Unit-4

Product and Pricing Decisions

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Setting Product strategy

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 Chapter Objective
➢ What are the characteristics of products and how do
marketers classify products?
➢ How can companies differentiate products?
➢ How can a company build and manage its product mix and
product lines?
➢ How can companies combine products to create strong co-
brands or ingredient brands?
➢ How can companies use packaging, labeling, warranties,
and guarantees as marketing tools?
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 What is a Product?

A product is anything that can be offered

to a market to satisfy a want or need,
including physical goods, services,
experiences, events, persons, places,
properties, organizations, information, and
ideas.

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 Components of the
Market Offering

Value-based prices

Attractiveness
of the market
offering

Product Services
features mix and
and quality quality
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 Five Product Levels

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Five Product Levels
1. Core benefits
➢ the service or benefit the customer is really buying. E.g. hotel guest
is buying `rest and sleep`
2.Basic Product
➢ Marketer must turn the core benefit into a basic benefits. Hotel
room include a bed, bathroom, towels, desk, and dresser.
3. Expected Product
➢ A set of attributes and conditions buyers normally expect when
they purchase product. Hotel guest expect a clean bed, fresh
towels, working lamp

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Five Product Levels
4. Augmented product- that exceed customer expectation
5.Potential product
➢ It encompasses all the possible augmentation and transformations
the product or offering might undergo in the future

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 Product Classification Schemes

Durability

Tangibility

Use

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 Durability and Tangibility

Nondurable
goods

Durable
Services
goods

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 Consumer Goods Classification

Convenience Shopping

Specialty Unsought

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 Industrial Goods Classification

Materials and parts

Supplies/
Capital items
business services

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 Product Differentiation
⚫ Product form
⚫ Features
⚫ Customization
⚫ Performance
⚫ Conformance
⚫ Durability
⚫ Reliability
⚫ Repairability
⚫ Style

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 Design Differentiation

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 Design

➢ As competition intensifies, design offers a potent way to differentiate and position a

company’s products and services.
➢ Design is the totality of features that affect how a product looks, feels, and functions to
a consumer.
➢ Design offers functional and aesthetic benefits and appeals to both our rational and
emotional sides.
➢ Well-designed features can help differentiate a product from others in the market.
Hawkins is a brand that is known for its functional
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 Service Differentiation

⚫ Ordering ease
⚫ Delivery
⚫ Installation
⚫ Customer training
⚫ Customer consulting
⚫ Maintenance and repair
⚫ Returns

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 Ginger Hotels
has carved a
profitable
niche through
its innovative
service
configuration

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Developing products for rural markets

⚫ Products should be designed keeping in mind the

rural conditions
⚫ Packaging is one of the key drivers of success in
rural areas
Issue of transfer and storage: Rugged packing
The issue of affordability: small-unit packs
⚫ Brand elements should be decided keeping in
mind rural consumers

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The Product Hierarchy

Item

Product type
Product line
Product class
Product family
Need family
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Product and Brand Relationship
The Product Hierarchy
1. Need family
➢ The core need that underlies the existence of a product family. E.g.
security
2.Product Family
➢ All the product classes that can satisfy a core need with reasonable
effectiveness.e.g savings and income

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Product and Brand Relationship
3.Product Class
➢ A group of product within the product family recognized as having
a certain functional coherence. Also called product category. E.g.
Financial Instruments.
4. Product Line
➢ A group of product between product class that are closely related
because they perform similar function, are sold to the same
customer group, are marketed through a same outlet or channel.

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Product and Brand Relationship
5. Product Type
➢ A group of items within a product line that share one of several
possible forms of the product. E.g. term life insurance
6.Item(stock keeping Unit or product variant)
➢ A distinct unit within a brand or product line distinguishable by size,
price, appearance. Eg. Renewable term life insurance

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Product Mix
A product mix is the set of all products and items a
particular seller offers for sale
Product width
➢The width of a product mix refers to how many
different product lines the company carries. HUL is
having 11 lines
Product Length
➢The length of the product mix refers to the total
no of item in the mix (42 items in HUL). Average
product length over 3
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Product Mix
Product Depth
➢The depth of the product mix refers to how many
variants are offered of each product in line. Lux
comes in 4 variant(strawberry & Cream, Peach&
Cream, Purple Lotus & Cream, and Lux
International) and 2 sizes, so Lux has a depth of 8.
Consistency
➢ It describes how closely related the various
product line are in end use, production
requirements, distribution channels, or some
other way.
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Product Systems and Mixes

