Notes MM-KMBN105 UNIT-III 20jan2024

MARKETING MANAGEMENT/ MBA (KMBN105) 1st SEM
UNIT – III
Product Decisions: Concept, product hierarchy, new product development:
Product Decisions (PD) (Theintactone): Are an essential aspect of the marketing mix and involve a series
of strategic choices made by a company to develop and manage its products offerings. These decisions
encompass various aspects of product, including its design, features, branding, packaging, and positioning.
Product Hierarchy (Marketing91):
Products can be organized in a hierarchy based on their basic components, which shows the relationship
between them. The hierarchy includes both essential components and specialized items that cater to
specific needs.
It also helps customers understand the differences between products that do the same function and those
with a slightly different purpose. By understanding how products are structured within the complete
range of the company’s products, customers can recognize the significant advantage that can be gained by
choosing one product over another.
The product hierarchy is a model that is used to arrange products logically in a tree structure based on
their hierarchical relationships. The use of a product hierarchy can assist in recognizing the similarities and
differences among your products, aiding in determining the most effective marketing strategies for your
goods.
Effective product hierarchy requires product classification which helps customers differentiate between
products from different categories. Such a classification leads to better identification of products that
suit their specific requirements.
Businesses use product hierarchy to organize their inventory for easier record-keeping. For example, if you
have a range of clothing items to sell, you can use the product hierarchy to categorize them into different
groups and subgroups.
A hierarchy can be used by businesses to organize their products or services, whether they have multiple
offerings or just one core offering. This can help both the customer and the business better understand
the structure of the offerings and improve marketing and sales efforts.
Product Hierarchy Examples

Apple Product Hierarchy Example
Product Need
At the base of the product hierarchy, we have ‘product need’. Apple products are developed to fulfil the
customer’s need for entertainment, communication, productivity, and information.
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Product Family
What other options does the user have to fulfill this basic need? In Apple’s case, they provide users with a
wide range of products such as laptops, tablets, phones, watches, etc.
Product Class
When it comes to product classes, Apple provides users with laptops and desktops that come in various
sizes and options. They also provide tablets, phones, watches, and accessories such as headphones, bags,
and power banks.
Product Line
Within each product class are multiple product lines. For example, the Apple laptop product class includes
the MacBook Pro line and MacBook Air line. The tablet product class consists of the iPad Pro, iPad Mini,
and iPad Line.
Product Type
Within each product line are multiple product types — MacBook Pro 13-inch with touch bar and MacBook
Pro 16-inch being examples from the laptop range. Similarly, for the tablet range, there are different
product types such as the iPad Air 2, iPad Pro 11-inch, and iPad mini.
Product Unit/Item
Finally, the product unit or item is the stock-keeping unit (SKU) of an individual device — for example, a
MacBook Pro 13-inch with a touch bar in Silver color and 2TB storage. This SKU can be used to identify the
exact model of Apple laptop the customer has purchased.
Why is a Hierarchy Important?
The way a business organizes its products (product hierarchy) is crucial because it can aid in managing
inventory and enhancing the customer experience.
Improving the organization of the purchasing experience can help customers easily find products based on
their features and price, and also allow for easy comparison with competing products. Creating a
hierarchy can also aid a company in conducting internal audits to ensure that each product meets the
appropriate criteria.
6 Product Hierarchy Levels

To define product hierarchy more effectively, you need to understand these product hierarchy levels –
1. Need
The term “product need” refers to the main reason for a product’s existence. It is the first category used
for organizing products and usually includes various types or classes of products.
For instance, products related to home improvement have needs like temperature regulation, insulation,
ventilation, and more. Even though there are numerous options available for these products, they are
grouped based on their common purpose. This makes it easier for customers to recognize and organize
them.
2. Family
A “family of products” usually refers to a group of products that meet the same basic customer needs.
These products may have different variations but still fulfill the same core needs.
For example, a customer may need a refrigerator to store food and drinks. There are many types of
refrigerators available, like top-freezer models, side-by-side models, and French door models. All these
products have the same need for temperature regulation but different features like size, style, color, and
energy efficiency.
3. Class
A product class refers to a specific category of services offered by a company. A vehicle manufacturer
produces personal vehicles for travel, categorizing them by different classes such as SUVs, sedans, and
luxury vehicles. The Product class assists customers in selecting among various specifications.
While any vehicle can facilitate travel, certain safety or mechanical features that may be required are only
available in specific vehicle classes.
4. Line
A product line refers to products that share similar features or prices. These products belong to the same
category and provide customers with a variety of options to choose from.
For example, a car manufacturer offers different vehicle lines such as ‘Compact Cars’ and ‘SUVs’ within the
same product class.
5. Type
A product type is a particular product that is part of a product line. This helps differentiate similar items
and enables customers to make more precise selections.
For example, a car manufacturer offers different types of SUVs, such as small crossover vehicles, mid-size
SUVs, and full-size SUVs. All these vehicles belong to the same product line and have different features like
size, mileage, engine power, etc.
6. Unit
A unit is a stand-alone product. Businesses often use the term stock-keeping unit (SKU) to refer to it.
Individual units are the specific items that belong to a product type and are what customers take home
after making a purchase. Each SKU within a product type has the same features and price as the other
SKUs in that same product type.
For example, a car manufacturer offers an SUV type with multiple SKUs that have different colours and
trim levels. The customer can purchase the specific car they want based on these individual units.
Product development (new product development -- NPD) (TechTarget):
What is product development?

