Module II Marketing mix Marketing mix: meaning - product, product mix- product life cycle - importance of branding -packaging

and labelling. Marketing mix Marketing identifies consumers needs and supplies various goods and services to satisfy those needs most effectively. So the businessman needs to: (a) produce or manufacture the product according to consumers need; (b) make available it at a price that the consumers find reasonable; (c) supply the product to the consumers at different outlets they can conveniently approach; and (d) inform the consumers about the product and its characteristics through the media they have access to. So the marketing manager concentrates on four major decision areas while planning the marketing activities, namely, (i) products, (ii) price, (iii) place (distribution) and (iv) promotion. These 4 Ps are called as elements of marketing and together they constitute the marketing mix. All these are inter-related because a decision in one area affects decisions in other areas. According to Philip Kotler Marketing Mix is the set of controllable variables that the firm can use to influence the buyers response. The controllable variables in this context refer to the 4 Ps [product, price, place (distribution) and promotion]. Product : Product refers to the goods and services offered by the organisation. All these are purchased because they satisfy one or more of our needs. We are paying not for the tangible product but for the benefit it will provide. So, in simple words, product can be described as a bundle of benefits which a marketeer offers to the consumer for a price. Product can also take the form of a service like an air travel, telecommunication, etc. Thus, the term product refers to goods and services offered by the organisation for sale. Price: Price is the amount charged for a product or service. It is the second most important element in the marketing mix. Fixing the price of the product is a tricky job. Many factors like demand for a product, cost involved, consumers ability to pay, prices charged by competitors for similar products, government restrictions etc. have to be kept in mind while fixing the price. In fact, pricing is a very crucial decision area as it has its effect on demand for the product and also on the profitability of the firm.

Place: Goods are produced to be sold to the consumers. They must be made available to the consumers at a place where they can conveniently make purchase. The organisation has to decide whether to sell directly to the retailer or through the distributors/wholesaler etc. Promotion: If the product is manufactured keeping the consumer needs in mind, is rightly priced and made available at outlets convenient to them but the consumer is not made aware about its price, features, availability etc, its marketing effort may not be successful. Therefore promotion is an important ingredient of marketing mix as it refers to a process of informing, persuading and influencing a consumer to make choice of the product to be bought. Promotion is done through means of personal selling, advertising, publicity and sales promotion.

PRODUCT
Product refers to the goods and services offered by the organisation for sale. Here the marketers have to recognise that consumers are not simply interested in the physical features of a product but a set of tangible and intangible attributes that satisfy their wants. For example, when a consumer buys a washing machine he is not buying simply a machine but a gadget that helps him in washing clothes. It also needs to be noted that the term product refers to anything that can be offered to a market for attention, acquisition, or use. Thus, the term product is defined as anything that can be offered to a market to satisfy a want. It normally includes physical objects and services. In a broader sense, however, it not only includes physical objects and services but also the supporting services like brand name, packaging accessories, installation, after sales service etc. William J. Stanton Product is a set of tangible and intangible attributes including packaging, colour, price, manufacturers prestige, retailers prestige and manufacturers and retailers services which buyer may accept as offering satisfaction of wants and services. Jerome McCarthy A product is more than just a physical product with its related functional and aesthetic features. It includes accessories, installation, instructions on use, the package, perhaps a brand name, which fulfills some psychological needs and the assurances that service facilities will be available to meet the customer needs after the purchase. PRODUCT CLASSIFICATION Product can be broadly classified on the basis of (1) use, (2) durability, and (3) tangibility.

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1. Based on use, the product can be classified as: (a) Consumer Goods; and (b) Industrial Goods. (a) Consumer goods: Goods meant for personal consumption by the households or ultimate consumers are called consumer goods. This includes items like toiletries, groceries, clothes etc. Based on consumers buying behaviour the consumer goods can be further classified as : (i) Convenience Goods; (ii) Shopping Goods; and (iii) Speciality Goods. (i) Convenience Goods : convenience goods are bought frequently without much planning or shopping effort and are also consumed quickly. Buying decision in case of these goods does not involve much pre-planning. Such goods are usually sold at convenient retail outlets. (ii) Shopping Goods: These are goods which are purchased less frequently and are used very slowly like clothes, shoes, household appliances. In case of these goods, consumers make choice of a product considering its suitability, price, style, quality and products of competitors and substitutes, if any. In other words, the consumers usually spend a considerable amount of time and effort to finalise their purchase decision as they lack complete information prior to their shopping trip. It may be noted that shopping goods involve much more expenses than convenience goods. (iii) Speciality Goods : Because of some special characteristics of certain categories of goods people generally put special efforts to buy them. They are ready to buy these goods at prices at which they are offered and also put in extra time to locate the seller to make the purchase. In fact, prior to making a trip to buy the product he/she will collect complete information about the various brands. Examples of speciality goods are cameras, TV sets, new automobiles etc. (b) Industrial Goods: Goods meant for consumption or use as inputs in production of other products or provision of some service are termed as industrial goods. These are meant for non-personal and commercial use and include (i) raw materials, (ii) machinery, (iii) components, and (iv) operating supplies (such as oil, stationery etc). 2. Based on Durability, the products can be classified as : (a) Durable Goods; and (b) Non-durable Goods. (a) Durable Goods : Durable goods are products which are used for a long period i.e., for months or years together. Examples of such goods are refrigerator, car, washing machine etc. Such goods generally require more of personal selling efforts and

