PRODUCT AND PRICING

Meaning of Product
Product refers to an item, goods or service that is capable of satisfying the
needs or wants of customers. It is one of the crucial elements of the marketing mix
and is offered for sale in the market.

Definitions
According to Philip Kotler, " A Product is anything that can be offered to a
market for attention, acquisition, use or consumption that might satisfy a want or
need. It includes Physical Objects, Services, Persons, Places, organizations and
ideas."
C.P Stephenson defines a product as "Everything the purchaser gets in
exchange for money."
In the words of William J. Stanton, "A Product is a complex of tangible and
intangible attributes, including packaging, colour, price, manufacture's prestige and
manufacturers and retailer's services which the buyer may accept as offering want-
satisfaction".

# IMPORTANCE OF PRODUCT

1. Element of Marketing Mix

Product is the backbone of the Marketing Mix. Marketing starts because of
marketing mix especially products. Without product, there is nothing to price,
promote, distribute. Product is the vehicle by which a company provide consumer
satisfaction. It is the engine that pulls the rest of the marketing programme.

2. Initiate market planning

Product is termed as the starting point and center of all marketing programs.
All marketing activities like sales promotion, advertising and distribution are decided
according to the nature of the product.

3. Means of consumption and satisfaction

Product is the center of consumption and satisfaction of customers. People
buy and consume different products for satisfying their numerous needs.

4. Key to market success

Product is an important element for attaining success in the market. If
business is able to deliver products in accordance with customer requirements, their
product will widely be accepted. It will attract more customers and will provide growth
opportunities for the business.

5. Essential from social viewpoint

It is important from the viewpoint of society as it provides numerous benefits
to them. The product satisfies the wants of society, improves their standard of living
and also serves as a means of providing employment opportunities to a large
number of peoples involved in various processes of the product.
6. Customer Satisfaction
Products are the means through which customers fulfill their needs and
wants. It serves as a medium through which business offers service to customers for
satisfying their requirements.

7. Competitive weapon
Product is a powerful weapon of business to face strict market competition.
Businesses by efficiently producing products are able to provide better quality at a
lower cost which attracts more and more customers.

# TYPES OF PRODUCTS

I. Consumer Products and

II. Industrial products.

I CONSUMER PRODUCTS
Consumer products are those products that are ultimately used by customers
for satisfying their wants. These are final products and do not require any further
processing stage.

Types of Consumer Products

1. Convenience Product
Convenience Product are those products are purchased frequently,
immediately and without much effort. These are low priced goods. These goods
have many purchases locations.
Ex:- Soap, Newspaper, toothpaste, match box, medicines, bread, biscuit, milk, Pen,
toothpaste, egg etc.

Convenience goods can be classified into :

(1) Staple Item/Goods
(ii) Impulse Item/Goods.
(iii) Emergency Goods

(i) Staple Items/Goods:- Items which are purchased routinely with little planning are
called as staple items. They account for bulk of the convenience purchasing. Many
are perishable such as bread, milk and meat are bought frequently.

(ii) Impulse Item/Goods: Impulse goods are purchase of goods suddenly without
planning. When you are travelling if you like any dress or item you will purchase it.

(iii) Emergency Goods: Purchase of emergency products result from urgent and
compelling needs. For example:- Customers purchase umbrella in rainy season
because of emergency. And same in case of minor accidents customers purchase
first aid kit.

2. Shopping Goods
Shopping goods are those consumer goods which the customer in the
process or selection and purchase characteristically compares on such bases as
suitability, quality, price and style. Shopping goods may be considered to be those
commodities whose selection is of such importance that buyers devote considerable
time to their selection. Such products are purchased only after a comparison of
several products. Quality, style, suitability and price are the common bases of
comparison.
Ex:- Women's apparel, furniture, jewellery, television, costly watches,
fashionable shoes, cars, refrigerator, musical instruments, dishwashers, automobiles
etc.

3. Specialty Goods
A tangible product for which a consumer has a strong brand preference and is
willing to expend substantial time and effort in locating the desired brand is called a
specialty good. These products are bought less frequently. In this case customers
gather product information. There will be fewer purchase locations for these goods.
Consumer search extensively for an item and are extremely reluctant to accept
substitutes for it.
Examples include specific brands of fancy products, luxury cars, professional
photographic equipment, and high-fashion clothing, fridge. TV etc.

4. Unsought Products
An unsought good is a new product that the consumer is not yet aware of or a
product that the consumer is aware of but does not want right now. These are new
innovations. These products are those products in which consumers don't want to
think about. To increase the sales of these products companies should concentrate
on aggressive advertising personal selling.
Example. Insurance, encyclopaedias, etc.

