Types of consumer products

Convenience products

Shopping products

Specialty products

Unsought products

Convenience Products

Convenience products are bought the most frequently by consumers. They are bought immediately and
without great comparison between other options. Convenience products are typically low-priced, not-
differentiated among other products, and placed in locations where consumers can easily purchase them.
The products are widely distributed, require mass promotion, and are placed in convenient locations.

Sugar, laundry detergent, pencils, pens, and paper are all examples of convenience products.

Characteristics of Convenience Products

Purchased frequently

At a low price point

Easily available

Not commonly compared with other products

Shopping Products
Shopping products are bought less frequently by consumers. Consumers usually compare attributes of
shopping products such as quality, price, and style between other products. Therefore, shopping products are
more carefully compared against, and consumers spend considerably more time, as opposed to convenience
products, comparing alternatives. Shopping products require personal selling and advertising and are located
in fewer outlets (compared to convenience products) and selectively distributed.

Airline tickets, furniture, electronics, clothing, and phones are all examples of shopping products.

Characteristics of Shopping Products

Purchased less frequently

At a medium price point

Commonly compared among other products

Specialty Products

Specialty products are products with unique characteristics or brand identification. Consumers of such
products are willing to exert special effort to purchase specialty products. Specialty products are typically
high priced, and buyers do not use much time to compare against other products. Rather, buyers typically
spend more effort in buying specialty products compared to other types of products.

Take, for example, a Ferrari (a specialty product). Purchasers of a Ferrari would need to spend considerable
effort sourcing the car. Specialty products require targeted promotions with exclusive distribution; they are
found in select places.

Sports cars, designer clothing, exotic perfumes, luxury watches, and famous paintings are all examples of
specialty products.
Characteristics of Shopping Products

With unique characteristics or brand perception

Purchased less frequently

At a high price point

Seldom compared between other products

Only available at select/special places

Unsought Products

Unsought products are products that consumers do not normally buy or would not consider buying under
normal circumstances. Consumers of unsought products typically do not think about these products until
they need them. The price of unsought products varies. As unsought products are not conventionally thought
of by consumers, they require aggressive advertising and personal selling.

Diamond rings, pre-planned funeral services, and life insurance are all examples of unsought products.

Characteristics of Shopping Products

Not top-of-mind of consumers

Requires extensive advertising and marketing efforts

Importance of Understanding the Types of Consumer Products

Understanding whether products are convenience, shopping, specialty, or unsought is very important. As
noted above, each type requires different marketing efforts.

For example, it would not make sense to expend considerable marketing efforts on sugar. There is little
differentiation between different brands of sugars and spending money on advertising would not play a role
in changing consumer perception.

On the other hand, unsought products would require considerable marketing efforts. As a consumer,
purchasing life insurance is not top-of-mind; consumers do not normally think about it. Therefore,
considerable marketing and advertising efforts are required to make unsought products known and to
warrant a purchase by consumers.

1. Product

• It is a bundle of physical, service and symbolic attributes designed to satisfy a customers’ wants and
needs.

• It is a good (physical product capable of being delivered to a purchaser and involve the transfer of
ownership from seller to customer) or service (non-material action resulting in a measurable change of state
for the purchaser caused by the provider) that is a result of a process and that is intended for delivery to a
customer or end user.

• From the firm’s point of view, the product element of the marketing mix is what is being sold. From
the customer’s point of view, a product is a solution to a problem or a package of benefits.

• Product issues in the marketing mix will include such factors as: design (size, shape); features; quality
and reliability; after-sales service (if necessary) and packaging.

 Convenience Products – refer to goods and services consumers want to purchase frequently,
immediately & with minimal effort.

There are required very little buying efforts when drawing a comparison to buying these products. These
consumer products are low priced. Due to widespread distribution, these are available in different
convenience locations according to consumer wants and needs. Producers adopt mass promotion strategies.

 Shopping Products – products consumers purchase after comparing competing offerings.