have high profit margins. In case of these goods, sellers reputation and presale and after-sale service are important determinants of purchase decision. (b) Non-durable Goods: Non-durable goods are products that are normally consumed in one go or last for a few uses. Examples of such products are soap, salt, pickles, sauce etc. These items are consumed quickly and we purchase these goods more often. Such items are generally made available by the producer through large number of convenient retail outlets. Profit margins on such items are usually kept low and heavy advertising is done to attract people towards their trial and use. 3. Based on tangibility, the products can be classified as: (a) Tangible Goods; and (b) Intangible Goods. (a) Tangible Goods : Most goods, whether these are consumer goods or industrial goods and whether these are durable or non-durable, fall in this category as they have a physical form, that can be touched and seen. Thus, all items like groceries, cars, rawmaterials, machinery etc. fall in the category of tangible goods. (b) Intangible Goods : Intangible goods refer to services provided to the consumers. Services are essentially intangible activities which provide want or need satisfaction. Medical treatment, postal, banking and insurance services etc., all fall in this category.

Product Line A product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. For example, Nike produces several lines of athletic shoes, Motorola produces several lines of telecommunications products, and AT&T offers several lines of longdistance telephone services. PRODUCT MIX.

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A product mix (or product assortment) consists of all the product lines and items that a particular seller offers for sale. The product mix of a company, which is generally defined as the total composite of products offered by a particular organization, consists of both product lines and individual products. A product line is a group of products within the product mix that are closely related, either because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. One of the realities of business is that most firms deal with multi-products .This helps a firm diffuse its risk across different product groups/Also it enables the firm to appeal to a much larger group of customers or to different needs of the same customer group . For example; Bajaj Electricals, a household name in India, has almost ninety products in its portfolio ranging from low value items like bulbs to high priced consumer durables like mixers and luminaries and lighting projects .The number of products carried by a firm at a given point of time is called its product mix. This product mix contains product lines and product items .In other words its a composite of products offered for sale by a firm. PRODUCT-MIX ANALYSIS Since top management is ultimately responsible for the product mix and the resulting profits or losses, they often analyze the company product mix. The first assessment involves the area of opportunity in a particular industry or market. Opportunity is generally defined in terms of current industry growth or potential attractiveness as an investment. The second criterion is the company's ability to exploit opportunity, which is based on its current or potential position in the industry. The company's position can be measured in terms of market share if it is currently in the market, or in terms of its resources if it is considering entering the market. These two factorsopportunity and the company's ability to exploit itprovide four different options for a company to follow. 1.High opportunity and ability to exploit it result in the firm's introducing new products or expanding markets for existing products to ensure future growth. 2. Low opportunity but a strong current market position will generally result in the company's attempting to maintain its position to ensure current profitability.

3. High opportunity but a lack of ability to exploit it results in either (a) attempting to acquire the necessary resources or (b) deciding not to further pursue opportunity in these markets. 4. Low opportunity and a weak market position will result in either (a) avoiding these markets or (b) divesting existing products in them. These options provide a basis for the firm to evaluate new and existing products in an attempt to achieve balance between current and future growth. This analysis may cause the product mix to change, depending on what management decides. The most widely used approach to product portfolio analysis is the model developed by the Boston Consulting Group (BCG). The BCG analysis emphasizes two main criteria in evaluating the firm's product mix: the market growth rate and the product's relative market share. Once the analysis has been done using the market growth rate and relative market share, products are placed into one of four categories.

Stars: Products with high growth and market share are know as stars. Because these products have high potential for profitability, they should be given top priority in financing, advertising, product positioning, and distribution. Cash cows: Products with a high relative market share but in a low growth position are cash cows. These are profitable products that generate more cash than is required to produce and market them. Dogs: Products in the category are clearly candidates for deletion. Such products have low market shares and unlike problem children, have no real prospect for growth.