Product development -- also called new product management -- is a series of steps that includes the
conceptualization, design, development and marketing of newly created or newly rebranded goods or
services. Product development includes a product's entire journey -- from the initial idea to after its
market release.
The objective of product development from a business standpoint is to cultivate, maintain and increase a
company's market share by satisfying consumer demand. From a customer standpoint, it's to ensure value
in the product as a quality good or service. Not every product will appeal to every customer or client base,
so defining the target market for a product is a critical step that must take place early in the product
development process. Organizations should conduct quantitative market research at all phases of the
design process, including before the product or service is conceived, while the product is being designed
and after the product has been launched.
Product Development Frameworks

Although product development is creative, it requires a systematic approach to guide the processes
required to get new products to market. Organizations such as the Product Development and
Management Association (PDMA) and the Product Development Institute (PDI) help organizations select
the best development framework for a new product or service. This framework helps structure the actual
product development.
Some frameworks, such as the fuzzy front end (FFE) approach, define the steps that should be followed
early in the development process, but leave it up to the product development team to decide in which
order the steps make the most sense for the specific product that's being developed. The five elements of
FFE product development are as follows:
 Identification of design criteria entails brainstorming possible new products. Once an idea has been
identified as a prospective product, a more formal product development strategy can be applied.
 Idea analysis requires a closer evaluation of the product concept. Market research and concept studies
are conducted to determine if the idea is feasible or within a relevant business context to the company
or to the consumer.
 Concept genesis involves turning an identified product opportunity into a tangible concept.
 Prototyping includes creating a rapid prototype for a product concept that has been determined to
have business relevance and value.
 Product development requires ensuring the concept is viable and has been determined to make
business sense and have business value.
Other frameworks, like Design thinking, have iterative steps that are designed to be followed in a
particular order to promote creativity and collaboration. The five components of design thinking are as
follows:
1. Empathize. Learn more about the problem from multiple perspectives.
2. Define. Identify the scope and true nature of the problem.
3. Ideate. Brainstorm solutions to the problem.
4. Prototype. Weed out unworkable or impractical solutions.
5. Test. Solicit feedback.
How to create a product development plan

The product development plan may change, depending on the organization creating it. However, a general
plan should include the following steps:
1. Identify a product need and business case. Using practices like test marketing and surveys,
organizations can gauge interest in a product. This helps ensure the product has a strong reason to be
created.
2. Create a product vision. This includes coming up with the project's scope, purpose for the product,
what it does, who it's for and the product design, while also crafting guiding principles for the
upcoming work.
3. Create a roadmap. Assess the project as a concept first to ensure good design work, then begin
crafting the roadmap. The roadmap aids in identifying what goals should be developed first.
Implementation teams create schedules, break down significant portions of the project into sprints
and generate iterations of the product.
4. Begin implementing the roadmap. Teams can then start implementing the project, following the
roadmap. Iterations of the product can be made, reviewed and improved upon. This helps identify
weak areas of the product and enables development teams to fix and improve the product.
5. Continue with development and assessments. Development teams can work on enhancements and
changes to the product. In this step, feedback can be gathered from customers to change the product
based on customer needs.
Stages of new Product Development

The new product development process consists of the following components:
Idea generation is the continuous and systematic quest for new product opportunities, including updating
or changing an existing product. The goal is to generate ideas for new products or services -- or
improvements to products or services -- that address a gap in the market.
Idea screening takes the less wanted product ideas out of the running. Unsuitable ideas should be
determined through objective consideration, early testing and feedback from consumers.
Concept development and testing is vital. The internal objective analysis is replaced by customer opinion
in this stage. The idea, or product concept at this point, must be tested on a true customer base. Further
development of the concept can be made according to the feedback. One example of concept
development is the prototypes developed by car manufacturers. These concept vehicles are made of clay
and shown at auto shows for consumer feedback.
Market strategy and business analysis identifies the product strategy of how to optimally market and sell
a product or service. It's comprised of the four P's of marketing -- product, price, promotion and place.
Product. The service or good that's been designed to satisfy the demand of a target audience.
Price. Pricing decisions affect everything, including profit margins, supply and demand as well as market
strategy.
Promotion. The goals of promotion are to present the product to the target audience -- increase demand
and illustrate the value of the product. Promotion includes advertisements, public relations and marketing
campaigns.
Place. The transaction may not occur on the web, but in the digital economy, customers are generally
engaged and converted on the internet. Whether the product is provided in a traditional brick-and-mortar
business setting or is available through an omnichannel approach, the optimal channel or channels must
be determined. This is especially true if the targeted potential customers are to become actual customers.
Feasibility analysis or study yields information critical to the product's success. It entails organizing groups
that will test a beta version or prototype of the product, then evaluate the experience in a test panel. This
feedback communicates the level of interest in the product by the target users. It also helps determine if
the product in development has the potential to be profitable, attainable and viable.
Questions to be answered during feasibility analysis include the following:

 Do you have the labor and materials required?
 What's the price of production, delivery and promotion?
 Do you have access to the right distribution channels?
Product technical design and product roadmap integrates the results of the feasibility analyses and
feedback into the product. This stage consists of turning that prototype or concept into a workable market
offering; ironing out the technicalities of the product; and alerting and organizing the departments
involved with the product launch. This includes research and development, finance, marketing, production
and operations. This step should also consist of creating a product roadmap that teams will follow to
develop the new product.
Test marketing or market testing is where the goal is to validate the entire concept -- from marketing
angle to packaging, advertising and distribution. Test marketing is often performed by offering the product
to a random sample of the target market. By testing the entire package before launch, an organization can
review the reception of its product before a full go-to-market investment is made.
Market entry and commercialization is the stage in which the product is introduced to the target market.
The product is now available to everyone and the product lifecycle begins. The life of the product is
shaped by the reception of the target market, the competition and subsequent enhancements to the
product.
Product development is an ever evolving and fluid process. In some organizations, there's a dedicated
team that researches and tests new products whereas smaller organizations may outsource their new
product development to a design team. In midsize organizations, the product manager is often the person
in charge of product development. Regardless of which framework is used and who is in charge of new
product development, this is just one aspect of the entire product lifecycle management (PLM).
Diffusion Process(UserGuiding):
What exactly is Product-Diffusion and How Does it Work?

Product diffusion, at its core, is the process of acceptance of a particular service or product by the target market,
being a part of the general market share as a result. It’s about the initial communication that starts when the
customers hear about a product, give it a try themselves, and share their experiences -creating an indirect influence
on the process- with other people.
Several theories exemplify the mechanics of diffusion. They are as follows:
The two-step hypothesis

This theory consists of information and acceptance flows through media, first to opinion leaders, then to
the general audience.
The trickle-down effect

This one explains how products tend to be a bit expensive at first, and as a result, they are only accessible
to the wealthy target audience. However, as time passes, they become less expensive and are become
reachable by more people.
This theory suggests that there are five categories of product adopters for any product category. And they
are:
1. Innovators – extroverts, highly educated, multiple sources, they are under the largest influence
2. Early Adopters – social leaders, educated, popular, potential adopters
3. Early Majority – lots of social contacts, deliberate
4. Late Majority – has traditional ideas, doubtful, lower socio-economic status
5. Laggards – Highly skeptical, main direct influences are mostly friends
Crossing the Chasm

This is a model developed by Geoffrey Moore. It overlays Rogers’ adoption curve with a chasm. Moore
thinks that marketers should focus on a single group of clients at a time, using each of them as a solid base
for the practice of marketing to the next group. Here, the tricky step is to make the transition between
Early – initial adopters- and the Early Majority. The chasm he constantly refers to is displaying this specific
challenge. Any business or a particular product that fails to cross this chasm will not be able to remain in
the market.
Technology-driven models
This model is especially relevant when it comes to software diffusion. In most cases, the adoption rate of
new technology is determined by critical factors such as the level of usefulness and ease of use.
And what exactly is the rate of diffusion?

The rate of successful diffusion indicates the pace with which the fresh idea spreads from one client to the
next.
According to Everett M. Rogers, the rate of diffusion is highly dependent on:
 The product’s advantages or benefits.
 The riskiness/delay of purchase.
 Ease of product use – complicatedness of the product.
 The immediacy of benefits.
 Observability.
 Cost.
The Everett Rogers Adoption Curve -also referred to as the product diffusion curve– is a theory that
demonstrates how individuals and large groups get adapted to new ideas and innovations. It also makes
us understand the characteristics of innovations, as well.
The diffusion of innovation pattern, when studied correctly, can be easily seen in people’s reactions to
innovations. Some of the most iconic diffusion of innovation examples can be recognized in many
historical milestones. On the other hand, technology adaptation examples appear in the process of
adoption of the printing press, in addition to the use of paper, naturally.
When we go further in Rogers’ theory, we can see the claims that people can be categorized based on
their rate of adoption. So, naturally, each group of people has a particular interest level, knowledge, and
enthusiasm about the service/product purchases and how hard they try to integrate this service into their
lives.
If we take the patterns we learned from the Rogers diffusion of innovation framework; we can say the way
to customer engagement goes through the five essential steps of technology adoption:
Knowledge.
Knowledge leads to awareness. And when this notion becomes repetitive, it increases the likelihood of
customer engagement. The tools that can help you with this stage are usually search marketing and, of
course, social networks to create a social influence as well.
Persuasion.
Naturally, as you start advertising your unique advantages and benefits, the likelihood of increasing your
customers’ interest will significantly rise. It’s basic marketing science.
Decision.
This part is a bit tricky since the actual buying commitments may happen under unpredictable
circumstances; you could step up your marketing strategies by paying extra attention to your advertising
at this point.
Implementation.
After the sale is closed, your new customer will need excellent communication and 24/7 support from
your teams to stick around for a long time.
Confirmation.
This is the part where the diffusion of innovation pattern is, let’s say, handled here. It’s where your
subscriber keeps on an ideal form of communication either directly or through online reviews, and shares
opinions about how well the whole diffusion process works out. Providing great customer service, is for
sure, the key ingredient to continued engagement.
Real-Life Example of Product Diffusion

Starbucks College Achievement Plan
Was introduced back in 2014. It was a plan that focused on helping young employees gain access to
college and get their bachelor’s degrees. The program was developed primarily for the vast majority of
undergraduate students who needed to work while studying to earn enough money to pay for tuition
costs and ended up hating the daily life of average Americans.
After a while, an increasing number of these employees dropped out of school simply because they had
difficulties managing the whole situation. This plan enabled these employees to receive full tuition
coverage from Starbucks to study whatever they want, choosing from over 70 online degree programs
provided through ASU and taught online by ASU faculty.
In addition to the financial support, each employee-student was able to receive support from a
professional counsellor, an advisor, and a success coach.
Where am I going with this?