II. INDUSTRIAL GOODS

Industrial goods are goods used to manufacture other goods or Services, or to
facilitate an organization's operations, or to resell to other consumers. These goods
are primarily used in producing other goods.
In other words, Industrial products refer to products which are used in an industry for
producing a product. They (i.e., industrial products). are not meant for direct
consumption.
Example. Tyres, nuts, bolts, petrol, cement etc. Industrial products.
These goods are classified into:-
1) Raw-material
Business goods that become part of another tangible product prior to being
processed in any way are considered as raw material. These are the items that
require processing before being incorporated in the final product. In this case prices
are normally set by supply and demand, approximating the conditions of perfect
competition. As, s result, individual producers have little or no control over the
prevailing market price. Raw materials include:

(i) Natural Products: These are goods found in natural state such as minerals, land,
forests, etc.

(ii) Farm Products: Agricultural products, such as cotton, fruits, livestock, etc.
2) Fabricating Materials and Parts
Business goods that become part of the finished product after having been
processed to some extent fit into the category of fabricating material and parts. They
are semi-manufactured goods that undergo further changes in form.
Example. Steel, cement, wire, chemicals, etc;

Fabricating material and parts can be Classified into:

(i)Fabricating Material: These materials undergo further processing.

Example. Pig iron going into steel, yarn being woven into cloth, etc.

(ii) Fabricating Parts: These are assembled with no further change in the form
Examples. Wires, semiconductors, etc.

3) Installations
Manufactured products that are an organization's major expensive and lost-
long equipment’s are termed as installations. These are expensive capital items that
determine the nature, scope, and efficiency of the company. Example. Machineries.

4) Accessory Equipment
Tangible products that have substantial value and are used in an
organization's operations are called accessory equipment. This category of business
goods neither becomes part of a finished product nor has a significant impact on the
organization's scale of operations. Example. Forklift trucks, power tools, terminals,
etc.

5) Operating Supplies
Business goods that are characterized by low value per unit and a short life
and that contribute to an organization's operations without becoming part of the
finished product are called operating supplies. They are purchased routinely and
fairly in large quantities. Example. Lights, lubricants, stationary, heating fuel, etc.

# PRODUCT MIX:

According to William J Stanton, "The product mix is the full list of

all products offered for sale by a company"

According to Philip Kotler, "Product mix is the set of all product

lines and items that a particular seller offers for the sale to buyers”.

ELEMENTS/STRUCTURE OF PRODUCT MIX

The structure of the product mix has 4 dimensions:-

1. Width of the product mix:- Total Number of product lines that are being
produced by a company.

2. Length of the product mix:- Total Number of items in the product mix.
3. Depth of the product mix:- How many variants or varieties are offered in each
product line

4. Consistency of the product mix:- How closely related are products lines within
the product mix in terms of consumer behaviour, production requirement, distribution
channels or in some other way.

## BRANDING
MEANING OF BRAND
Brand is Name, term, symbol or a design or a combination of them which is
intended to identify the goods or services of one seller or group of seller and to
differentiate them from those of competitors"
Example:- Lux, Rexona, Usha fan, Godrej Furniture, Bata shoe, Amul ice
cream, 501 bar soap, camel pencil etc.

DEFINITIONS
According to American Marketing Association, "Brand is a name term, sign,
symbol, or design, or a combination of them which is intended to identify the goods
or services of one seller or a group of sellers and to differentiate them from those of
competitors.

# FEATURES

1. Brand name should be short and simple: Brand name should be short and
simple because long and complicated names are difficult to recognise and
remember.
Ex:- Audi/Mercedes Benz. Lux, Dettol, Surf excel, Rin, Vim.

2. Brand Name should be easy to pronounce: If the brand name is difficult to

pronounce the customer will hesitate to demand for it.
Ex:- YvesSaintlaurent, MIV MIV, BVLGARI

3. Brand Name should be Suggestive: Name of the product must Suggest the
utility of the product.
Ex:- Hajmola suggest digestive properly, Hare and Care suggest care of hair,
Ujjala suggest brightness.

4. Brand Name should be unique and distinctive:

Brand Name should be very different and it's not easily copied to any other as
well as it should not lose it's identity.
Ex:- Ariel, Tide, Surf Excel.

5. Brand Name should be selected after considering it's meaning:

Meaning of the Product should not be vague. Different Sign leads to different
meaning in various region and different language also leads to different meaning.
Hence before fixing the name for the product we should consider all the factors.
Meaning in other language and culture should be considered.
6. Brand name should be easy to reproduce:
Brand name should be simple because consumer has to keep it for the long-
term.

7. It should be easy to advertise and identity:

An effective brand that communicates the essence of quality will give
customers the perception that the product or service is better than that of the
competition. Since it is perceived to be of higher quality, these brands will command
higher prices, adding more revenue to the bottom line.

8. Brand Should not be offensive and against the public interest:

Offensive brand which does not agree with the laws and ethics
of marketing.

# IMPORTANCE/FUNCTIONS/NEED/ESSENTIALS OF A GOOD
BRAND

I. ADVANTAGES OF BRANDING TO THE PRODUCER:

1. Higher prices: With good brand name company can fix higher prices for their
product.
Ex:- Apple Products, Samsung, LG etc.

2.Distribution Channel: Company can effectively manage its distribution channel.