As can be seen from the description of the four BCG alternatives, products are evaluated as producers or users of cash. Products with a positive cash flow will finance high-opportunity products that need cash. Product Life Cycle. Like human beings, products also have a life-cycle. From birth to death, human beings pass through various stages e.g. birth, growth, maturity, decline and death. A similar life-cycle is seen in the case of products. The product life cycle goes through multiple phases, involves many professional

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disciplines, and requires many skills, tools and processes. Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures. To say that a product has a life cycle is to assert three things:

incorporating them into a new product. A product is usually undergoing several changes involving a lot of money and time during development, before it is exposed to target customers via test markets. B) Introduction Stage: The introduction stage starts when the new product is first launched. Introduction takes time, and sales growth is apt to be slow. In this stage, as compared to other stages, profits are negative or low because of the low sales and high distribution and promotion expenses. Much money is needed to attract distributors and build their inventories. Promotion spending is relatively high to inform consumers of the new product and get them to try it. It is highly unlikely that companies will make profits on products at the Introduction Stage. Products at this stage have to be carefully monitored to ensure that they start to grow. Otherwise, the best option may be to withdraw or end the product.
C)Growth Stage

Products have a limited life, Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller, Products require different marketing, financing, manufacturing, purchasing, and human resource strategies in each life cycle stage.

A product's life cycle, abbreviated PLC, the life cycle refers to the period from the products first launch into the market until its final withdrawal and it is split up in phases. Since an increase in profits is the major goal of a company that introduces a product into a market, the products life cycle management is very important. The understanding of a products life cycle, can help a company to understand and realize when it is time to introduce and withdraw a product from a market, its position in the market compared to competitors, and the products success or failure. The products life cycle period usually consists of five major steps : Product Development, Introduction Stage, Growth Stage, Maturity Stage and finally Decline Stage. These phases exist and are applicable to all products or services from a certain make of automobile to a multimillion-dollar lithography tool to a one-cent capacitor. These phases can be split up into smaller ones depending on the product and must be considered when a new product is to be introduced into a market since they dictate the products sales performance.

If the new product satisfies the market, it will enter a growth stage, in which sales will start climbing quickly. The early adopters will continue to buy, and later buyers will start following their lead, especially if they hear favorable word of mouth. Attracted by the opportunities for profit, new competitors will enter the market. They will introduce new product features, and the market will expand. The Growth Stage is characterised by rapid growth in sales and profits. Profits arise due to an increase in output (economies of scale)and possibly
better prices. At this stage, it is cheaper for businesses to invest in increasing their market share as well as enjoying the overall growth of the market. Accordingly, more amount and efforts are invested in promotional activities. The firm uses

several strategies to sustain rapid market growth as long as possible. It improves product quality and adds new product features and models. It enters new market segments and new distribution channels. By spending a lot of money on product improvement, promotion, and distribution, the company can capture a dominant position. In doing so, however, it gives up maximum current profit, which it hopes to make up in the next stage.

) Product Development:

Product development phase begins when a company finds and develops a new product idea. This involves translating various pieces of information and

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D) Maturity Stage The Maturity Stage is, perhaps, the most common stage for all markets. it is 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 spend has to be monitored carefully, since any significant moves are likely to be copied by competitors. This maturity stage normally lasts longer than the previous stages, and it poses strong challenges to marketing management. Most products are in the maturity stage of the life cycle, and therefore most of marketing management deals with the mature product. Competitors begin marking down prices, increasing their advertising and sales promotions, and upping their R&D budgets to find better versions of the product. The company might also try modifying the productchanging characteristics such as quality, features, or style to attract new users and to inspire more usage. It might improve the product's quality and performanceits durability, reliability, speed, or taste. Or it might add new features that expand the product's usefulness, safety, or convenience. For example, Sony keeps adding new styles and features to its Walkman and Discman lines, and Volvo adds new safety features to its cars. Finally, the company can try modifying the marketing miximproving sales by changing one or more marketing mix elements. It can cut prices to attract new users and competitors' customers. It can launch a better advertising campaign or use aggressive sales promotionstrade deals, centsoff, premiums, and contests. E) Decline Stage The sales of most product forms and brands eventually dip. The decline may be slow, as in the case of oatmeal cereal, or rapid. Sales may plunge to zero, or they may drop to a low level where they continue for many years. This is the decline stage. Sales decline for many reasons, including technological advances, shifts in consumer tastes, and increased competition. As sales and profits decline, some firms withdraw from the market. They may drop smaller market segments and marginal trade channels, or they may cut the promotion budget and reduce their prices further. Carrying a weak product can be very costly to a firm. A weak product may take up too much of management's time. It often requires frequent price and inventory adjustments. It requires advertising and sales force attention that