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Product Portfolio Management Assigning Resources to each
SBU
➢The purpose of identifying the companies strategic business units is
to develop separate strategies and assign appropriate funding
➢Senior manager knows that its portfolio of business usually includes
the number of `yesterday has beens` as well as tomorrow
breadwinners`
➢Yet it cannot rely just on impressions; it needs analytical tools for
classifying its business by profit potential
➢Two of the best known business portfolio evaluation models are the
BCG Model and GE model

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 ASSIGNING RESOURCES TO SBUs
(THE BCG GROWTH-SHARE MATRIX)
➢ The Boston Consulting Group (BCG), a leading management consulting firm, popularized
the growth-share matrix.
➢ The eight circles represent the current sizes and positions of eight business unit in hypothetical
company
➢ The dollar volume size of each business is proportional to circle area
➢ Location of each business unit indicates its market growth rate and relative market share
➢ The market-growth rate on the vertical axis indicates the annual growth rate of the market in
which the business operates. The relative market share, measured on the horizontal axis, refers
to the SBUs market share relative to that of the largest competitor in the segment.
➢
A relative market share of 0.1 means that the company`s sales volume is only 10% of leader sales
volume; a relative share of 10 means that the company's SBU is the leader and has 10 times sales
of the next-strongest competitors in market

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 THE BCG GROWTH-SHARE MATRIX
RELATIVE MKT SHARE

20%
STARS QUESTION MARKS
MKT 4
GROWTH 3 1
5

10% 2
6 7 DOGS 8

0% CASH COWS
10x 1x 0.1x
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THE BCG MARIX (CONTD)
The growth- share matrix is divided into four cells, each
indicating a different type of business
1.Question marks
➢Question marks are business that operate in high
growth markets but have low relative market shares
➢Most business start off as question marks as the
company tries to enter a high growth market in which
there is already a market leader
➢A question mark require a lot of cash because the
company has to spend money on to keep up with fast
growing market, and because it wants to overtake the
leader

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THE BCG MARIX (CONTD)
2.Star:
➢If the question mark business is successful, it becomes a star. A
star is the market leader in a high-growth market.
➢A star doesn't necessarily produce a positive cash flow for the
company. the company must spend substantial funds to keep up
with the high market growth and fight off competitors attack.
3. Cash Cows:
➢When a market annual growth rate falls less than 10% the star
becomes a cash cow if it still has the largest relative market
share.
➢A cash cow produces a lot of cash for the company.the company
doesn’t have to finance capacity expansion because the market
growth rate has slowed down

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THE BCG MARIX (CONTD)
➢Since the business is the market leader, it enjoys
economies of scale and higher profit margins. The
company uses its cash-cow businesses to pay its bills
and support its other businesses
➢If the cash cow starts losing relative market share, the
company will have to pump money back into it to
maintain market leadership. if it does not, the cash
cow may devolve into dog.
➢4.Dogs:
➢Dogs are the businesses that have weak market shares
in low growth markets. They typically generate low
profit or loss.
➢The company should consider whether it is holding on
to these business for good reason such a expected
turnaround or for sentimental purpose.
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THE BCG MARIX (CONTD)
➢After plotting its various businesses in the growth
share matrix, a company must determine whether its
portfolio is healthy
➢An unbalanced portfolio would have too many dogs or
question marks and/or too few stars and cash cows

The next task is to determine what objective, strategy,

and budget to assign each SBU, four strategies can be
pursued
1. Build- here the objective is to increase market share,
even forgoing short term earning to achieve this
objective if necessary, building is appropriate for
question mark whose market share must grow if
they are to becomeSHREYA
star.JHA
THE BCG MARIX (CONTD)
2.Hold- here the objective is to preserve market
share. This strategy is appropriate for strong cash
cows if they are to continue yielding a large
positive cash flow.
3.Harvest-here the objective is to increase short
term cash flow regardless of long term effect.
Harvesting involves a decision to withdraw from a
business by implementing a program of
continuous cost retrenchment
4. Divest-here the objective is to sell or liquidate the
business because resources can be better used
elsewhere.
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Product Portfolio Management

Existing New Category

Category

Existing brand 1.Line 2. Brand

Name Extension Extension
New 3.Multiple 4. New Offering
Branding
Brand

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Product-Item Contributions to a
Product Line’s Total Sales and Profits

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 Line Stretching

Down-Market Stretch

Up-Market Stretch

Two-Way Stretch

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Line stretching
➢Every company`s product line covers a certain part of total possible
range. E.g Mercedes automobiles are located in the upper price
range of the automobile market.
➢Line stretching occurs when a company lengthens its product line
beyond its current range. The company can stretch its line down-
market, up-market or both.