3. Customer loyalty: Effective branding strategy increases customer loyalty.

4. Differentiation of company's product: It differentiates company's products from

rival firms and thus ensures constant returns.

5. Helps to compete with its competitors: It helps organization to compete with its
competitors on the basis of non-price factors.

6. Sales of the product: It increases the overall sales of the organization.

7. Improves sales promotion: Branding is essential for sales promotion.

8. Reduces Advertising cost: It helps in reducing advertising costs.

II. ADVANTAGES TO THE CONSUMER

1. Ensures Quality of products: Branding ensures quality of the product since it is

a reputation of the company.

2. Less time consuming in shopping: Branding reduces the total shopping time of
the customers since consumer is pre-planned about the purchase of the products.

3.Affordable price: Sometimes branding strategy reduces thecost of the product

launch, so customers can purchase branded products with lesser price.
4. Helps in Identification of Product: Consumer can easily identify their desired
products because of branding.

5 Status Symbol: Branded products brings status to the consumer in the eyes of
society. Ex:- BMW, TATA Jagwar, Safari, Audi, Lamborgini etc.

III. ADVANTAGES TO THE MIDDLEMEN

1. Branded products pose less risk to the middlemen.

2. Middlemen can easily sell the branded products.
3. Branding aids in advertising and display programmes.
4. It helps middlemen to stabilize the price in the market.
5. It helps middlemen to increase control over the market.

## PACKAGING
Packaging is one of the most important parts of the marketing. As cloth is for
humans, packaging is for products.

MEANING
Packaging includes activities of designing and producing the container for a
product. Packaging involves promoting and protecting the product. Other hand it can
be defined as an activity which is concerned with protection, economy, convenience
and promotional considerations.

# ESSENTIAL/FUNCTIONS/ NEED/ IMPORTANCE OF PACKAGING

1] Provides physical Protection: Packaging protects the contents of a product from

spoilage, breakage, leakage, damage, climate effects etc.

2] Product Promotion: Packaging is used for promoting purposes. An attractive

colour, photograph etc can promote the products.

3] Product Attraction: Different colours, images etc. can attract the consumers
towards the product.

4] Easy Identification: Packaging greatly helps in identification of product.

Ex:- A Medimix soap can be easily identified by it's cover. It give the product unique
identity.

5] Product Differentiation: Through packages a product can be easily differentiated

with each other products in the market. It ensures the individuality of the products.

6] Convenience: The size and shape of the package should be such that it should
be convenient to open handler and use consumer.

7] Prevent from adulteration: Packaging helps to prevent adding of unnecessary

contents into the product or it protect from corruption of product especially food
items, cosmetics etc.
8] Enhance Brand Image: Packaging design is a crucial component in building a
brand's image and identity. The majority of retailers are now online so packaging is
more important than ever, Branded packaging, from boxes to garment bags, can
enhance company product and offer an opportunity to positively impact company's
brand's image.

9] Self -service sales: High-Quality, Custom Packaging Can Lead to An Increase in

Revenue. The packaging of a product shipment is as important as the arrival of a
guest of honour to a party. Customers are waiting for their products excitedly and
appearance will influence their first impression - even before the package is opened.

10] Enhance profits: Any good packaging should be highlighting the best features
of the product. The emotional impact is one of the most critical things an this leads to
bring high profits to an organizations.

11] Convey the message: Packaging helps to the consumer to convey the
information about the products in simple manner.

## LABELLING
It is the Act of attaching labels to product to provide some important
information to customers.
Ex:- Name of the product, name of manufacture, contents of the product,
expiry dates, manufacturing date etc. In other words, it is a printed information that is
attached the product in order to recognize as well as to provide detailed information
about the product.

# FUNCTIONS/ IMPORTANT/ BENEFITS/NEED

1] Describe the product and specify it's contents: Manufacturer cannot

personally meet each consumer so he attached labels to product which include all
important information which a customer needs to know.

2] Identify the Product: Labels helps the customers to identify the products from
various products. Ex:-Cadbury.

3] Helps in Grading: Product can be easily graded in different categories.

Ex:- Brook Bond [tea =red label, yellow label, Green label. Nandini Milk in
different Grades.

4] Promote Sales: Attractive and Colourful labels excite and induce customers to
buy the product.

5] Provides information required by law: Labelling also gives information which is

legally required.
Ex: - Its compulsory to print batch no, contents, MRP, Weight. Or On tobacco
it is compulsory to give warning that its consumption is injurious to health.

6] Avoiding Confusion: Labelling helps in avoiding confusion in the minds of

consumers.
## PRODUCT LIFE CYCLE
MEANING: Product Life Cycle refers to the different stages over the length of
life through which a product passes.

DEFINITIONS
According to Philip Kotler, "The product life cycle is an attempt to recognize
distinct stages in the sales in the sales history of the product"

In the words of William J. Stanton, "From it's birth to death, a product exits in
different stages and in different competitive environments. It's adjustment to these
environments determines to a great degree of how successful its life will be".