might be better used to make "healthy" products more profitable. A product's failing reputation can cause customer concerns about the company and its other products. Then, management must decide whether to maintain, harvest, or drop each of these declining products. Management may decide to harvest the product, which means reducing various costs (plant and equipment, maintenance, R&D, advertising, sales force) and hoping that sales hold up. If successful, harvesting will increase the company's profits in the short run. Or management may decide to drop the product from the line. It can sell it to another firm or simply liquidate it at salvage value. The Product Life Cycle can be extended by two ways either by modifying the target market by finding and adding new users etc or by modifying the product Adding new features, variations, model varieties will change the consumer reaction create more demand therefore you attract more users To prevent the product going into decline you modify the product Ultimately, depending on whether the product remains profitable, a company may decide to end the product. Examples Set out below are some suggested examples of products that are currently at different stages of the product life-cycle:

INTRODUCTION Third generation mobile phones

GROWTH Portable DVD Players

MATURITY DECLINE Personal Typewriters Computers Faxes Credit cards Handwritten letters Cheque books

E-conferencing Email iris-based personal identity cards Smart cards

The concept of PLC is a very useful since it provides knowledge about the developments at various phases of a products life. The marketing manager can adopt suitable strategies if he knows the pattern of profits and promotional efforts based on stages of products life.

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BRANDING American Marketing Association (AMA) definition describes a brand as a name, word, mark, symbol, device or a combination thereof, used to identify goods or services of one seller and to differentiate them from those of competitors. Brand name helps a consumer in instant recall, and this serves an important function for differentiating competing products of similar nature. A legally protected brand name is called a trademark. Umbrella branding and individual branding Under umbrella branding all the products gel the same brand name. This is also called family branding. Godrej, Vidoecon and L&T follow this kind of policy. One basic advantage of using the Family brand is that it reduces the costs of product launching and promotional expenditure substantially. The firm has to promote only one brand, which, if successful, would be able to sell the entire product line. Under the individual branding each product is given a different name. For example, Hindustan Lever sells its products under different brand names like Rin, Surf, Lux, etc. Importance of branding. Branding as an aspect of product marketing can be analysed from two different standpoints: that of buyers and of sellers. It is also possible to have a societal viewpoint. a) Buyers The buyers can derive several advantages: A brand generally denotes uniform quality. It makes shopping easier. Competition among brands can, over a period of time, lead to quality improvements. Purchasing a socially visible brand can give psychological satisfaction to the buyer.

Differentiate competitors

product

offering

from

In a highly competitive market, it can carve out a niche for itself through product differentiation. If brand loyalty can be developed through successful promotion, the firm will be able to exert quasi-monopolistic power.

But to obtain the advantages, it is necessary for the manufacturer to invest resources in promoting the brand name. c) Societal view From a macro-standpoint, a brand's role in improving and maintaining product quality can be considered as positive. Brands also help in better dissemination of product knowledge; better knowledge can contribute to more scientific and rational decision making. Selecting a Brand name Finding an appropriate name for a new product is a difficult task. The following points should be taken into account in selecting a brand name. 1). A Brand name should reflect directly or indirectly some aspect of the product, viz. benefit, function, etc. For example, the name `BURNOL' immediately connotes that the product has to do something with bums. 2). A Brand should be distinctive, especially if the product requires such distinction, e.g., a name like `CHANCELLOR' for a cigarette conjures up ideas of status, power and opulent life style. 3). A Brand name should be easy to pronounce and remember. Examples are VIMAL, HAMAM, etc. 4). It should be such that it can be legally protected, if necessary. Packaging A package is basically an extension of the product offered for sale. Sometimes the package is more important than the product it contains as it contains the product and protects it till the consumer is ready for the consumption or use. Some marketers even call packaging a 'fifth P', along with product, price, promotion and place. Packaging is necessary to deliver the product to the consumer in sound condition. According to Philip Kotler and Gary Annstrong, the packaging may include up to three levels of material. The primary package is the product's immediate container. If you consider a

There are, however, some negative aspects as well Since brand development costs money, product prices tend to go up. Taking advantage of the popularity of a brand, a manufacturer may reduce quality gradually.

b) Sellers A marketer can also derive certain advantages such as: It helps in product identification.