Shopping products are a consumer product that the customer usually compares on attributes such as quality,
price and style in the process of selecting and purchasing. Thus, a difference between the two types of
consumer products presented so far is that the shopping product is usually less frequently purchased and
more carefully compared. Therefore, consumers spend much more time and effort in gathering information
and comparing alternatives.

Types of consumer products that fall within the category of shopping products are: furniture, clothing, used
cars, airline services etc. As a matter of fact marketers usually distribute these types of consumer products
through fewer outlets, but provide deeper sales support in order to help customers in the comparison effort.

 Specialty Products – offer unique characteristics that cause buyers to prize those particular brands.

Specialty products are consumer products and services with unique characteristics or brand identification for
which a significant group of consumers is willing to make a special purchase effort. As you can see, the types
of consumer products involve different levels of effort in the purchasing process: the specialty product
requires a special purchase effort, but applies only to certain consumers. Examples include specific cars,
professional and high-prices photographic equipment, designer clothes etc. A perfect example for these
types of consumer products is a Lamborghini. In order to buy one, a certain group of buyers would make a
special effort, for instance by travelling great distances to buy one. However, speciality products are usually
less compared against each other. Rather, the effort must be understood in terms of other factors: Buyers
invest for example the time needed to reach dealers that carry the wanted products. To illustrate this, look at
the Lamborghini example: the one who wants one is immediately convinced of the choice for a Lamborghini
and would not compare it that much against 10 other brands.

Unsought products

Unsought products are those consumer products that a consumer either does not know about or knows
about but does not consider buying under normal conditions. Thus, these types of consumer products
consumers do not think about normally, at least not until they need them. Most new innovations are
unsought until consumers become aware of them. Other examples of these types of consumer products are
life insurance, pre-planned funeral services etc. As a consequence of their nature, unsought products require
much more advertising, selling and marketing efforts than other types of consumer products.

Unsought Products Examples include Life Insurance, Smoke detectors, Home alarms and pre-planned funnel
service.

Unsought product pricing and distribution varies, and promotion strategies need aggressive marketing efforts
i.e. more advertising and personal selling than other types of products.

Business products - contribute directly or indirectly to the output of other products for resale.

Business products are the goods and services needed in the process of creation of other goods and services.
Classifications under business products

• Installations

• Accessory equipment

• Component Parts and Materials

• Raw Materials

• Supplies

• Business Services

 Installations – business products such as factories, assembly lines and large machinery that are major
capital investments.

They are of two types- (a) machinery used to process raw materials or manufacture final products from
fabricated materials, (b) equipment used to conduct operation of a service business. Installations are large,
expensive capital goods. They determine the nature, scope and efficiency of an enterprise.

There is large machinery or heavy equipment employed to produce the finished products or service. For
example, blast furnaces are installations in a steel mill. Aeroplanes are equipments in an airline offering air
transport service. Desks and chairs are equipments in a school. Installations (plant and machinery) are forms
of fixed durable assets and they represent permanent capital of an enterprise. There may be multipurpose
machines or single-purpose machines.

Accessory Equipment – capital items such as desktop computers and printers that typically cost less and last
for shorter periods than installations.

Examples of such light equipments or accessories are hand tools, forklift trucks in a factory, cash register in a
retail store, calculating machines, computers, accounting machines in an office establishment. Installations
have longer life and higher cost than that of accessory equipment.

Component Parts and Materials – finished business products of one producer that become part of the final
products of another producer.

Fabricated parts and materials such as spare parts, spark plugs, batteries, steering wheels, tires,
speedometer, yarn, steel, etc. These are also called components and parts which are assembled (without
further change) in the manufacturing of a final product such as refrigerator, motor car, computer, etc. These
components are recognisable in the final product. Many manufacturers prefer to buy (instead of making)
these fabricated parts.
Raw Materials – natural resources such as farm products, coal, copper or lumber that become part of a final
product

Supplies – regular expenses a firm incurs in its daily operations.