# STAGES OR VARIOUS PHASES OF PRODUCT LIFE CYCLE

The life Cycle of a product passes through many identifiable stages. The various
stages of the life cycle of a product are:

1. Introduction, Innovation, Pioneering or Development stages.

2. Growth or Market acceptance stage
3. Maturity Stage
4. Saturation Stage or Stagnation Stage
5. Decline and Obsolescence Stage

1. Introduction, Innovation, Pioneering or Development stages.

Introduction stage is the first stage in the life cycle of a product.

Features
1) Product is just introduced in the market and made known to the consumers.
2) Marketing Programs like Advertising and sales promotion should be undertaken.
3) Promotional Expenditure will be very high.
4) Product line is narrow.
5) The distribution line is limited.
6) Sales of the product is low during this stage.
7) Technical defects in the Product may often appear
8) This stage is very risky for the marketers
9) Price of the new product will be high
10) There is not much competition for the new product.
11) There is low margin of profit for the marketers.

2. Growth or Market acceptance stage

After the product is introduced in the market, the product enters
the second stage is called growth stage. The growth stage is
characterized by rapid growth in sales and profits. Profit arise due to
an increase in economies of scale and possible better prices.
Features
1) Product gains popularity under this stage.
2) Sales of the product increases
3) Sale is maximum from the higher income group and middle-income group.
4) The profit of the firm also goes up.
5) Under this stage company produces goods in sufficient quantities and market the
output without delay.
6) Profit increases comparatively introduction stage.
7) Product Line may be expanded
8) Marketing programs required.
9) Product improvement are made.
10) New and alternative uses of the product are also made known to the consumers
11) Market Segment can also be possible.
12) More scope for large-Scale production and sales.
13) Under this stage Marketing System has to be improved
14)The price of the product may be slightly reduced.

3. Maturity Stage
In this stage that competition is most intense as companies fight to
maintain their market share. Here both marketing and finance become
key activities. Marketing spends has to be monitored carefully, since
any significant moves are likely to be copied by competitors.

Features
1) Consumer market becomes very wide, as the low-income group also will begin to
purchase the product.
2) Product development and design become heavily style oriented.
3) During this stage, for the first time, supply exceeds the demand.
4) Sales of the product increase at a lower rate,
5) Only firms with extremely effective marketing programmes can survive in the
market in this stage.
6) Improvements in existing products are required to be made.
7) Prices are reduced in order to attract more customer and
8) Price competition becomes increasingly severe, the profit and retailers begin to
decline because of lowering of prices due to competition and rising marketing costs.
9) Profit of the firm is high.
10) Marginal producers are forced to go out of the market.

4. Saturation Stage or Stagnation Stage

During this stage, the market is saturated, as all the potential buyers
are using the products.

Features
1) This stage is a period of stability.
2) No further possibility of further increase in sales.
3) Markets are highly segmented during this stages.
4) Products of competitors become popular and invade the market.
5) Because of severe competition leads to reduction in price of the product.
6) Increase in distribution and promotional costs.
7) Profit margins come down unless the firm makes substantial improvement in the
product.
5. Decline and Obsolescence Stage
In the decline stage, the market is shrinking, reducing the overall amount of
profit that can be shared amongst the remaining competitors. At this stage, great
care has to be taken to manage the product carefully.

Features
1) Sales of the firm begin to decline due to various reasons.
2) As sales and profit decline, some firms may withdraw from the market.
3) Those remaining in the market may reduce the prices of their products and also
shift their attention to new products in order to compete.
4) The expenditure on advertising and sales promotion is also reduced, as the profit
margin comes down drastically.
5) Cost control becomes the key to generate profits.
6) Profit is declining.

# FACTORS AFFECTING THE LIFE CYCLE OF A PRODUCT.

1) Rate of technical change: If the rate of technical change in the country is very
high, the life of the product is limited. And vice versa.

2) Rate of customer acceptance: If the customers of a country accept a new

product very fast (Quickly and immediately, whenever introduced), the life cycle of
products in that country will be limited.

3) Ease of competitive entry: If the entry of competitors is easy, the life of the
products will be shorter, as new and new products will enter the market.

4) Risk-bearing capacity of the enterprise: If an enterprise has risk-bearing

capacity, it can face the challenge of the market very effectively. But an enterprise
which has no risk-bearing capacity may fail to face the challenge of the market. It
has to withdraw its products from the market.

5) Economic and managerial forces of the enterprise: Enterprises, which have

strong economic and managerial forces, can keep their products alive in the market,
and so, the life cycle of their products will be longer.

6. Protection by patents: The life cycle of the product is also affected by protection
by patents. If the patents are registered, the life cycle of the product will be fairly
long.

7. Goodwill or image of the enterprise: If an enterprise has goodwill or good image

in the market as the producer of good quality products, life cycle of the product is
high.