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toothpaste, the tube holding the toothpaste is the primary package. The secondary package is the card board material that protects the primary package and that is thrown away when the product is about be used. The shipping packaging is the packaging necessary to store, identify, and ship the product (a carton in this case, which contains hundred toothpaste units). Finally labeling is part of packaging and consists of printed information appearing on or with the package. To summarize the key functions of packaging we can say that packaging should perform the following basic functions: it should (1) protect, (2) appeal, (3) perform, (4) offer convenience to the end-users, and (5) be cost-effective. We will now discuss these five key functions of packaging. I ) Protection: The primary function of packaging is to protect the products from the environmental and physical hazards to which the product may be exposed in transit from the manufacturer's plant to the retailer's shelves and while on display on the shelves. It helps to avoid i) Breakage due to rough handling, 2) Extremes of climatic conditions which may lead to melting, freezing, etc, 3)Contamination, either bacterial or non-bacterial, such as by dirt or chemical elements. 4) Absorption of moisture or odors of foreign elements. And 5) Loss of liquid or vapors. 2) Appeal: The package is increasingly being used as a marketing tool. The importance is also increasing clue to the changed structure of retail business, especially the emergence of self-service stores. In the case of consumer products, package serves as a silent salesman. The following characteristics have been identified to help a package perform the self-selling tasks: i) The package must attract attention ii) The package must tell the product story iii) The package IIIUSL build confidence iv) The package must look clean and hygienic v) The package must be convenient to handle, to carry out, to store and to use vi) The package must reflect good value 3) Performance: This is the third function of a package. It must be able to perform the task for which it is designed. This aspect becomes critical in certain types of packaging. For example, an aerosol spray is not only a package but also an engineering device. If the package does not function, the product itself becomes totally useless. 4) Convenience: The package must be designed in a way, which is convenient to use. It should be

convenient not only to the end user but also to the distribution channel members, such as wholesalers and retailers. From the intermediaries standpoint the convenience relates to handling and stocking of packages. From the standpoint of the domestic or institutional end users, the convenience would refer to the ease of using the package, such as opening and closure of the package, the repetitive use value, disposability etc. 5) Cost-effectiveness: The package finally must be cost-effective. Packaging cost as a percentage of product cost varies dramatically from one industry to another, from less than one percent in engineering industry to more than ten percent in the cosmetics industry.

6) Security - Packaging can play an important role

in reducing the security risks of shipment. Packages can be made with improved tamper resistance to deter tampering and also can have tamper-evident features to help indicate tampering. Packaging Strategies Packaging plays a greater role in the promotion of the product. It serves the core function of protection and also provides information to the consumers. For example, Colgate Dental Cream is always perceived in a red color package. When the company decided to go for a sales promotion program of giving 20% extra for every purchase of a 100 grams toothpaste, it brought a yellow strip marked with 20% extra on red as a promotional tool which could catch the attention of the customer on the shelf immediately. Some of the widely used promotional packaging techniques include 1) Discount Packing :a word or sentence in distinctive colour is superimposed on the package, announcing the special price discount being offered. This is the most widely used form. 2) Coupon-Pack: A coupon of certain values, either as a part of the package or placed separately in the package, can be redeemed after the purchase of the product. 4) Prime Packaging: A specially made package having either a re-use or prestige value is referred to as prime package. Instant coffee packed in glass tumblers having colours is an example of the first type. 5) Self-Liquidators: The buyer has to send to the company a number of packages or part thereof as evidence of buying the product. In return, he may purchase additional quantity of the same product at

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reduced prices or be rewarded with a different product. Bundle Packaging: Placing more than one unit in one container is referred to as bundle or multiple packaging. This packaging strategy increases the sales to a large extent. This is seen in bathing and washing soap category in India. LABELLING: The label is the text printed on a product package or, in the case of items like clothing, attached to the product itself. Legally, labels include all written, printed, or graphic material on the containers of products that are involved in interstate commerce or held for sale. The main body of legislation governing packaging and labeling is the Fair Packaging and Labeling Act of 1966. It mandates that every product package or label specify on its "principal display label" (the part of the label most likely to be seen by consumers) the following information: 1) the product type; 2) the producer or processor's name and location; 3) the quantity (if applicable); and 4) the number and size of servings (if applicable). Labeling Decisions: 1)Brand Name: It is necessary for the label to contain the brand name. It has to be decided that how should that brand name appear on the product. 2) Label Text, Graphics and Design: Text, graphics and design on the label must be carefully selected because label in as important part of branding process. It plays a role in communicating the image and identity of a company. 3) Features and Benefits Listing a products key benefits on its label helps support the brand promise and can help differentiate the product from others, while reaching out to customers seeking those particular benefits. 4)Weights and Measures

Weights on measure of a product are important for stocking, inventory and selection. There are international standards that apply for formatting this information. Identifying the weights and measures of products helps customers select the appropriate amount of product to suit their needs. 5)Instructions for Use Listing a products key benefits on its label helps support the brand promise and can help differentiate the product from others, while reaching out to customers seeking those particular benefits 6)Package Inserts Package inserts, which may contain instructions for using a product, are made when the information cannot fit on the product itself. 7)Safety Hazards Possible dangers that could result from misusing a product must be identified on products to reduce liability and comply with regulations. 8)Statement of Contents The contents of a product must be accurately described on its packaging label according to local regulations.