See, the goal of Starbucks was to have 25,000 of their employees graduate via the College Achievement
Plan by 2025 with an average degree. The first year this plan was announced, the first graduates were only
3. This number soon -one year later- rose to 100, and by 2017, they were 330.
Philip Reiger, the CEO of EdPlus at ASU, estimated the number of graduates via the help of the program to
reach 1,000 by the end of 2017. This estimation soon proved to be correct since the graduating class from
the program in 2017 even exceeded 1,000 students while more than 9,000 employees were also current
students in the program as well.
What Reiger did not think about was the possibility of ASU partnering with other large companies. In
August 2017, ASU partnered with Adidas and they created a similar program in January 2018.
Long story short, this case of Starbucks College Achievement Plan in partnership with ASU can be
examined through Rogers’ Innovation Theory with some slight changes. Keeping in mind the four key
factors of diffusion -the innovation, communication channels, social system, and time- it’s obvious that
the notion of innovation in this Starbucks case is the practice of new online degree programs offered by
ASU to offer access to education and lead to achievement for employees. Communication of the plan also
took place via internal channels over time, ASU News and the website of the university, The Atlantic
Magazine, and online journals as well as presentations, interviews, and of course, word of mouth.
Next, the social system and culture at Starbucks that created room for this innovation began at the
founding of the company. Starbucks CEO Howard Schultz stated that he has always dreamt of a company
based on providing opportunities, hiring veterans, refugees, and the youth that’s at risk.
And finally, the time given for the plan’s implementation began approximately from 2017 to 2025 and
most possibly even beyond.
Product Life Cycle(CFI):

The Product Life Cycle (PLC) defines the stages that a product moves through in the marketplace as it
enters, becomes established, and exits the marketplace. In other words, the product life cycle describes
the stages that a product is likely to experience. It is a useful tool for managers to help them analyze and
develop strategies for their products as they enter and exit each stage.
Stages in the Product Life Cycle

The four stages in the product life cycle are:
1. Introduction
2. Growth
3. Maturity
4. Decline
1. Introduction Stage
When a product first launches, sales will typically be low and grow slowly. In this stage, company profit is
small (if any) as the product is new and untested. The introduction stage requires significant marketing
efforts, as customers may be unwilling or unlikely to test the product. There are no benefits
from economies of scale, as production capacity is not maximized.
The underlying goal in the introduction stage is to gain widespread product recognition and stimulate
trials of the product by consumers. Marketing efforts should be focused on the customer base of
innovators – those most likely to buy a new product. There are two price-setting strategies in the
introduction stage:
 Price skimming: Charging an initially high price and gradually reducing (“skimming”) the price as the
market grows.
 Price penetration: Establishing a low price to quickly enter the marketplace and capture market share,
before increasing prices relative to market growth.
2. Growth Stage
If the product continues to thrive and meet market needs, the product will enter the growth stage. In the
growth stage, sales revenue usually grows exponentially from the take-off point. Economies of scale are
realized as sales revenues increase faster than costs and production reaches capacity.
Competition in the growth stage is often fierce, as competitors introduce similar products. In the growth
stage, the market grows, competition intensifies, sales rise, and the number of customers increases. Price
undercutting in the growth stage tends to be rare, as companies in this stage can increase their sales by
attracting new customers to their product offerings.
3. Maturity Stage
Eventually, the market grows to capacity, and sales growth of the product declines. In this stage, price
undercutting and increased promotional efforts are common as companies try to capture customers from
competitors. Due to fierce competition, weaker competitors will eventually exit the marketplace – the
shake-out. The strongest players in the market remain to saturate and dominate the stable market.
The biggest challenge in the maturity stage is trying to maintain profitability and prevent sales from
declining. Retaining customer brand loyalty is key in the maturity stage. In addition, to re-innovate itself,
companies typically employ strategies such as market development, product development, or marketing
innovation to ensure that the product remains successful and stays in the maturity stage.
4. Decline Stage
In the decline stage, sales of the product start to fall and profitability decreases. This is primarily due to
the market entry of other innovative or substitute products that satisfy customer needs better than the
current product. There are several strategies that can be employed in the decline stage, for example:
 Reduce marketing efforts and attempt to maximize the life of the product for as long as possible (called
milking or harvesting).
 Slowly reducing distribution channels and pulling the product from underperforming geographic areas.
Such a strategy allows the company to pull the product out and attempt to introduce a replacement
product.
 Selling the product to a niche operator or subcontractor. This allows the company to dispose of a low-
profit product while retaining loyal customers.
Product Mix Strategies (goals):