# NEW PRODUCT DEVELOPMENT PROCESS

MEANING & DEFINITION

A new product is a product which is a genuine innovation and which serves

nearly a new function in an entirely new day.
The term "NEW PRODUCT" can be defined as under

W.J. Stanton, M.J. Elzel and B.J. Walker define 'new product' as, "A new
product is one which is really innovative which is significantly different from existing
and imitative products that are new to the company."

# STAGES IN THE DEVELOPMENT OF INTRINSICALLY NEW

PRODUCT [COMPLETELY NEW PRODUCT]

The process of starting the production of a new product is called

the process of product development. Completely new product planning and
development goes through several important stages. They are-
1. Generation of new product idea
2. Evaluation or screening of product ideas
3. Business analysis of idea
4. Product development
5. Test marketing
6. Commercialisation or Market Introduction.

1. Generation of new product idea: The new product development process starts
with the generation of product ideas. Product idea generation means "Fusion of a
perceived need with the recognition of a technical opportunity"
It may originate from
• Inside and Outside the organisation. Usually idea about new product can be
collected from the scientists, management of the firm, employees of the firm,
salesmen, Firm's middlemen or distributors, suppliers, company's own research and
development departments, consumers and competitors etc.

• SWOT analysis- Company may review its strength, weakness, opportunities and
threats(SWOT) and come up with a good feasible idea.

2. Evaluation or screening of Product ideas: All product ideas cannot be

converted into products. Collected ideas should be screened and unworkable ideas
should be deleted, and only feasible and promising ideas should be selected for
further processing. Screening of ideas means critical evaluation of product ideas
generated by the firm, Many factors play a part here, these include:
• Company's Strength
• Company's Weakness
• Customer needs,
• Ongoing trends,
• Expected return on investment,
• Affordability etc.

3. Business Analysis of Ideas: It means evaluation of product ideas in depth in

order to determine its financial, competitive, manufacturing and marketing strength in
a given set of business environment. Marketing experts provide information on the
following aspects:
1. Estimated demand for the new product
2. Seasonal changes in its consumption and demand
3. Major competitors, their share in the market etc.
4. Nature of competition prevailing in the market
5. Cost-volume-profit analysis
6. Channels of distribution required
7. Steps taken for patent rights, advertising, packaging, branding
etc.

4. Product Development: In this stage the idea on paper is converted physical

product. Laboratory tests and other technical evaluations necessary to determine the
production feasibility of the product are also made.

5. Test Marketing: According to Philip Kotler "Test Marketing is the stage where the
entire product and marketing programme is tried out for the first time in a small
number of well-chosen and authentic sales environment”

Objectives of Test Marketing

1. To know the reactions of consumers in respect of a new product.
2. To know the reasons for which the consumers do not buy the new product.
3. To understand the improvements that may be introduced into the new product to
make it more popular
4. Develop an alternative product, if, during test marketing, it is felt that the product
cannot be marketed on a large scale.

Advantages of Test Marketing

1.It reveals the and shortcomings of the new product.
2.It provides an opportunity to the firm to know the reactions of the consumers to the
product.
3. It gives the firm an opportunity of making necessary improvements and
modifications in the new product before it is widely marketed.
4. It reveals the drawbacks and shortcomings of marketing efforts of the firm.
5. It is helpful in forecasting the sales of the new product.
6. It helps the firm in taking the right decision at the right time about the development
and commercialization of the new product.
7. It is a kind of risk control in the sense that it ensures avoidance
of costly business errors.

Procedure of Test Marketing

1.Determination of cities of test marketing.
2.Deciding about the duration of test marketing
3.Deciding about the information to be collected during the
period of test marketing
4. Action after the test

6. Commercialization or Market Introduction: It involves the launching of the

product with a full-scale marketing program me. It refers to the process of finally
deciding the product profiles, building up the requisite manufacturing and appropriate
marketing programme. Introducing the new product in the market for sale.
It includes the following Activities
• Deciding the characteristics of the product
• Procuring manufacturing facilities
• Building up an appropriate marketing mix
• Deciding about the package, branding and trade mark
• Introducing the product in the market.

# CONSUMER ADOPTION PROCESS

Philip Kotler recognizes Five steps in the Consumer adoption process.
1. Awareness
2. Interest
3. Evaluation
4. Trial
5. Adoption

1. Awareness Stage:-
• The customer become aware of the innovation in this stage.
• They are presented with the innovation but hold very limited knowledge regarding
the creation. The customer is aware of the product through discussing with either
with friends, relatives, salespeople or dealers.
• They even get a brief idea about the new product through various modes of
advertising.
• At this particular stage, the customer doesn't give much attention to the new
product.

2. Interest and information Stage:-

• The consumer at this stage takes an interest in the innovation and tries to collect
more information about the same.
• Customers collect more information from advertising media, salespeople, dealers,
current users, or directly from the company.
• They simply try to collect as much information about the product possible such as
its characteristics, price, traits, functions, risk, manufacture, brand, colour,
appearance, availability, services, and other relevant aspects.