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Line stretching

1. Down- Market Stretch

➢ A company may want to introduce a lower
priced line for any of the three reason
a) The company may notice strong growth
opportunities as mass retailers attract a growing
no. of shoppers who want value price goods.
b) The company may wish to tie up lower-en
competitors who might otherwise try to move
up market. If the company has been attacked by
a low-end competitor, it often decide to counter
attack by entering the low
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Line stretching
c. The company may find that middle market is stagnating or declining.
2. Up market stretch
➢ company may wish to enter high end of market to achieve more
growth, to realize higher margins, or simply to position themselves
as full-line manufacturer
3. Two way approach
➢ company serving in middle class market might decide to stretch
their line in both direction . E.g. Titan edge, Nebula, Xylus, Sonata.
ITC soaps.

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 Line Filling

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 Pruning

Pruning weak brands

can strengthen the
remaining brands in
the line

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Co-Branding
➢Marketers often combine their products from others companies in various ways
➢In co-branding also called dual branding or brand bundling- two or more well
known brands are combined into a joint product or marketed together in same
fashion.
a. Same company co-branding- Gillette Match3 shaving system and shaving Gel
b. Joint venture co-branding--- Indian Oil and Citibank credit card
c. Multiple-sponsor co-branding
d.Ingredient Branding
➢ It is a special case of co- branding. It creates brand equity for materials,
components, or parts that are necessarily contained within other branded
product

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 Factors Contributing to the
Emphasis on Packaging

Self-service

Consumer affluence

Company/brand image

Innovation opportunity

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 Innovations in Packaging

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 Packaging Objectives

⚫ Identify the brand

⚫ Convey descriptive and persuasive
information
⚫ Facilitate product transportation and
protection
⚫ Assist at-home storage
⚫ Aid product consumption

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 Functions of Labels

Identifies

Grades

Describes

Promotes

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 Warranties and Guarantees

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Introducing New Market
Offerings

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 Chapter Objective
⚫ What challenges does a company face in
developing new products and services?
⚫ What organizational structures and
processes do managers use to manage
new-product development?
⚫ What are the main stages in developing
new products and services?

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 Chapter Objective
⚫ What is the best way to manage the new-
product development process?
⚫ What factors affect the rate of diffusion
and consumer adoption of newly launched
products and services?

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New-product Options
1) Make or Buy
➢ a company can add new product through acquisition or
development.
➢ The acquisition rout can take three forms. The company can buy
other companies or it can buy license or franchise from other
company
➢ E.g. coca-cola Thumbs Up Fritolays –Uncle Chips

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New-product Options
2 Types of
New-to-the-world
New Product
New product lines

Additions

Improvements

Repositionings

Cost reductions

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 Moser Baer has moved from
making optical storage media to
selling home entertainment

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The Innovation of Chotukool

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Factors That Limit
New Product Development
• Shortage of ideas
• Fragmented markets
• Social and governmental constraints
• Cost of development
• Capital shortages
• Faster required development time
• Shorter product life cycles

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Challenges in new product Development
1.New- product Success
➢Most established company focus on incremental innovation. It allow
companies to enter new markets by tweaking products for new
customers, use variations on core product to stay one step ahead of
the market
2.New- Product Failure
➢New product development can be quite risky. New product continue
to fail at disturbing rate.

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Challenges in new product Development
New product can fail for many reasons
• ignored or misinterpreted market research
• Over estimate of market size
• High development cost
• Poor design
• Incorrect positioning
• Inefficient advertising
• Inefficient distribution support
• Competitors who fight back hard

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Finding One Successful Product

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What is a Venture Team?
➢A venture team is a cross-functional group
charged with developing a specific product or
business.
➢Many companies have assigned new-product
development to venture teams. Venture teams
are cross-functional groups charged with
developing a specific product or business.

