GOLDEN GATE COLLEGES

Senior High School Department

Lesson Product and Price

6

LESSON AND COVERAGE:

In this lesson, you will learn the following:
 Define a product and differentiates the product, services, and experiences
 Identify and describe the factors to consider when setting prices and new product
pricing and its general pricing approaches

INTRODUCTION:
The marketing mix is a set of elements that companies or businesses consider in order to
successfully create and sell their products. These elements are also collectively referred to as
the 4Ps of marketing: product, price, place, and promotion.
A product is an offering by the firm that satisfies the needs of a particular set of
customers. The price Indicates the amount at which the firm is selling its product. Place
refers to the manner through which the firm makes it products available to its customers.
Lastly, promotion refers to the strategies that companies use to inform their customers about
the product and persuade them to purchase it. All of these elements must be combined in a
comprehensive and integrated marketing plan. Through this marketing plan, a firm informs
its customers about its products, encourages them to try these, and secures their loyalty

DEVELOPMENT:
PRODUCTS AND SERVICES DEFINED
A product is defined as anything that can be offered to a market for attention, acquisition,
use or consumption to satisfy a want or need. Products can be tangible (those we can see) or
intangible (those that we cannot see but we can experience). Major product classifications
include goods, services, and ideas. Goods are physical products that we can touch, smell, see,
and hear while services are intangible products that we obtain through ideas or experiences.
Products can also include events places, or organizations (Kotler and Armstrong, 2013).
Sometimes, products are sold as a bundle, meaning we get the product as well as its
complementary services. For example, for, products that require a certain degree of technical
knowledge to operate, such as medical equipment like CT-scan or MRI machines, purchasers
are provided with training (ideas and experiences) on their proper usage.
In addition, services refer not only to intangible goods and complementary actions
attached to a tangible product, but also activities, benefits, or satisfactions offered which are
intangible in nature, such as banking, airline services, hotel services, retail services, and
wireless communication services.

LEVELS OF PRODUCTS
To know more about the nature of products, it is important to discuss its five levels: the
core or generic product, the actual product, the extended product, the modified product, and
the potential product. A finished product is expected to have at least the first three levels
(core, actual, and extended product).
Core or Generic Product
The core or generic level refers to functional essence of the product. It is the reason why
a customer purchases a product in the first place. For example, a customer will primarily buy

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Senior High School Department

toothpaste for its capability to clean teeth.

Actual Product
This level corresponds to the basic features of a product that make it usable in the first
place. This level is most evident in the product's packaging and labels. For example, the
actual product level of toothpaste consists of its teeth-cleaning chemicals and the amount of
toothpaste in a tube or pack
Extended Product
This level refers to additional features added to the product to attract more customers. For
example, the toothpaste company may offer a toothpaste with mint which will give the
customer fresh breath when using it. Other features they might add to their toothpaste include
baking soda or charcoal for whiter teeth.
Modified Product
This product level pertains to additional product features that will meet new demands and
needs of customers. Companies may consider modifying an existing product so that it will
continue to sell. For example, toothpaste may have additional features such as eliminating
tooth sensitivity and having different flavors.
Potential Product
This level refers to the product features that a firm plan to add or change in the f The firm
adds these features in order to further differentiate their products from that of their
competitors. For example, a new toothpaste with milder flavor may be introduced. Chemical
may also be added to guarantee longer bacterial protection

CLASSIFICATION OF PRODUCTS
Products are classified as either consumer or industrial products. Consumer products are
those that are personally used by customers, such as convenience products, shopping product
specialty products, and unsought products. On the other hand, industrial products are those
used by companies or firms for product creation and other business operations. These include
raw materials, finished products, equipment, and supplies.

Types of Consumer Products

Convenience Products
Convenience products are goods that people normally buy and consume frequently.
Examples include shampoo products, household supplies, and food (goods); jeepney or taxi
rides (services) and movies (ideas).
Shopping Products
These are goods that people buy or consume less frequently and are more expensive than
convenience products. Before purchasing a shopping product, people tend to compare it with
alternative products or services. For example, clothing brands (goods) are compared with one
another in terms of design and price. When a person decides to enroll in a driving school for
driving lessons (services or ideas), he or she has already compared its services and prices
with those of other driving schools.
Specialty Products
Specialty products are those that are distributed exclusively by an authorized distributor
These are even more expensive than shopping products. Specialty products include gadgets
electronic appliances, and luxury vehicles.
Unsought Products
These are goods and services that consumers may not consider highly necessary in the
lives. Consumers may avoid purchasing them but companies can successfully sell them
through extensive marketing or personal selling. Encyclopedias are an example of unsought
products Some services are also considered unsought such as insurance services.

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Types of Industrial Products

Raw Materials
These are goods that the firm processes or assembles to create a new product. For example,
wood may be processed to create furniture. A fan motor and motherboard are two of the
pieces assembled to produce a desktop computer
Finished products
Finished products are the final products the firm produces. These are developed using the
raw materials, technology, equipment, and manpower provided by the company.
Equipment
These are the machines and tools used in creating products or providing services.
Examples include forklift trucks used by construction companies and ovens used in bakeries.
Supplies
Supplies are products which may not necessarily be used in creating products, but are
important in the daily operations of a firm. These include office supplies such as ballpens and
paper clips.