A product mix strategy is a marketing strategy that analyzes the company’s existing products and allocates
resources and efforts on product lines and individual products to best promote them to a specific market
or audience and in this way to maximize the company’s growth and market share.
Product Mix Dimensions

A product mix has four key dimensions
 Width, or breadth, is the number of product lines that a company has.
 Length is the total number of products in all product lines combined.
 Depth is the number of product variations in an individual product line.
 Consistency shows how closely product lines are interrelated in the context of their goal, production
process, and distribution channels. This dimension is particularly important if a company wishes to
establish itself as a recognizable brand.
Product Mix Strategies

To make a product mix work, there exist several strategies that can be chosen based on the company’s
goals.
Roughly speaking, there are four key product mix strategies:
Expansion: When a company increases the number of product lines that can even be unrelated to the
existing product. This is usually done when a company feels that it cannot stand in the market with the
existing portfolio.
Contraction: When a company eliminates some product lines or individual products that are not profitable
enough or to simplify remaining products. In this case, a company decides to focus only on the most
profitable models or lines. of dropping or eliminating one or more product lines or product items. Here,
fat product lines are made thin. Some models or varieties, which are not profitable, are eliminated.
Alteration of existing products: When a company improves existing products in terms of features,
qualities, or performance instead of developing new ones. This strategy is less risky compared to creating
a new product from scratch.
Product differentiation: When a company starts positioning a product as a superior choice to competition
without making alterations to its features, qualities, or price. In this case, a company relies on effective
salesmanship, aggressive advertising campaigns and clever promotion techniques to convince its target
audience that their product offers better performance or higher quality.
Besides, there are complementary strategies that include:
Deepening depth: When a company expands existing product lines with more models or varieties.
Developing new uses: When a finds new use cases for existing product lines or products. Rather than changing the
product lines, a company suggests new occasions or scenarios when a product can be used.
Trading up: When a company expands an existing line with a higher-cost or more prestigious product to an existing
line to improve their brand image and goodwill. Adding a higher-end product also encourages demand for cheaper
products in the line.
Trading down: Contrary to trading up, a company adds a cheaper variety to an existing line of high-cost products to
attract new customers who cannot afford the original versions. A company adds a lower-cost product to an existing
line of higher-cost products.
Packaging / Labeling: Packaging as a Marketing Tool (toppr):
We know about the four very important P’s of a marketing mix, namely Product, price, Place and Promotion.
But did you know that many consider another P that is equally important- Packaging. That’s right; packaging of
a product is a very important factor in marketing.
Packaging
As we know first impressions go a very long way in how people perceive anything. This is the same idea that
companies implement via their packaging. The outer appearance of the product (the package) is the first
thing a potential customer will see, and so it can be a great marketing tool for the product.
In fact, the package of a product serves multiple practical purposes as well. Let us take a look at some of the
uses and functions that it serves.
 Protection: The first and the most obvious use of packaging is protection. It physically protects the goods
from damage that may be caused due to environmental factors. It is the protection against breaking,
moisture, dust, temperature changes etc.
 Information Transmission: Packaging and labelling are essential tools to inform the customer about the
product. They relay important information about directions for use, storage instructions, ingredients,
warnings, helpline information and any government required warnings.
 Convenience: Goods have to be transported, distributed, stored and warehoused during their journey
from production to consumption. Packaging will make the process of handling goods more convenient
for all parties involved.
 Security: To ensure that there is no tampering with the goods packaging is crucial. The package of a
product will secure the goods from any foreign elements or alterations. High-quality packages will
reduce the risk of any pilferage.
Packaging as a Marketing Tool

Effective packaging can actually help a company attract consumers to their product. It can be the tool that
sets apart their product in a vast sea of options that the consumer has at their disposal. A good packaging can
actually add to the perceived value of a product.
There are some effective techniques one can use to ensure that your product package is a great marketing
tool for your product. Let us take a look at some elements that you can incorporate into a package to make it
more effective.
Capturing Attention
One important aspect of a package is that it must draw the attention of a potential customer when it is sitting
on a shelf. It does not have to be the loudest or brightest package, but it must be unique in some way.
Sometimes simplicity could be what sets it apart. Other factors could be the shape, the colour scheme or
even the texture of the package.
Brand and Product Names should be very Clear
It is of absolute attention that your packaging draws maximum attention to your brand name. The customer
will not buy a product if they do not know whose product they are buying. And clearly displaying your brand
name is also a good branding strategy.
Point out to Benefits
Your product may have certain unique elements or benefits. Your packaging should draw attention to such
benefits; it is a huge selling point. For example, if the product is ‘organic’ or has ‘no preservatives’ it should
say soon the package and be displayed prominently.
Designed with the Target Audience in Mind