There is a lot of similarity between operating supplies and convenience goods bought by consumers. They
have low price, short life and they are bought with minimum efforts. They are consumable items used up
rapidly and hence, they are replaced frequently. Though operating supplies help the operations of an
enterprise, please note that they do not become a part of the final product (like components).

Office stationery, ink, erasers, ball pens, are examples of operating supplies required by any enterprise.
Sweeping compounds, detergents, lubricants, fuel are best examples of operating supplies in a factory or
workshop.

Business Services – intangible products firms buy to facilitate their production and operating processes.

In all industries, numerous services are necessary to plan, help or support the working and operations of an
enterprise. They include everything from cleaning and sanitation services to highly skilled and professional
services.

Among the more common professional services are management consultancy services, protection services,
maintenance services, advertising agencies, marketing research agencies, credit intelligence services,
marketing information services. Small and medium firms cannot maintain experts on a permanent basis. Such
services can be hired for a certain fee, whenever occasion demands.

Marketing mix - PRICE

Price • It is the exchange value of a good or service. • Price is influenced by many factors including economic
factors (supply and demand), competitor’s prices and payment terms.

Product Pricing Model - A.) ECONOMIST’S MODEL - is based on the principle of scarcity of resource
& rationality of men

b. PREMIUM PRICING - resides on the psychology of the market participants

High price is used as a defining criterion. Such pricing strategies work in segments and industries where a
strong competitive advantage exists for the company. Example: Porche in cars and Gillette in blades.

Premium pricing can be employed with the profit margin maximisation or quality leadership pricing
objectives. The premium price charged for the uniqueness and quality of your product allows you to generate
large profit margins on each item sold. Your product will also demonstrate your commitment to quality, and
customers will think of you when they desire such quality.

CONTROLLED MARKET-BASED PRICING - based its prices on governmental regulations or implied agreements
among key players in the market

Market Based Pricing is defined as a process of setting prices of goods/services based on the current market
conditions. A critical analysis of the product’s features is done and then depending on whether the product
has more or less features than the competitor’s product, the price is accordingly set higher or lower than the
price of the competitor’s product.

d. TARGET PRICING - the company looks at the market, determines the prevailing market price, establishes its
desired profit, then computes the should be amount of cost to be incurred in producing and selling a product

In target pricing, the selling price for a product is determined first. Based on the insights from the marketing
department and other market intelligence data, the most competitive price that the customers would be
willing to pay is fixed as a selling price. Now, the desired profit margin is deducted from this selling price to
arrive at a cost within which the production department would have to produce the product or procurement
department would have to procure the product.

For example, ABC Ltd. is in the business of manufacturing prom dresses for high school girls. The average
price at which the prom dresses sell in the market is P100. So, ABC Ltd. also fixes the selling price of P120 for
its up-scale range of prom dresses. Now, the desired markup is 25% on selling price. So the profit margin is
P30 per dress. Hence, the cost price within which the manufacturing department would have to manufacture
every single dress will be P90 (P120-P30). In order for that product line to be profitable, ABC Ltd. has to
ensure that its total cost per unit doesn’t exceed P90. And the lower is able to bring down the cost per unit;
higher will be its profit per dress.

e. LIFE-CYCLE-BASED PRICING - a price is established that would be applicable over the life-span of a product
Introduction Stage:

f. PENETRATION-BASED PRICING - is applied when a company wants to enter a market where entry is
relatively easy due to minimal amount of investment needed, absence of high-level technological
requirements and a market not controlled by one or few players

Used to gain entry into a new market, the objective for employing penetration pricing is to attract and grow
market share. Once desired levels for these objectives are reached, product prices are typically increased.
Penetration prices will not store up the profit that you may want; therefore, this pricing strategy must be
used strategically. Let’s say you have created a new hot and spicy mustard product. Your market research
indicates that the price range for competitors’ mustards is $1.89 to $2.99.