3. Evaluation Stage:-
• The accumulated information is used to evaluate innovation.
• Consumers analyse all significant aspects of innovation like qualities, features,
performance, price, after-sales services etc. with the existing products to decide
whether the creation should be given a chance.

4. Trail:-
• At this stage, the buyer is willing to try or test the new product.
• The product is practically examined by trying out the innovation on a short scale to
get hands-on experience.
• For this, consumers can either buy the product or use free samples. This stage
proves to be an important one as it determines the purchase of the product.

5. Adoption and Post adoption Behaviour stage.

• If the trail of the product gives a satisfactory result, then the customer finally
decides to adopt or buy the innovation.
• Further decision on quantity, type, model, dealer, payment, and other issues are
made. After purchase, the product is consumed individually or jointly with other
members.

Post Adoption behaviour

Being the last stage of the consumer adoption process, it still is one
of the most important ones. If consumers are satisfied with the new purchase and
related services, they continue buying it repeatedly, and vice-versa becoming
a regular user of innovation.

###########

PRICING
In simple, Price is the Process of setting or deciding the price of a product by
using different pricing techniques. Pricing means the process of selecting the pricing
objectives, determining the possible range of prices, developing price strategies,
setting the final price, and implementing and controlling pricing decision.

DEFINITIONS
According to Prof. K .C. Kite "Pricing is a managerial task that involves
establishing pricing objectives, identifying the factors governing the price,
ascertaining their relevance and significance, determining the product value in
monetary terms and formulation of price policies and the strategies, implementing
and controlling them for the best results"
According to M.J. Jones and S.W. Jetty, "Pricing begins with an
understanding of the corporate mission, target markets, and the marketing
objectives; then pricing objectives are developed; next management estimates as to
extent of flexibility in establishing prices by studying costs and profits internally and
demand and competition externally; prices are, then set between these two extreme
ends by deciding price strategies in the light of objectives so set; specific methods
are used to set prices; final aspects in implementation and control that includes
effective monitoring to get feedback on consumer response and competitive
reaction."

# SIGNIFICANCE OF PRICING (Important)

I To the firm

1. To Determine firm's competitive position and Market share: It affects the

firm's competitive position and share in the market. If prices are too high, the
business loose its demand for the product. If prices are too low, the firm could not
able to recover its cost of production.
The wrong price can also negatively affect sales and cash flow
to the firm.

2.To achieve the financial goals of the company: For a given level of production,
higher price means a higher revenue and higher profitability. With the help of price; a
firm can make estimates of expected revenue and profits.
3. To Determine the quantity of production: The management of a firm can make
estimates of profit at different levels of production at different prices and can choose
the best combination of production, volume, and price.

4. To determine the product positioning and distribution in the market: The

sale of product is supported by extensive advertising and promotional campaigns.
What type of promotional techniques is to be used and how much cost will
be incurred. These decisions depend upon prospective revenues of the firm,
which again are influenced by the product price.

5. To determine the quality and variants in production: Before setting the price,
managers try to explore 'Will customers buy the product at that price'? To fit the
realities of the market place.
Ex: Samsung offers Samsung Grand for a medium-income group and Galaxy s 7.
Edge for a high-income group of customers.

6. To establish consistency with the other variables in the marketing mix:

Pricing decisions and policies directly influence the nature and quality of
product, its packaging, promotional policies, channels of distribution etc.

7.Helpful in maintaining system of free enterprise and long run survival of

firms: Pricing is the key activity in the economy of a country which permits system of
free enterprise. It influences factor prices, i.e., Wages, interest, rent and profit, by
regulating production and allocating resources in a better way.

8.Improvement in company's image: A Company's image is important to its

success and pricing helps to make that image. A Firm with an established reputation
for quality at existing price lines may introduce a new product at either higher or
lower prices to attract different market segments.

Il. To consumers:

1. Helpful in decision-making: Goods and services offered by various producers at

different prices help the consumer to make rational (after thinking) and informed
buying decisions.

2. Helps in satisfaction of needs: Goods and services offered by different

producers at different prices help the consumer to take that buying-decision which
will give him/her maximum satisfaction.

3. Helps determine the purchasing power and standard of

living of the consumer: If a consumer purchases expensive, luxury items, it implies
that he/she has a higher purchasing power and enjoy good standard of living and
vice versa.

4. Enhancement in social welfare: Pricing decisions affect the competitive strength

of the firm in the market. Quality goods are available at competitive price which
maximizing social welfare in society.
# FACTORS AFFECTING PRICING DECISIONS FOR A PRODUCT.

A. Internal Factors:
1. Cost of production: While fixing the prices of a product, the
firm should consider the cost involved in producing the
product. It includes Fixed and Variable cost.

2. The Pre-determined objectives: While fixing the prices of the product, the
marketer should consider the objectives of the firm.
If the objective of a firm is to increase return on investment, then it may
charge. a higher price, and if the objective is to capture a large market share, then it
may charge a lower price.

3. Image of the firm: The price of the product may also be determined on the basis
of the image of the firm in the market. For instance, HUL and Procter & Gamble can
demand a higher price for their brands, as they enjoy goodwill in the market.