The company must be clear on whom the packaging is designed to attract and impress. Say the target
audience is youth, and then the design can be abstract and modernistic. But say the target customers are
senior citizens, and then the design should be clear and specific. Designing your packaging for a target
audience is not always easy but certain criteria can be followed.
Role of Labeling in Packaging (openstax):
Creating Value through Packaging and Labeling
If you have ever purchased from Apple, you know the power of sleek packaging. Apple is known for its
simple white design packaging with metallic logos. Products are visually appealing in their packages, and
unboxing an Apple product feels like an experience. Apple’s packaging is as innovative as its products,
which brings us to an important lesson in packaging. The package and label must represent the brand
effectively (see Figure 9.10). While not one of the 4Ps of marketing, packaging is an important element of
the marketing mix based on its close tie to the product. Packaging is also a critical shopper marketing tool
as related to place. And, certainly, effective packaging can be its own form of promotion.
A package essentially serves as a container for the product. It has a functional purpose to protect the
product from harm. Package designers are first and foremost concerned with protecting the product and
secondarily with designing an appealing package and label that piques interest on store shelves and online
retailers’ websites.
There are a variety of benefits to effective packaging and labeling. The first is that consumers see
packaging before seeing a product. This provides a sensory experience that can influence a purchase.
Colors, fonts, and logos can appeal to the eye, while packaging material can appeal to the sense of touch.
These clues give a customer a sense of what to expect inside the package.
Additionally, the package reflects the brand, cuing the customer in to the brand feeling. For
example, LaCroix is flavored carbonated water sold in brightly colored cans. The cans, as seen below,
attempt to make the customer feel the excitement of opening a tasty carbonated beverage (see Figure
9.11).
Pricing Decisions: Pricing concepts for establishing Value (investopedia):
What Is 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-based pricing is customer-focused, meaning companies base their pricing on
how much the customer believes a product is worth.
Value-based pricing is different from cost-plus pricing, which factors the costs of production into the pricing
calculation. Companies that offer unique or highly valuable features or services are better positioned to take
advantage of the value-based pricing model than companies that chiefly sell commoditized items.
 Value-based pricing is based on a consumer’s perceived value of the product or service in question.
 Value-based pricing means that companies base their pricing on how much the customer believes a
product is worth.
 Unique and highly valuable products are best-positioned to take advantage of the value-based pricing
model.
 Commoditized items are poorly positioned to use value-based pricing.
 Value-based pricing is different from cost-plus pricing, which factors the costs of production into
pricing.
Understanding Value-Based Pricing

The value-based pricing principle mainly applies to markets in which possessing an item enhances a
customer’s self-image or facilitates unparalleled life experiences. To that end, this perceived
value reflects the worth of an item that consumers are willing to assign to it, and consequently directly
affects the price that the consumer ultimately pays.
Although pricing value is an inexact science, the price can be determined with marketing techniques. For
example, luxury automakers solicit customer feedback that serves to quantify customers’ perceived value
of their experiences driving a particular car model. As a result, sellers can use the value-based pricing
approach to establish a vehicle’s price going forward.
Characteristics Needed for Value-Based Pricing

Any company engaged in value-based pricing must have a product or service that differentiates itself
from the competition. The product must be customer-focused, meaning that any improvements and
added features should be based on the customer’s wants and needs. Of course, the product or service
must be of high quality if the company’s executives are looking to have a value-added pricing strategy.
The company must also have open communication channels and strong relationships with its customers.
In doing so, companies can obtain feedback from customers regarding the features they’re looking for in
a product as well as how much they’re willing to pay.
For companies to develop a successful value-based pricing strategy, they must invest a significant
amount of time with their customers to determine their wants.
Scenarios in Which Value-Based Pricing Is Used
There are countless scenarios in which value-based pricing may be an appropriate strategy. A few
potential value-based pricing scenarios include:
 Convertible. A convertible is perceived as a prestigious, luxury vehicle that draws attention in a way
that traditional automobiles typically do not. A luxury automaker may attempt to highlight the
prestige of its brand by increasing the price as a signal for how exclusive its products are.
 Housing. Many housing markets are subject to inelastic demand, meaning that demand remains high
for homes regardless of whether prices are relatively lower or higher. Particularly in a seller’s market,
where buyer demand is especially high, lowering the price of a home will have very little impact on the
likelihood that it will sell. In this case, buyers must consider the perceived value of a house before
making an offer, as another buyer will likely swoop in if they don’t act quickly.
 Milk. Some products are subject to value-based pricing without being luxury goods or those with
inelastic demand. Milk is a good example of a product in this category. Many different brands of milk
are available for sale at most grocery stores, but the price across comparable products is usually quite
close. A reason for this is that in a highly competitive, price-sensitive market such as milk products, the
price of goods typically settles at what customers are willing to pay. Because one carton of milk is
essentially interchangeable with another, sellers have incentives to sell for the lowest reasonable
price.
 Swiffer pads. Branded products with add-ons or replacement components are another example of a
value-based pricing opportunity. Customers who buy a Swiffer Sweeper will receive a small number of
sweeping pads with the initial purchase. Once those run out, they will have to decide whether to buy
additional Swiffer brand pads as replacements or look for alternatives in brands that may not fit their
Sweeper. Swiffer can charge more for replacement pads if customers need to use that particular
brand because they are the only ones that fit exactly.1
Types of Value-Based Pricing

There are two types of value-based pricing: good value pricing and value-added pricing. A brief
description of each is below.
Good Value Pricing
Good value pricing refers to the practice of pricing a product based on its quality or the service that it
provides to a customer.
Value-Added Pricing
Value-added pricing refers to the practice of pricing a product based on the perceived value that
products and their features add for a customer. Sellers attempt to determine what customers believe the
value of a particular feature of the product is worth and price the product accordingly
Difference Between Value-Based Pricing and Cost-Based Pricing