Since numerous mustards are already available and you are new to the mustard market, you decide to use
penetration pricing to entice customers to purchase your mustard. Therefore, you price your mustard at
$1.85 for the first six months because it covers your cost of production yet is lower than what you believe is a
good price for your product and is below the lower end of the market range, which should entice people to
purchase your mustard over the other higher-priced mustards.

g. SKIMMING-BASED PRICING - is applicable in a seller’s market

Price skimming involves initially charging the highest price your market will accept for your product, then
lowering it over time. The logic behind this is that you attempt to “skim” off the top market segment to which
you appeal, at the time when your product is freshest, thereby maximizing your profit early on.
Example of price skimming - The latest iPhone

This might not strictly be SaaS, but Apple’s approach to product pricing epitomizes price skimming in a way
that almost anyone will recognize. With each new product offering, Apple’s prices for newly released
products seem to be so high that they’re almost dissuasive — and yet, there are always queues outside Apple
stores on iPhone release days.

h. PREDATORY (OR ANTI-COMPETITION) PRICING - a company sets a very low price purposely to gain greater
share of and ultimately control the market

Predatory pricing involves charging very low prices, the aim being to get rid of competitors so that the
supplier can charge considerably higher prices later. The predator is willing to sell at a loss – below cost – for
a period, in the hope that its rivals either go bust or decide stop selling that product. When competing
companies have left the market, the predator pushes prices back up.

Ex. A legal team setting up in a new area offers prices 20% less than the norm for other firms.

A printer manufacturer innovates a new and better machine and prices it 10% less than their machine which
is already a market leader.

i. LOSS LEADER PRICING - applies when there is a main product with subsequent sales of parts and
services

- Refers to products having low prices placed on them in an attempt to lure customers to the
business and to make further purchases. For example, grocery stores might use bread as a
loss leader product. It you come to their store to purchase bread, you are very likely to
purchase other grocery items at their store rather than going to another store. The goal of
using a loss leader pricing strategy is to lure customers to your business with a low price on
one product with the expectation that the customer will purchase other products with larger
profit margins.

j. PRODUCT BUNDLING - is packaging the interrelated products together to make a complete set and
offered to customers at a temptingly low price occurs when different offerings are sold together at a price
that’s typically lower than the total price a customer would pay by buying each offering separately. Combo
meals and value meals sold at restaurants are an example. Companies such as McDonald’s have promoted
value meals for a long time in many different markets.

k. PRICING WITH ADDITIONAL FEATURES - main products are sometimes sold with additional features or
“extras”

l. TIME PRICING - considers time as the basis in setting a price.

The term time based pricing refers to a method of pricing that charges its customers according to time. This
stands differs from value based pricing – whereby the company charges its customers according to value
delivered. The Time-Based Pricing Method is the standard in the tourism industry where customers are
charged per night. Whereby prices fluctuate depending on what time they are being booked. With higher
prices are charged during peak season, or during high demand times (conference and events).

m. MATERIAL- BASED PRICING - price is based on the expected amount of materials to be used.

n. DISTRESS (OR INCREMENTAL) PRICING - is used when there is an idle capacity, competition is very stiff and
businesses have to sell hard their products to at least break-even

A distress price is when a firm chooses to mark down the price of an item or service instead of discontinuing
the product or service altogether. A distress price usually comes about during difficult market conditions
when the sale of a particular product or service has slowed down dramatically, and the company is unable to
sell enough of it to cover the fixed costs associated with doing business. Utilizing a distress price for a product
of service is meant to spur sales to generate enough cash flow to at least cover a company's operating costs.

o. TRANSFER PRICING - applies when there is an inter-company or inter-divisional transfer of products

between affiliated companies & company/divisional managers are evaluated based on their operating
performances.

Transfer pricing is an accounting practice that represents the price that one division in a company charges
another division for goods and services provided. Transfer pricing allows for the establishment of prices for
the goods and services exchanged between a subsidiary, an affiliate, or commonly controlled companies that
are part of the same larger enterprise. Transfer pricing can lead to tax savings for corporations, though tax
authorities may contest their claims.

