fluctuates due to diminishing available income;
• Pricing strategies vary according to the stage of the product’s life
cycle.
 Pricing strategies for new products

1. SKIMMING:
• High initial prices;
• High profits on short term;
• Rapid recovery of costs in case of investments in innovations;
• Allows a future decrease in prices;
• Avoids the need to increase prices;
• High prices indicate prestige and high quality.
 Pricing strategies for new products
Skimming strategies:

Strategies Characteristics

RAPID SKIMMING The product/service is offered to consumers at a high

(high price, fast promotion)
SLOW SKIMMING
(high price, slow promotion)
price, being addressed to a market with high purchasing
power.
The product is addressed to a narrow market segment, but
which already acknowledges the product’s characteristics
and quality.
 Pricing strategies for new products
2. PENETRATION STRATEGIES
• Low initial prices;
• Long-term profits by ensuring a high sales volume;
• Builds a powerful position on the market;
• Involves a reduction in costs on short term;
• Reduces the risk of failure;
• Prevents potential competitors to penetrate the market
or delays their entrance on the market.
 Pricing strategies for new products
Penetration strategies:
Strategies Characteristics

RAPID PENETRATION Low initial prices with the aim of attracting a high
(low price, fast promotion) number of consumers.

SLOW PENETRATION The new product has a low price and is little promoted.
(low price, slow promotion)
 Pricing strategies for existing products
In tourism, several strategies are used:
• Lower price for product packages (lump price);
• Discount for high volume purchases (e.g. for groups of tourists);
• Discount for purchases in low season;
• Discriminatory price;
• Psychological price;
• Promotional price.
 Pricing strategies for existing products
In tourism, several strategies are used:
• Lower price for product packages (lump price);
• Discount for high volume purchases (e.g. for groups of tourists);
• Discount for purchases in low season;
• Discriminatory price (e.g. different prices used for national tourists in
comparison to international tourists);
• Psychological price (e.g. setting a higher price for honey-moon vacations
than for other types of products).
 Price fluctuations
Prices fluctuate due to a variety of reasons:
• Seasonality – higher prices in the high season and lowe prices in the
low season, so as to ensure a better use of enterprises’ capacity (e.g.
accommodation capacity, transportation capacity etc.)
• Unexpected fluctuations – due to war, social unrest, terrorism
attacks, ecological disasters
• Intense competition – if the prices practiced by competition
decrease, it is very likely for all the operators providing a particular
product to also reduce their prices.