4. Product life cycle: The stage at which the product is in its product life cycle also
affects its price. Introduction stage- high Price, decline stage- low price can be fixed
for the product.

5. Credit period offered: The pricing of the product is also affected by the credit
period offered by the company. Longer the credit period, higher may be the price,
and shorter the credit period, lower may be the price of the product.

6. Promotional Activity: If the firm incurs heavy advertising and sales promotion
costs, then the pricing of the product shall be kept high in order to recover the cost.

7. Marketing Objectives: Marketing objectives are internal factors that affect pricing
decision. Before setting price, the firm must decide on its price strategy for their
goods. If the company has already selected its target market and positioning
attentively, then its marketing mix strategy, with price, will be comparatively
straightforward. For example, when Toyota developed its Lexus brand to compete
with European luxurious cars in the higher-income segment, and it required charging
a high price. Thus, pricing strategy is mainly determined by decisions on market
positioning.

8. Distribution Channels: If the distribution channel is large, price of the product will
be high and if the distribution channel is short, the price of the product will be low.
Thus, these are the major factors that influence the pricing decisions.

9. Popularity of the brand: Price for the product can be fixed based on the
popularity of the brand of the company.

10. Marketing Mix: Marketing experts view price as only one of the many important
elements of the marketing mix. A shift in any one of the elements has an immediate
effect on the other three- Production, Promotion and Distribution. In some industries,
a firm may use price reduction as a marketing technique.
B. External Factors
1. Competition: Firm needs to study the degree of competition in the market.
If there is high competition, the prices may be kept low to effectively face the
competition, and if competition is low, the prices may be kept high.

2. Consumers: The marketer should consider various consumer factors while fixing
the prices. It includes the price sensitivity of the buyer, purchasing power
and, and on.

3.Govt. Control: Govt. rules and regulation must be considered while fixing the
prices. In certain products, government may announce administered prices, and
therefore the marketer has to consider such regulation while fixing the prices.

4. Economic Conditions: At the time of recession, the consumer may have less
money to spend, so the marketer may reduce the prices in order to influence the
buying decision of the consumers.

5. Channel intermediaries: The marketer must consider a number of channel

intermediaries and their expectations. The longer the chain of intermediaries, the
higher would be the prices of the goods.

6. Demand: The market demand of a product has an impact on the price of the
product, if the demand is inelastic then a higher price can be fixed, if the demand is
highly elastic then less price is to be fixed. When the demand for the goods is more
and the supply of the goods is constant, the price of the goods can be increased and
if the demand for the goods decreases the price of the goods should be decreased
to survive in the market.

7. Availability of Raw Material: The cost of raw materials affects how much of a
product a company can produce at any given time and what the cost of their finished
product will be. Raw materials costs can also vary based on quality. If the raw
material price is very high, then company has to fix high price for their products.

8. Trade Barriers: Trade barriers are often enacted to protect industries and
workers within a country. This is referred to as protectionism. For example, tariffs,
quotas and embargoes make foreign goods more expensive and less available. If
company comes under special economic zones then they need not to pay much
taxes to the government hence they can fix little low prices comparatively others.

9. Supplier: Suppliers of raw materials and other goods can have a significant effect
on the price of a product. If the price of cotton goes up, the increase is passed on by
suppliers to manufacturers. Manufacturers, in turn, pass it on to
consumers.
Sometimes, however, when a manufacturer appears to be making large
profits on a particular product, suppliers will attempt to make profits by charging
more for their supplies. In other words, the price of a finished product is intimately
linked up with the price of the raw materials. Scarcity or abundance of the raw
materials also determines pricing.
# PRICING POLICY

1] Cost Based Pricing: Cost-Based pricing (or the mark-up pricing) as the name
suggests, is a method to set the price of the goods or services based on the cost.
Under this, we add a percentage of the total cost to the cost itself to get the selling
price of the product. We can add an absolute amount to the cost as well. This
method generally uses manufacturing or production costs and distributing and selling
costs for setting the price.

2] Value Based Pricing: Value-based pricing is a strategy of setting prices primarily

based on a consumer's perceived value of a product or service. Value pricing is
customer-focused pricing, meaning companies base their pricing on how much
the customer believes a product is worth.

3] Competition Based: As the name suggests, competitor-based pricing is a pricing

strategy in which a company sets the price for its products after observing the
competition. However, this strategy does not cover initial costs and only takes into
account the selling price of the rivals' products.
To set the price of a product using competitor-based pricing company must
find the rival product that is exactly the same. Competitor-based pricing is one of the
basic pricing methods, along with cost-based pricing and market-based pricing. In
this post we will look at the methods of competitor-based pricing.