Example - Coca-Cola Due to the production, marketing, and sale of Coca-Cola Co.’s (KO) concentrates in
various overseas markets, the company continues to defend its $3.3 billion transfer pricing of a royalty
agreement. The company transferred IP value to subsidiaries in Africa, Europe, and South America between
2007 and 2009. The IRS and Coca

p. COST-BASED PRICING - rationalizes that price equals cost plus mark-up

Cost-based pricing involves setting prices based on the costs for producing, distributing and selling the
product. Also, the company normally adds a fair rate of return to compensate for its efforts and risks. To
begin with, let’s look at some famous examples of companies using cost-based pricing. Firms such as Ryanair
and Walmart work to become the low-cost producers in their industries. By constantly reducing costs
wherever possible, these companies are able to set lower prices. Certainly, that leads to smaller margins, but
greater sales and profits on the other hand. But even companies with higher prices may rely on cost-based
pricing. However, these companies usually intentionally generate higher costs so that they can claim higher
prices and margins.

Marketing Mix - 3) PLACE

3. Place • It deals with how the product is distributed, and how it reaches its customers.  Channel. Where
are products sold?  Logistics. The location of warehouses and efficiency of the distribution system.
• DISTRIBUTION CHANNEL - can be defined as the activities and processes required to move a product from
the producer to the consumer.

 Types of Distribution Channels

• Direct

• Indirect

• Dual Distribution

• Reverse Channels

 Types of Distribution Channels

a. Direct - In this channel, the manufacturer directly provides the product to the consumer. In this
instance, the business may own all elements of its distribution channel or sell through a specific
retail location.

A direct distribution channel is organized and managed by the manufacturer itself. Direct channels tend to be
more expensive to set up at the beginning and can sometimes require significant capital investment.
Warehouses, logistics systems, trucks and delivery staff will need to be set up. However, once those are in
place, the direct channel is likely to be shorter and less costly than an indirect channel.

By controlling all aspects of the distribution channel, a manufacturer has more control over how goods are
delivered. They have more control over cutting out inefficiencies, adding new services and setting prices.

 Types of Distribution Channels

b. Indirect - In this channel, a company will use an intermediary to sell a product to the consumer.
The company may sell to a wholesaler who further distributes to retail outlets.

An indirect distribution channel relies on intermediaries to perform most or all distribution functions,
otherwise known as wholesale distribution. The most challenging part of indirect distribution channels is that
another party has to be entrusted with the manufacturer's products and customer interaction. However, the
most successful logistics companies are experts at delivering receivables in a way that most manufacturers
cannot be.

 Types of Distribution Channels

c. Dual Distribution - In this type of channel, a company may use a combination of direct and
indirect selling. The product may be sold directly to a consumer, while in other cases it may be
sold through intermediaries.
Dual distribution describes a wide variety of marketing arrangements by which the manufacturer or
wholesalers uses more than one channel simultaneously to reach the end user. They may sell directly to the
end users as well as sell to other companies for resale. Using two or more channels to attract the same target
market can sometimes lead to channel conflict.

An example of dual distribution is business format franchising, where the franchisors, license the operation of
some of its units to franchisees while simultaneously owning and operating some units themselves.

 Types of Distribution Channels

d. Reverse Channels - The last, most non tradition channel allows for the consumer to send a
product to the producer. An example of this is when a consumer recycles and makes money
from this activity.

in the reverse channel of distribution the direction changes. The direction of the product runs from consumer
to another consumer or another company in a reverse flow channel. A traditional distribution channel will
look like this:

Company → Warehouse → Distributors → Dealers → Consumers

But, a reverse channel will look like this:

Consumer → Intermediary → Company

DISTRIBUTION CHANNEL INTERMEDIARIES - are middlemen who facilitate the distribution process through
their experience and expertise.