SERVICES AND CUSTOMER EXPERIENCE

Aside from purely tangible products, companies also offer services to customers Services
are intangible offerings that companies provide for their customers. Some companies offer
pure services, such as in the case of salon, carwash, and hotel services. Companies that
market pure services do not focus on selling a tangible good Other companies primarily sell
products that integrate aspects of services. For example, technology companies primarily sell
computers, mobile phones, and similar products, but they also offer warranty and installation
services to their customers.
Services and products are an important component of customer experience, which is the
overall result of all the interactions between a customer and a firm. These interactions begin
with the introduction of a service or product to a customer, and extend to the moment that it
is delivered and how problems in the service or product are addressed up to the perception
that the customer eventually develops about the firm. For example, customer experience in
Disneyland starts from the moment that he or she becomes aware of the amusement park. It
then continues to the time that he or she actually visits Disneyland and experiences its rides
and numerous attractions. The customer experience culminates in how much he or she
enjoyed visiting Disneyland and thinks of whether or not to visit it again. By placing
importance on customer experience, firms and companies ensure the overall satisfaction of
customers in purchasing their products and services.

NATURE AND CHARACTERISTICS OF A SERVICE

A company must consider four characteristics of services when delivering them to
customers. These are intangibility, inseparability. variability, and perishability
Intangibility
Services are intangible since they cannot be seen, tasted, felt, heard, or smelled before
they are purchased. An example would be the services rendered by a dentist. Upon paying for
tooth extraction services, you cannot see its result until the service is done.
Inseparability
Services are produced and consumed at the same time and cannot be separated from their
providers. Physical or tangible goods may be produced and stored for later use or sold in the
future. In contrast, services are produced by their provider and consumed by customers at the
same time. The service provider and the service itself are thus considered one entity. For
example, airplane flights can never exist without the pilots, flight attendants, and other crew
involved in delivering the service
Variability

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In hotels, for example, some employees may be highly efficient and hospitable, while
some may be slow-moving and unpleasant towards customers. This may cause differences in
the service being delivered. Some customers may find that their requests and orders are
fulfilled slowly. perhaps not at all, while others find that the services are rendered quickly
Perishability
This means that the service cannot be stored for later sale or use. An airline service, for
example, only offers seats for a particular flight before the plane departs. Once the plane has
departed, customers can no longer avail of the service for that particular flight. Any unsold
seats on the plane, therefore, lose their value. Perishability can become a challenge when the
demand for a service fluctuates. This is why during "off-peak" months, airlines offer
discounts to encourage customers to avail of their services.

Activity 1. Product
1. Give examples of the following types of consumer products. Complete the table below
with your answers.

Convenience products

Shopping products

Specialty products

Unsought products

2. Give examples of the following types of industrial products. Write your answers in the
table below.

Raw materials

Equipment

Supplies
3. What makes consumer products and industrial products different from each other?

 ENGAGEMENT
Price
• Price is the only component of the marketing mix that provides revenue for the company.
This is why it is important to understand the concepts and strategies in pricing, and to
know when to increase or decrease the price of a product.
– Computation of prices - This involves understanding various elements of pricing,
and can be further studied through formulas.

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– Variability - If marketers see that customers have a low percent value of the
product, they may have to decrease the price of the product. However, prices mu
not be lowered to the break-even point, because the earnings must also meet the
total cost or creating the product or service.
– Reference price - the price that customer expect the product to have. The
reference price is based on the price that the company has announced and on the
prices of competing products.

Price and quality

• Price is not mainly based on the cost incurred in creating the product or service. Instead,
most consumers look at quality as the indicator of price.
• High-quality products have high prices while those of low quality often have low prices.
• Quality is often based on the customer's evaluation of the product as well as the feedback
of consumers who have had experience with the product or service
• Other traders, however resort to selling low-quality products at high prices. This practice
reflects an unwillingness to retain long-term relationships with customers. These traders
often do not entertain consumer feedback regarding the inferior quality of their products.
• How can marketers ensure that pricing reflects the quality of their products? Marketers
need to bear in mind that not all consumers can afford products which have excessively
high quality, such as those made in Japan or in Germany. However, consumers can settle
for products with acceptable quality. This means that they may not be made from
expensive materials but are durable enough. These products need to be priced reasonably
- meaning, the price set should be neither too low nor too high.

CUSTOMER VALUE-BASED PRICING

• Pricing decisions, just like any other aspect of marketing, must be based on customer
value, or the value and benefits customers gain from purchasing a product or service.
Through effective customer value-based pricing, companies show that they understand
the value that consumers place on the benefits they receive from using a particular
product.