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Module III Pricing Pricing policies objectives factors influencing pricing decisions - different pricing strategies: skimming- penetration Market structure channel of distribution and its importance Pricing Pricing is the process of determining what a company will receive in exchange for its products. This is perhaps the most important decision taken by marketer, as it is the only revenue earning function and success and failure of the product may depend upon this decision. Therefore, the decision regarding how much to charge should be taken such that the price is acceptable to the prospective buyers and at the same time fetches profits for the company. Price determination is very important aspect of strategic planning. Marketers fix the price of the product on the basis of cost, demand or competition. Dell, which allows customers to customize the product adopted flexible pricing methods. In contrast, Indian oil companies product prices are fixed by the government where company does not have any control. Price is the consideration in terms of money paid by consumers for the bundle of benefits he/she derives by using the product/ service. In simple terms, it is the exchange value of goods and services in terms of money. Pricing (determination of price to be charged) is another important element of marketing mix and it plays a crucial role in the success of a product in the market. If the price fixed is high, it is likely to have an adverse effect on the sales volume. If, on the other hand, it is too low, it will adversely affect the profitability. Hence, it has to be fixed after taking various aspects into consideration. Factors influencing pricing decisions The factors usually taken into account while determining the price of a product can be broadly described as follows:

(b) Demand: Demand also affects the price in a big way. When there is limited supply of a product and the demand is high, people buy even if high prices are charged by the producer. But how high the price would be is dependent upon prospective buyers capacity and willingness to pay and their preference for the product. In this context, price elasticity, i.e. responsiveness of demand to changes in price should also be kept in view. (c) Competition: The price charged by the competitor for similar product is an important determinant of price. A marketer would not like to charge a price higher than the competitor for fear of losing customers. Also, he may avoid charging a price lower than the competitor. Because it may result in price war which we have recently seen in the case of soft drinks, washing powder, mobile phone etc. (d) Marketing Objectives: A firm may have different marketing objectives such as maximisation of profit, maximisation of sales, bigger market share, survival in the market and so on. The prices have to be determined accordingly. For example, if the objective is to maximise sales or have a bigger market share, a low price will be fixed. Recently one brand of washing powder slashed its prices to half, to grab a bigger share of the market. (e) Government Regulation: Prices of some essential products are regulated by the government under the Essential Commodities Act. For example, prior to liberalization of the economy, cement and steel prices were decided by the government. Hence, it is essential that the existing statutory limits, if any, are also kept in view while determining the prices of products by the producers.
Pricing strategies. A firm must set a price for the first time when it develops a new product, introduces its regular product into a new distribution channel or geographical area, and enters bids on new contract work. In setting a products price, marketers follow a six-step procedure: (1) selecting the pricing objective; (2) determining demand; (3) estimating costs; (4) analyzing competitors costs, prices, and offers; (5) selecting a pricing method; and (6) selecting the final price

(a) Cost: No business can survive unless it covers its cost of production and distribution. In large number of products, the retail prices are determined by adding a reasonable profit margin to the cost. Higher the cost, higher is likely to be the price, lower the cost lower the price.

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1.) Price skimming. Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. It is a temporal version of price discrimination/yield management. The objective with skimming is to skim off customers who are willing to pay more to have the product sooner; prices are lowered later. The success of a price-skimming strategy is largely dependent on the inelasticity of demand for the product either by the market as a whole, or by certain market segments. High prices can be enjoyed in the short term where demand is relatively inelastic. In the short term the supplier benefits from monopoly profits, but as profitability increases, competing suppliers are likely to be attracted to the market (depending on the barriers to entry in the market) and the price will fall as competition increases. The main objective of employing a price-skimming strategy is, therefore, to benefit from high short-term profits (due to the newness of the product) and from effective market segmentation. There are several advantages of price skimming Where a highly innovative product is launched, research and development costs are likely to be high, as are the costs of introducing the product to the market via promotion, advertising etc. In such cases, the practice of price-skimming allows for some return on the set-up costs By charging high prices initially, a company can build a high-quality image for its product. Charging initial high prices allows the firm the luxury of reducing them when the threat of competition arrives. Skimming can be an effective strategy in segmenting the market. A firm can divide the market into a number of segments and reduce the price at different stages in each, thus acquiring maximum profit from each segment For prestige goods, the practice of price skimming can be particularly successful, since the buyer tends to be more prestige conscious than price conscious. Similarly, where the quality differences between competing brands is perceived to be large, or for offerings where such differences are not easily judged, the skimming strategy can work well. 2) Penetration pricing.