# PRICING STRATEGY

I] PRICING FOR A NEW PRODUCT AND PRICING FOR AN INNOVATIVE

PRODUCT: Pricing strategies usually change at different stages of a product's
life cycle. The most challenging phase of setting a pricing strategy is that of product
introduction. During this stage, marketers face the challenge of setting prices of
business offerings for the first time. There are two strategies that they can follow:

1. Price Skimming
2. Pricing for Market Penetration

1. Price Skimming: Price skimming is a product pricing strategy by which a firm

charges the highest initial price that customers will pay and then lowers it over time.
As the demand of the first customers is satisfied and competition enters the market,
the firm lowers the price to attract another, more price-sensitive segment of the
population.
Ex:- Sony, Apple Company's Product.

2. Pricing For Market Penetration: Penetration strategies aim to attract buyers by

offering lower prices on goods and services. Many new companies use this
technique to draw attention away from their competition. But penetration pricing does
lead to an initial loss of income for the business.
Ex:- Jio telecom India

II] PRODUCT MIX PRICING: The pricing strategy for each of the products is
different when company sell different set of products. This variation in pricing is
based on the costs, demand and the different level of competition that a product has
to face in the market. Accordingly, there are different product mix pricing strategies.

These include:
1] Product Line Pricing: Business have to set different prices for various offerings
in a product line in case if business offers different product lines. This price
differentiation takes into account cost differences between the products in a given
product line. Furthermore, it also considers customer perceptions with regards to the
value offered by different products in a given line.
For instance, HUL offers shampoos like Sunsilk and Dove for price conscious
consumers. While shampoos like TIGI and Toni and Guy are offered at premium
prices for high end customers.

2] Optional Product Pricing: Business have to add the price of accessories to the
base price of the product in case business offer accessory products along with the
main product. This means that accessories are given as an option to the customers.
Take for example the automobile industry. The basic price of a car is different from
the upper models offering functionalities like automatic windows, alloys, infotainment
system etc.

3] Captive Product Pricing: This pricing strategy is used by companies

manufacturing products that are essential for using the main product.
For example, in the case of razors, cartridges form captive products. Whereas the
razors act as main products. Companies like Gillette offer razors at low prices, but
makes huge amounts of money from the razor cartridges.

4] By Product Pricing: Some industries generate by-products as a result of

manufacturing goods. These by-products hold no value at times and it is a costly
affair to dispose them off. This scenario may lead to increasing the cost of the core
product. However, a company can sell these by-products to make for the higher cost
of disposing them off by using by-product pricing. Thus, this makes the price of the
core product competitive. For instance fruit seeds, peels etc that are the leftover in
the fruit juice processing can serve as raw material for cosmetic industry given its
medicinal properties.

5] Bundle Pricing: Bundle pricing means selling a package of goods or services for
a lower rate than what consumers would pay on purchasing each item individually.
This pricing strategy is more effective for companies that sell complimentary
products. For example, a restaurant can take advantage of bundle pricing
by including dessert with every entrée sold on a particular day of the week.

III PRICE ADJUSTMENT STRATEGIES

1. Psychology pricing: Refers to technique's marketers use to encourage

customers to respond on emotional levels rather than logical ones. It considers the
psychology of prices and not just the economics behind the pricing of product.
Hence, there are different ways in which a marketer can use psychology pricing.
These include:
• Offering discounts or buy one get one
• Differential pricing
• Price ending
• Just Rs 499.

2. Promotional Pricing: Sometimes, companies reduce product price below the

marked price or even below cost for a temporary period of time. This strategy is
followed in order to increase sales in the short run or to reduce inventories. This is
known as promotional pricing. This takes place in several forms. For instance, sellers
follow special event pricing at certain occasions in order to lure more customers.
Such occasions may include festivals, special occasions etc. These occasions
include independence day, women's day, festivals like Diwali, Christmas etc.

3 Discount and Allowance Pricing:

Discounts: Discount can be offered in different forms. These include cash discount,
quantity discount, trade discount and seasonal discount.
• Cash discount refers to offering products at prices for customers
making prompt cash payments.
• Quantity discount refers to offering products reduced prices to customers
who make bulk purchases. These discounts instigate the customers to purchase
more products from a single seller rather than approaching different sellers for
different products.
•Trade discount is offered by a seller to its channel partners for performing
various functions. These functions include selling, storing and record keeping. This
discount is also known as functional discount.
• Seasonal Discount refers to giving products at reduced prices to customers
who purchase merchandise or services during the off- season.

Allowances: Allowance refers to money paid by a brand to the retailers in return for
the retailer promoting the brand's products in some way or the other. Such
allowances come in two form:
• Trade in Allowances: Trade in allowances refer to the price reductions given by a
brand to the customers for returning an old item in lieu of purchasing the new one.
This pricing strategy is common in the durable goods industry such as furniture.
• Promotional Allowances: These include the promotional money or price reductions
given by a brand to its dealers as a reward for promoting its offerings.

4] Price discrimination: is a microeconomic pricing strategy where identical or

largely similar goods or services are sold at different prices by the same provider in
different markets.
Ex:-Bus fare- Students and public
Udupi to Mangalore"- 50 and 100
Same company cloth for children, young, old age at different price.
Ration for BPL and APL Card holder.