An alternative pricing method to value-based pricing is cost-based pricing, also known as cost-plus
pricing.
Value-based pricing is dependent on the value that customers are willing to assign to or pay for particular
products, features, and services. On the other hand, cost-based pricing assigns a selling price to an item
by factoring in the costs associated with producing that item. Once those costs are tallied, a markup is
added to the final price to generate a profit.
Advantages and Disadvantages of Value-Based Pricing

Value-based pricing offers a number of pros and cons for sellers. Some of the potential advantages
include:
 May lead to higher price points

 Possibly increases brand value
 Promotes customer loyalty
 Establishes how much a customer is willing to pay for a product
 Helps to incorporate customer feedback in designing future products
Some of the possible disadvantages of value-based pricing include:
 Requires a significant investment of time and resources to collect customer data

 Perceptions of value can change over time
 It can be difficult to set a price that works for every customer
 It’s a process that is neither exact nor with guaranteed results
What is value-based pricing?

Value-based pricing assesses customers’ perceived value of a product, as well as its features and services,
and assigns a price to that product based on this data.
What are 2 types of value-based pricing?

Value-based pricing can be applied to a wide range of products, but two of the most common are luxury
fashion items and consumer staples such as milk.
What are the advantages of value-based pricing?

Value-based pricing can allow a seller to increase the price of an item to the highest level that customers
will be willing to pay. It can help to promote customer and brand loyalty. It can also help to drive
innovations in future products based on greater knowledge of the features that customers value the
most.
The 5 most common Pricing Strategies (bdc):

There are a host of factors to consider when pricing your product
Cost-plus pricing. Calculate your costs and add a mark-up.

Competitive pricing. Set a price based on what the competition charges.
Price skimming. Set a high price and lower it as the market evolves.
Penetration pricing. Set a low price to enter a competitive market and raise it later.
Value-based pricing. Base your product or service’s price on what the customer believes it’s worth.
Finding your Ideal Price

So how do you get to an ideal price, the “sweet spot” that will deliver the most profit given your
circumstances?
Effect of price on profit
“Pricing is one decision that shouldn’t be driven by accounting,” says Dolansky. He says that arriving at an
ideal price means taking into account factors that some entrepreneurs may overlook.
Finding the right Price Range

Your customer needs to find that your price falls within their range of what’s acceptable, and your ability
to price is constrained by your costs.
In the chart below, the floor of your pricing is your total costs for what you’re selling. The ceiling, or
highest price, is the number at which your customer values your offer. Above this price, you lose the sale
because the customer feels that your price exceeds the value he or she gets from your offer.
Between the floor and ceiling sits a price your customer will find acceptable.
Price floor and price ceiling
To choose the right price within your customer’s acceptable range, consider the main factors that affect
price:
 operating costs
 scarcity or abundance of inventory
 shipping costs
 fluctuations in demand
 your competitive advantage
 perception of your price
Choosing the Right Pricing Strategy

1. Cost-plus pricing
Many businesspeople and consumers think that cost-plus pricing, or mark-up pricing, is the only way to
price. This strategy brings together all the contributing costs for the unit to be sold, with a fixed
percentage added onto the subtotal.
Dolansky points to the simplicity of cost-plus pricing: “You make one decision: How big do I want this
margin to be?”
2. Competitive pricing
“If I’m selling a product that’s similar to others, like peanut butter or shampoo,” says Dolansky, “part of
my job is making sure I know what the competitors are doing, price-wise, and making any necessary
adjustments.”
That’s competitive pricing strategy in a nutshell.
You can take one of three approaches with competitive pricing strategy:
Co-operative pricing
In co-operative pricing, you match what your competitor is doing. A competitor’s one-dollar increase leads
you to hike your price by a dollar. Their two-dollar price cut leads to the same on your part. By doing this,
you’re maintaining the status quo.
Co-operative pricing is similar to the way gas stations price their products for example.
The weakness with this approach, Dolansky says, “is that it leaves you vulnerable to not making optimal
decisions for yourself because you’re too focused on what others are doing.”
Aggressive pricing
“In an aggressive stance, you’re saying ‘If you raise your price, I’ll keep mine the same,’” says Dolansky.
“And if you lower your price, I’m going to lower mine by more. You’re trying to increase the distance
between you and your competitor. You’re saying that whatever the other one does, they better not mess
with your prices or it will get a whole lot worse for them.”
Clearly, this approach is not for everybody. A business that’s pricing aggressively needs to be flying above
the competition, with healthy margins it can cut into.
The most likely trend for this strategy is a progressive lowering of prices. But if sales volume dips, the
company risks running into financial trouble.
Dismissive pricing
If you lead your market and are selling a premium product or service, a dismissive pricing approach may
be an option.
In such an approach, you price as you wish and do not react to what your competitors are doing. In fact,
ignoring them can increase the size of the protective moat around your market leadership.
Is this approach sustainable? It is, if you’re confident that you understand your customer well, that your
pricing reflects the value and that the information on which you base these beliefs is sound.
On the flip side, this confidence may be misplaced, which is dismissive pricing’s Achilles’ heel. By ignoring
competitors, you may be vulnerable to surprises in the market.
3. Price skimming
Companies use price skimming when they are introducing innovative new products that have no
competition. They charge a high price at first, then lower it over time.
Think of televisions. A manufacturer that launches a new type of television can set a high price to tap into
a market of tech enthusiasts (early adopters). The high price helps the business recoup some of its
development costs.
Then, as the early-adopter market becomes saturated and sales dip, the manufacturer lowers the price to
reach a more price-sensitive segment of the market.
Dolansky says the manufacturer is “betting that the product will be desired in the marketplace long
enough for the business to execute its skimming strategy.” This bet may or may not pay off.
Risks of price skimming