Penetration pricing involves the setting of lower, rather than higher prices in order to achieve a large, if not dominant market share. This strategy is most often used businesses wishing to enter a new market or build on a relatively small market share. This will only be possible where demand for the product is believed to be highly elastic, i.e. demand is price-sensitive and either new buyers will be attracted, or existing buyers will buy more of the product as a result of a low price. A successful penetration pricing strategy may lead to large sales volumes/market shares and therefore lower costs per unit. The effects of economies of both scale and experience lead to lower production costs, which justify the use of penetration pricing strategies to gain market share. Penetration strategies are often used by businesses that need to use up spare resources (e.g. factory capacity). Before implementing a penetration pricing strategy, a supplier must be certain that it has the production and distribution capabilities to meet the anticipated increase in demand. The most obvious potential disadvantage of implementing a penetration pricing strategy is the likelihood of competing suppliers reduce their prices also, thus nullifying any advantage of the reduced price. A second potential disadvantage is the impact of the reduced price on the image of the offering, particularly where buyers associate price with quality. 3) Prestige pricing Prestige pricing refers to the practice of setting a high price for an product, throughout its entire life cycle as opposed to the short term opportunistic, high price of price skimming. This is done in order to evoke perceptions of quality and prestige with the product or service. For products for which prestige pricing may apply, the high price is itself an important motivation for consumers. 4) Pre-emptive pricing Pre-emptive pricing is a strategy which involves setting low prices in order to discourage or deter potential new entrants to the suppliers market, and is

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especially suited to markets in which the supplier does not hold a patent, or other market privilege and entry to the market is relatively straightforward. By deterring other entrants to the market, a supplier has time to Refine/develop the product Gain market share Reduce costs of production (through sales/ experience effects) Acquire name/brand recognition, as the original supplier

or special situations to attract consumers by offering special reduced prices. SELECTION OF A PRICING METHOD

After selection of the pricing strategy or strategies to accomplish the pricing objectives, a company decides about a pricing method. A pricing method is a systematic procedure for setting the prices on a regular basis. The pricing method structures the calculation of actual price of a product based on considerations of demand, costs, and competition.
1 Cost-based Pricing Cost-based pricing methods are fairly common. Price is determined by adding either rupee amount or a percentage to the products cost to achieve the desired profit margin. Cost-based pricing methods do not take into consideration factors such as supply and

5) Follower pricing -- This strategy entails the business owner adopting follow-the leader approach and setting prices in response to all major competitors. This is a reactive strategy that assumes that the dominant leader will not respond to price competition from the new product or service. 6) Psychological pricing approach is suitable when consumer purchases are based more on feelings or emotional factors rather than rational, such as love, affection, prestige, and self-image etc
7) Odd-Even Pricing: Marketers sometimes set their product prices that end with certain numbers. The assumption is that this type of pricing helps sell more of a product. It is supposed that if the price is Rs. 99.95, consumers view it not as Rs. 100 and certain types of consumers are attracted more by odd prices rather than even.

demand, or competitors prices. They are not necessarily related to pricing policies or objectives.
11.9.2 Markup Pricing

In markup pricing a certain predetermined percentage of products cost, called markup, is added to the cost of the product to determine the price.
11.9.3 Competition-based Pricing

This approach is also called going rate pricing. Competition-based pricing pushes the costs and revenues as secondary considerations and the main focus is on what are the competitors prices. This pricing acquires more importance when different competing brands are almost homogeneous and price is the major variable in marketing strategy, such as cement or steel.
11.9.4 Demand-based Pricing

8) Loss Leader Pricing: Sometimes large retail outlets use loss leader pricing on wellknown brands to increase store traffic. By attracting increased number of consumers to store the retailers hope that sales of routinely purchased products will rise and increase sales volume and profits. This compensates for the lower margins on loss leader brands. 9) Superficial Discounting: It is superficial comparative pricing. It involves setting an artificially high price and offering the product at a highly reduced price. The communication might say, Regular price was Rs. 495, now reduced to Rs. 299. This is a deceptive practice and often used by retailers.
10) Special Event Pricing: This involves coordinating price cuts with advertising for seasonal

Companies using this method mainly consider the level of demand. The price is high when the product demand is strong and low price when the demand is weak. This approach is fairly common with hotels, telephone service companies, and museums etc.
Perceived-value Pricing

Many companies perceived-value pricing. In this approach the price is based on customers perceived value of a product or service. The company must deliver the promised value proposition it communicates to its target customers. And of course, it is important that customers must perceive this value. nsscollegerajakumari 11

Two-part Pricing

This pricing method is fairly common with service providing companies. They charge a fixed price for providing the basic service plus a variable usage rate. For example telephone service providers charge a monthly fixed price plus variable per call charges for calls beyond a certain number.
Bid Pricing

This type of pricing involves submitting either a sealed or open bid price from the marketer for buyers consideration. The buyer notifies potential suppliers to submit their bids by a fixed date. The buyer evaluates these quotations in terms of quoted prices, product specifications, and the ability of suppliers to deliver specified products according to the buyers schedule when and where needed. Usually the lowest bidder is awarded the contract.