PRICING OBJECTIVES
• Every firm has an objective that determines the pricing of a product. This pricing
objective may depend on the characteristics of the market or of the firm itself. The
following are some examples of pricing objectives.
– Survival Pricing
– Market Penetration Pricing
– Market Skimming Pricing
– Parity Pricing
– Regulated Pricing

COMMON PRICING STRATEGIES AND SCHEMES

• Cost-based Pricing
• Demand-based Pricing
• Break-even Pricing
• Psychological Pricing
• Time-based Pricing
• Location-based Pricing
• Competitive Pricing
• Premium Pricing

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PRICING STRATEGIES FOR NEW PRODUCTS

• 1. The market skimming pricing strategy is often used by pioneers in a particular product
category. For example, Philips DVD players were initially priced at around P45,000
when they were first sold in 1997 because Philips was the first to launch DVD players.
Later on, the price of Philips DVD players was reduced as competitors came in. In 2001,
a Philips DVD player cost around P 12,000. At present, DVD players can be bought for
around P3,000 (for well-known brands) or P1,000 or less (for lesser known brands).
• The same applies for Blu-ray players. In 2001, Sony first priced its Blu-ray player at
around P65,000, since the company was one of the first to sell it on the market. However,
Sony later reduced its prices due to increased competition. CD-R King, for instance, sells
its Blu-ray players for less than P3,000.
• 2. The market penetration pricing strategy is generally used by new entrants to a market
already dominated by one or several companies. Through penetration pricing customers
may buy a certain product or try a specific brand on the basis of value and saving money.
A company planning to employ this strategy must first analyze how its competitors will
react to its entry into the market. It must also find out the potential reaction of customers
when it sets prices that challenge the competition. An example of market penetration
pricing is in cable service providers such as Cignal. Cignal set a low price for its services
when these were first introduced in Davao City in an attempt to attract potential
subscribers

PRICE ADJUSTMENT DECISIONS

• Marketers are often confronted with the need to decide whether to increase or decrease
the prices of their offerings. Since such a decision can lead to either gain or loss for the
company marketers must decide on these matters quickly and decisively.
• When to Increase Price
• 1. Even if the cost of production has increased, adjust the price only after considering
relevant factors such as the price elasticity of demand and the break-even point.
• 2. If the demand for the product has increased, then the price may be increased
accordingly,
• 3. If research shows that the market is not price sensitive to the product, then the price
may be increased at a level that will help gain sufficient profit.
• When to Reduce Prices
• 1. If the product is facing the threat of decline, the price must be reduced to attract
laggards and other budget-conscious customers. This move can help revive interest in the
product and improve its performance in the market.
• 2. If the reaction of the competing companies to a price decrease is not evident prices
may be reduced. However, to avoid a price war, companies should avoid continued price
decreases
• 3. If the situations above do not apply to the product, its price must be maintained.
Stability in pricing prevents the possibility of incurring losses, and protects the company
from being potentially attacked by competition

Activity 2.
Select a particular service provided by a local business or a popular establishment and
present a skit showing the nature and characteristics of that service. After the presentations,
discuss the following questions.
Discussion Questions:
1. What makes services different from products? What is the importance of understanding
this difference between the two?

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2. Among the characteristics of the services that you presented, which do you think is the
most important? Explain your answer.

3. What is the importance of understanding the characteristics of services in enhancing

customer experience?

ASSIMILATION
Activity 3. CASE STUDY
Examine the following scenario and provide a proposal to improve the customer experience
provided by the firm.

Rizal Plumbing, a plumbing company in a barangay in Davao City, has been in service
for more than a year. While the firm is one of the first plumbing service companies in the
community, it has also received complaints regarding its services. The following are the
present features of and observations about the company's services

RIZAL PLUMBING: CURRENT SERVICES AND FEEDBACK

1. Appliance installation work
2. Plumbing work
3. Electrical work
4. Customer time
5. Need for coordination among the employees in delivering the service
6. Cost uncertainty when customers get a quotation for work
Analyze the features and observations above. Based on these, how can the company
improve its plumbing services for a satisfactory customer experience? Write your answer on
the space provided and discuss your answers in class.

Activity 4. CASE STUDY

Read the case study below and answer the questions that follow.

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Kent wanted to open a guitar shop in his hometown in Cebu City. However, he had a
problem: he did not know what pricing strategy will help him succeed in entering the market.
He wanted to make his guitars cheaper since there were already many guitar stores in Cebu
and competition was very stiff. However, he knew that guitars had an average cost of P3,000
to P6,000. He also wanted to offer guitar customization services to his customers. This means
that the customers themselves can choose the color, strings, and design of their guitars.
Discussion Questions
1. What pricing strategy would be most effective for Kent as his products enter the market?
Explain your answer.
2. Help Kent come up with a Pricing Strategy Mix. How will Kent develop his pricing
strategy as his business continues in operation? How will Kent use pricing to ensure his
customers loyalty?
3. Based on Kent's situation, what variables are the most important in formulating pricing
strategies?

REFLECTION
Direction: Complete the table below to sum up and assess what you have learned in this
module.
Topics Things I learned

Question I want to be answered.

REFERENCES AND WEBSITE LINKS USED IN THIS LESSON:

Te, Danilo; Baltazar-Marte, Rodilina; Abrina, Donna Vida. (2018). Principles of Marketing for Senior High
School. Quezon City: C & E Publishing, Inc.

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