Types of Intermediaries

a. Agents

b. Wholesalers

c. Distributors

d. Retailers

 Types of Intermediaries

a. Agents - are independent entities who act as extensions of the producer by representing them to
the user.
They are middlemen who represent the produces to the customer. They are merely an extension of the
company but the company is generally bound by the actions of its agents. One thing to keep in mind, the
ownership of the goods do not pass to the agent. They only work on fees and commissions.

Types of Intermediaries

b. Wholesalers are also independent entities but they actually purchase goods from a producer in
bulk and store them in warehouses.

Wholesalers buy the goods from the producers directly. One important characteristic of wholesalers is that
they buy in bulk at a lower rate than retail price. They store and warehouse huge quantities of the products
and sell them to other intermediaries in smaller quantities for a profit.

Wholesalers generally do not sell to the end consumer directly. They sell to other middlemen like retailers or
distributors.

Types of Intermediaries

c. Distributors- only carry products from a single brand or company and may have a close
relationship with the producer.

Distributors are similar to wholesalers in their function. Except they have a contract to carry goods from only
one producer or company. They do not stock a variety of products from various brands. They are under
contract to deal in particular products of only one parent company

Types of Intermediaries

d. Retailers - Wholesalers and distributors will sell the products that they have acquired to the
retailer at a profit. Retailers will then stock the goods and sell them to the ultimate end user at a
profit.

Basically shop owners. Whether it is your local grocery store or the mall in your area they are all retailers. The
only difference is in their sizes. Retailers will procure the goods from wholesaler or distributors and sell it to
the final consumers. They will sell these products at a profit margin to their customers

Marketing Mix - 4) PROMOTION

Promotion

• It is a communication link between buyers and sellers; the function of informing, persuading, and
influencing a consumer’s purchase decision.
• It includes all marketing communications which let the public know of the product or service.

Elements of the Promotional Mix

a. Advertising – This mode of promotion is usually paid, with little or no personal message. Mass
media such as television, radio or newspapers and magazines is most often the carrier of these
messages. Apart from these, billboards, posters, web pages, brochures and direct mail also fall in
the same category.

Successful advertising involves making your products or services positively known by that section of the
public most likely to purchase them. The advertisement should be planned, consistent activity that keeps the
name of the business and the benefits of the products or services upper most in the mind of the consumer.

Elements of the Promotional Mix

b. Public Relations & Sponsorship – PR or publicity tries to increase positive mention of the product
or brand in influential media outlets. These could include newspapers, magazines, talk shows
and new media such as social networks and blogs. This could also mean allowing super users, or
influencers to test the product and speak positively about it to their peers.

Elements of the Promotional Mix

c. Personal Selling – Opposite of the one directional promotional methods, direct selling connects
company representatives with the consumer. These interactions can be in person, over the
phone and over email or chat. This personal contact aims to create a personal relationship
between the client and the brand or product.

Elements of the Promotional Mix

d. Publicity – is news carried in the mass media about a firm and its products, policies, personnel or
actions. The unique feature about the publicity is that it is a non paid form of promotion,
organizations frequently provide the material for publicity in the form of news, releases,
photographs and press conferences.

Elements of the Promotional Mix

e. Sales Promotions – These are usually short term strategic activities which aim to encourage a
surge in sales. These could be ‘buy one get one free’ options, seasonal discounts, contests,
samples or even special coupons with expiration dates

Sales promotion offers a group of incentive tools, usually for a short duration to stimulate greater and
speedier purchase of a certain brand or service by consumers or dealers. Sales promotion is needed to attract
new customers, to hold present customers, to counteract competition and to take advantage of
opportunities that are revealed by market research.

Examples of devices used in sales promotion include coupons, samples, premium, point of purchase (POP)
displays, contests, rebates and sweepstakes.

The Extended Marketing Mix

• This is also known as the service marketing mix because it is specifically relevant to the marketing of
services rather than physical products.

• The intangible nature of services makes these extra three Ps particularly important.

1. People

 Employees are particularly important in service marketing.