Over time, the manufacturer risks the entry of copycat products introduced at a lower price. These
competitors can rob all sales potential of the tail-end of the skimming strategy.
There is another earlier risk, at the product launch. It’s there that the manufacturer needs to demonstrate
the value of the high-priced “hot new thing” to early adopters. That kind of success is not a given.
If your business markets a follow-up product to the television, you may not be able to capitalize on a
skimming strategy. That’s because the innovative manufacturer has already tapped the sales potential of
the early adopters.
4. Penetration pricing
“Penetration pricing makes sense when you’re setting a low price early on to quickly build a large
customer base,” says Dolansky.
For example, in a market with numerous similar products and customers sensitive to price, a significantly
lower price can make your product stand out. You can motivate customers to switch brands and build
demand for your product. As a result, that increase in sales volume may bring economies of scale and
reduce your unit cost.
A company may instead decide to use penetration pricing to establish a technology standard. Some video
console makers (e.g., Nintendo, PlayStation, and Xbox) took this approach, offering low prices for their
machines, Dolansky says, “because most of the money they made was not from the console, but from the
games.”
Can you combine pricing strategies?

Some of these pricing strategies can co-exist as your product evolves through its lifecycle in the market;
some elements must coexist. You need an overall price strategy (e.g., cost-based or value-based), you
need to determine generally how high or low the price will be (skimming and penetration pricing), and you
need to respond to competitors (competition-based pricing).
For example, you may want to initially price your product using a value-based approach, then switch to a
skimming strategy and conclude with penetration pricing.
New Product Pricing:
Why Pricing Is so crucial to get right In a Product Launch
Pricing is one of the most important aspects of launching a new product. If you price too high, you may
not get the sales you need to make your product profitable. On the other hand, if you price too low, you
may sell many units but not make enough profit to sustain your business.
It's essential to do your research and find out what similar products are selling for before you launch your
own product. You'll also want to consider your production costs and what kind of margin you need to
make a profit. Once you understand the market and your expenses, you can start to develop a pricing
strategy for your new product.
You can use a few different pricing strategies when launching a new product. You can price at the high
end, middle of the road, or low end of the market. You can also offer discounts or promotions to entice
customers to buy your product.
No matter what pricing strategy you choose, it's essential to be consistent with your pricing across all
channels. If customers see that your product is priced differently on different websites or stores, they may
be less likely to purchase it. In addition, keeping your pricing consistent will help build trust with potential
customers.

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MARKETING MANAGEMENT/ MBA (KMBN105) 1st SEM

Product Decisions: Concept, product hierarchy, new product development:

Product Hierarchy (Marketing91):

Product Hierarchy Examples

Why is a Hierarchy Important?

6 Product Hierarchy Levels

Product development (new product development -- NPD) (TechTarget):

What is product development?

Product Development Frameworks

How to create a product development plan

Stages of new Product Development

Questions to be answered during feasibility analysis include the following:

What exactly is Product-Diffusion and How Does it Work?

The two-step hypothesis

The trickle-down effect

Crossing the Chasm

And what exactly is the rate of diffusion?

Real-Life Example of Product Diffusion

Where am I going with this?

Product Life Cycle(CFI):

Stages in the Product Life Cycle

Product Mix Strategies (goals):

Product Mix Dimensions

Product Mix Strategies

Roughly speaking, there are four key product mix strategies:

Besides, there are complementary strategies that include:

Packaging / Labeling: Packaging as a Marketing Tool (toppr):

Packaging as a Marketing Tool

Designed with the Target Audience in Mind

Role of Labeling in Packaging (openstax):

Creating Value through Packaging and Labeling

Pricing Decisions: Pricing concepts for establishing Value (investopedia):

What Is Value-Based Pricing?

Understanding Value-Based Pricing

Characteristics Needed for Value-Based Pricing

Types of Value-Based Pricing

Difference Between Value-Based Pricing and Cost-Based Pricing

Advantages and Disadvantages of Value-Based Pricing

 May lead to higher price points

 Helps to incorporate customer feedback in designing future products

Some of the possible disadvantages of value-based pricing include:

 Requires a significant investment of time and resources to collect customer data

What is value-based pricing?

What are 2 types of value-based pricing?

What are the advantages of value-based pricing?

The 5 most common Pricing Strategies (bdc):

Cost-plus pricing. Calculate your costs and add a mark-up.

Finding your Ideal Price

Finding the right Price Range

Choosing the Right Pricing Strategy

Risks of price skimming

Can you combine pricing strategies?

New Product Pricing:

Why Pricing Is so crucial to get right In a Product Launch

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