Channel of importance.

distribution

and

its

b) Producer Retailer Consumer:Many large retailers buy directly from manufacturers and agricultures large no. of our purchases are mad through this channel such as automobiles, clothing, gasoline etc. In this case manufacturers keep contact with retailers, take purchase orders. The retailers then sell to ultimate consumers. C) Producer Wholesaler Retailer Consumer:This type of channel mostly used by small manufacturers and small retailers to distribute such things that have a large market need. The products such as drugs, lumber, hardware and many food items are distributed in such channel process. d) Producer Agents Retailers Consumers:Instead of using wholesaler many producers prefer to use manufacturers agents, a broker or some other agents middleman to reach the retail market. A glass marker selected a food broker to reach store market. e)Producer Agent Wholesaler Retailer Co nsumer:To reach small retailers, the producers often use agent middleman, who in turn cal on with wholesales that sell to small stores. Agent can be especially useful for making contacts and bringing buyers and sellers together. They are common in food industry, where they are called food brokers. 2) Channels for Distribution of Business Gods:a) Producers Industrial Users:This direct channel is used for most expensive products. Manufacturers of large installations such as air planes, generators etc use this channel. b) Producer Industrial Distribution Users:Producers of operating supplies and small accessory equipment frequently use industrial distributors to reach their market.

Distribution involves the physical movement of products to ultimate consumers. A distribution channel consists of the set of people and firms involves in the flow of a product, as it moves from producer to ultimate consumer or business users. A distribution channel always include both the producers and final customer for product as well as any middle man.(retailers or wholesalers). Types of channels & distribution:Common channels for distribution of consumer goods, business goods and services are discussed below. 1) Distribution of channel goods:There are five channels are used for distribution of tangible goods to ultimate consumer. a) Producer---->Consumer: The shortest, simplest channels of distribution for distributing gods are from producer to consumer. It involves no middle man. The producer may sell from door to door or by mail. Door to Door:In these channels companies use their representatives to sell their gods from door to door such as insurance magazines, newspapers, milk etc. By Mail:Some companies also sell their products by mails. A farmer sells their fruit and vegetables directly to consumer at road is also using this method. It is short and direct method.

Importance of Distribution Channels Cost Savings in Specialization Members of the distribution channel are specialists in what they do and can often perform tasks better and at lower cost than companies who do not have distribution experience. Marketers attempting to handle too many aspects of distribution may end up exhausting company resources as they learn how to distribute. Reduce Exchange Time Not only are channel members able to reduce distribution costs by being experienced at what they do, they often perform their job more rapidly resulting in faster product delivery.

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 Customers Want to Conveniently Shop for Variety Marketers have to understand what customers want in their shopping experience. Resellers Sell Smaller Quantities Not only do resellers allow customers to purchase products from a variety of suppliers, they also allow customers to purchase in quantities that work for them. Suppliers though like to ship products they produce in large quantities since this is more cost effective than shipping smaller quantities. Create Sales Resellers create demand for the marketers product. In some cases resellers perform an active selling role using persuasive techniques to encourage customers to purchase a marketers product. Offer Financial Support Resellers often provide programs that enable customers to more easily purchase products by offering financial programs that ease payment requirements. These programs include allowing customers to: purchase on credit; purchase using a payment plan; delay the start of payments; and allowing trade-in or exchange options. Provide Information Companies utilizing resellers for selling their products depend on distributors to provide information that can help improve the product. High-level intermediaries may offer their suppliers real-time access to sales data including information showing how products are selling by such characteristics as geographic location, type of customer, and product location. . Channel Members Create Utility: Marketing channels create time, place, and possession utility. Time utility refers to making products available to customers when they want them. They create place utility by making products available in locations, where customers desire them to be available for buying. Possession utility means customers having access to obtain and have the right to use or store for future use. This may occur through ownership or some arrangements such as rental or lease agreements that entitle the customer the right to use the product. . Other Functions: Distribution channels share financial risk by financing the goods moving through pipeline and also sometimes extend the credit facility to next level operators and consumers as well as handle personal selling by informing and recommending the product to consumers, and partly look after physical distribution such as warehousing and transportation, provide merchandising support, and furnish market intelligence.

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