 Front-line staff must be selected, trained and motivated with particular attention to customer care
and public relations.

 In some services, the physical presence of people performing the service is a vital aspect of customer
satisfaction.

 The staff involved are performing or producing a service, selling the service and also liaising with
customer to promote the service, gather information and respond to customer needs.

2. Processes

 Efficient processes can become a marketing advantage in their own right.

 If an airline, for example, develops a sophisticated ticketing system, it can offer shorter waits at
check-in or wider choice of flights through allied airlines.

 This both increases customer satisfaction and cuts down on the time it taken to complete a sale.

3. Physical evidence

 Services are intangible: they have no physical substance.

 The customer has no evidence of ownership and so may find it harder to perceive, evaluate and
compare the qualities of service provision, and may therefore dampen the incentive to consume.
 This could be addressed through physical representation such as tickets and programs relating to
entertainment, or by incorporating evidence into the design and specification of the service environment
such as décor, colour scheme, noise levels, background music, fragrance and general ambience.
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A Product’s Life Cycle (PLC) can be divided into several stages characterized by the revenue
generated by the product.

The life cycle concept may apply to a brand or to a category of product. Its duration may be as
short as a few months for a fad item or a century or more for product categories such as the
gasoline-powered automobile.

Product development is the incubation stage of the product life cycle. There are no sales and the
firm prepares to introduce the product. As the product progresses through its life cycle, changes
in the marketing mix usually are required in order to adjust to the evolving challenges and
opportunities.

Introduction Stage:

When the product is introduced, sales will be low until customers become aware of the product
and its benefits. Some firms may announce their product before it is introduced, but such
announcements also alert competitors and remove the element of surprise.

Advertising costs typically are high during this stage in order to rapidly increase customer
awareness of the product and to target the early adopters.

During the introductory stage the firm is likely to incur additional costs associated with the initial
distribution of the product. These higher costs coupled with a low sales volume usually make the
introduction stage a period of negative profits. During the introduction stage, the primary goal is
to establish a market and build primary demand for the product class.

Price under Introduction Stage:

Generally high, assuming a skim pricing strategy for a high profit margin as the early adopters
buy the product and the firm seeks to recoup development costs quickly. In some cases a
penetration pricing strategy is used and introductory prices are set low to gain market share
rapidly.

Growth Stage:

The growth stage is a period of rapid revenue growth. Sales increase as more customers become
aware of the product and its benefits and additional market segments are targeted. Once the
product has been proven a success and customers begin asking for it, sales will increase further
as more retailers become interested in carrying it.

The marketing team may expand the distribution at this point. When competitors enter the
market, often during the later part of the growth stage, there may be price competition and/or
increased promotional costs in order to convince consumers that the firm’s product is better than
that of the competition. During the growth stage, the goal is to gain consumer preference and
increase sales.

Maturity Stage:

The maturity stage is the most profitable stage. While sales continue to increase in this stage,
they do so at a slower pace. Because brand awareness is strong, advertising expenditures will be
reduced. Competition may result in decreased market share and/or prices. The competing
products may be very similar at this point, increasing the difficulty of differentiating the product.

The firm places effort into encouraging competitors’ customers to switch, increasing usage per
customer, and converting non-users into customers. Sales promotions may be offered to
encourage retailers to give the product more shelf space over competing products. During the
maturity stage, the primary goal is to maintain market share and extend the product life cycle.

Price under Maturity Stage:

Possible price reductions in response to competition while avoiding a price war.

Decline Stage:

Eventually sales begin to decline as the market becomes saturated, the product becomes
technologically obsolete, or customer tastes change. If the product has developed brand loyalty,
the profitability may be maintained longer. Unit costs may increase with the declining production
volumes and eventually no more profit can be made.

Price under Decline Stage:

Prices may be lowered to liquidate inventory of discontinued products. Prices may be maintained
for continued products serving a niche market.
Product Line Pricing (PLP):

Product line pricing is a pricing strategy that uses one product with various class distinctions. An
example would be a car model that has various model types that change with performance and
quality. This pricing process is evaluated through consumer value perception, production costs of
upgrades, and other cost and demand factors.

Product line pricing is used when a primary product is offered with different features or benefits,
essentially creating multiple “different” products or services.

For Example – A car could be the primary product. It could come standard, with a sunroof and
navigation system or fully stocked with all the features and add on. Each product would then be
priced accordingly.

Goal of Product Line Pricing:

The goal of product line pricing is to maximize profits. The more features offered, the more
consumers will pay. The goal is to draw enough interest in the primary product that the upgraded
product will be sold (at a greater price) based on the interest in the “basic” primary product. By
using PLP, some individual products may not make profits, but the goal is for the product line as
a whole to turn a profit.

Product line pricing is seen from gas pumps to car dealerships and from ice cream shops to fast
food restaurants. A basic car wash may be shown as one price, a super wash with wash and wax
will cost a little more, and a full-service premium wash will be the most expensive.

Price Leadership:

Price leadership is the situation in which a market leader sets the price of a product or service,
and competitors feel compelled to match that price. A company has price leadership when it sets
the price of products in its industry and other companies, often much smaller than the leader, all
follow suits.

This usually happens when the products are not highly differentiated and there is enough demand
for each of the competitors to remain profitable after the price change.

Price leadership is regarded as imperfect collusion among the oligopolistic firms, where all firms
follow the lead of one firm. The firm which takes the initiative of setting the price and
announcing changes in price from time to time is called as price leader. He fixes the price by
implicit understanding rather than formal agreement.

The price leader is generally a leader in all the markets for long periods. He can maintain his
leadership by pursuing a definite and a consistent price policy, i.e., by using his power with
restraint. The leader should change the price, when he feels that the change in cost and demand
conditions are permanent to maintain followers’ loyalty, i.e., when the market is ready for the
change.

Other firms in the industry, which match the leader’s price and variation over time, are called as
price followers. Price leadership is more common in natural and stable markets, where highly
standard products like steel, oil, cement, are produced. However, price leadership can prevail
under both pure as well as differentiated oligopoly.

Price leadership may be dominant or barometric. Under dominant price leadership, the leader
firm is large and powerful enough to fix a price, which all other firms will be forced to follow.
Each follower firm takes this market price as given and produces the output at which marginal
cost equals marginal revenue.

Here, the dominant firm acts as a monopolist, who maximizes profit by taking the supply curve
of the followers as given. While the followers offer products at competitive prices, dampening
the control of dominant firm over the market price. The leader gets only the residual share of the
market. If the market share of the followers goes up, the monopoly power of the leader suffers.

Therefore, in this version, the equilibrium price is lower than what would be obtained by a pure
monopolist. The dominant firm can maintain its dominance in the market by innovating on ‘non-
price competitive areas’, i.e., new brands, product improvements, promotion, distribution, dealer
concessions, free gifts, easier credit terms, free home delivery, after sales services, longer period
of guarantee, etc. or by keeping the market price low enough to deter entry.

When this leader firm sets a very low price, it may force some of the firms to leave the industry.
On the other hand, under barometric price leadership, leader firm is regarded as a wise firm,
which sets the price reflecting the market forces and the needs of the other firms in the industry.
Any alternation in price cannot be done by a barometric firm in an arbitrary fashion, as the
dominant price leader can do.

It is clear from the two types of price leadership explained above that price leadership arises
through cost or productive capacity advantage. Low cost firm can withstand the losses of a price
war and grab leadership through lower price. Such firm can increase market share by snatching
large and profitable markets from conservative rivals.

It is presumed to have the greatest stake in the welfare of the industry the greatest power to
enforce followership, the greatest capability of demand forecasting, the best informed about
market demand supply conditions so as to determine the price policy of the entire industry.
Besides this, long-term profit history, sound management and product innovation by a firm may
also lead to price leadership.