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What is a Venture Team?
➢These “intrapreneurs” are relieved of other duties
and given a budget, time frame, and
“skunkworks” setting.
➢Skunkworks are informal workplaces where
intrapreneurial teams attempt to develop new
products.
➢Cross-functional teams can collaborate and use
concurrent new-product development to push
new products to market.

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 The New Product Development Decision
Process

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New Product development
1. Idea Generation
➢ Marketing experts believe that greatest opportunities and highest
leverage with new product are found by uncovering the best
possible set of unmet customer needs or technological innovation
➢ Encouraged by open innovation movement, many firms are
increasingly going outside the company to tap external
resources.e.g. P&G connect-and-development approach to
innovation.

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Ways to Find Great New Ideas
• Run informal sessions with customers
• Allow time off for technical people to putter on pet
projects
• Make customer brainstorming a part of plant tours
• Survey your customers
• Undertake “fly on the wall” research to customers

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More Ways to Find Great Ideas
• Use iterative rounds with customers
• Set up a keyword search to scan trade publications
• Treat trade shows as intelligence missions
• Have employees visit supplier labs
• Set up an idea vault

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Drawing Ideas from Customers
• Observe customers using product
• Ask customers about problems with products
• Ask customers about their dream products
• Use a customer advisory board or a brand
community of enthusiasts to discuss product

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Demand-First Innovation and Growth (DIG)
Framework

Demand Landscape

Opportunity Space

Strategic Blueprint

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Demand-First Innovation and Growth
(DIG) Framework

➢The demand-first innovation and growth (DIG)

framework is designed to provide companies with an
unbiased view and an outside-in perspective of
demand opportunities. It has three parts: the demand
landscape, the opportunity space, and the strategic
blueprint.
➢The demand landscape is based on the consumer
needs and wants gleaned from observational,
anthropological, and ethnographic methods.

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Demand-First Innovation and Growth
(DIG) Framework

➢The opportunity space uses a conceptual lens and

structured innovative thinking tools to achieve market
perspective.
➢The strategic blueprint sketches out where the new
product will fit in the lives of consumers.

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Idea Generation:
Creativity Techniques
• Attribute listing
• Forced relationships
• Morphological analysis
• Reverse assumption analysis
• New contexts
• Mind mapping

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New Product development
2.Idea screening
➢ In screening idea company must avoid two types of errors
➢ A DROP-error occurs when the company dismisses a good idea,
it is extremely easy to find fault with other peoples ideas.
➢ A Go-error occurs when the company permits a poor idea to
move into development and commercialization

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Forces fighting new ideas

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New Product development
➢ The executive committee then reviews each idea against a set of
criteria
• Does the product meet a need?
• Would it offer superior value?
• Can it be distinctively advertised?
• Does the company have the necessary know how and capital?
• Will the new product deliver the expected sales volume, sales
growth and profit?

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New Product development
3. Concept development and testing
➢ Suppose a large food processing company gets the idea of producing a
powder to add to milk to increase its nutritional value and taste
➢ A product idea can be developed into several concepts.
• concept 1- An instant breakfast drink for adults who want a quick
nutritious breakfast without preparation.
• Concept 2-a tasty snack for children to drink as a midday refreshment
• Concept 3- a health supplement for older adults to drink in the late
evening before they go to bed.

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New Product development
➢ Each concept represents a category concepts that defines the
product competition. An instant breakfast drink would compete
against hot milk, cornflakes with cold milk, and other home made
items.
➢ A tasty snack drink would compete against soft drinks, fruit juices,
sports drinks, and other thirst quenchers.

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Product and
Brand Positioning

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New Product development
3. Concept Testing
➢ It means presenting the product concept, symbolically or physically,
to target consumers and getting their reactions.
➢ The more the tested concepts resembles the final product or
experience, the more dependable concept testing is.
➢ Concept testing of prototypes can help to avoid costly mistakes, but
it may be especially challenging with radically different, new- to-
the- world products

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New Product development
➢ Concept testing presents consumer with an elaborated version of
concept
` Our product is powdered mixture added to milk to make an instant
breakfast that gives the person all the days needed nutrition along
with good taste and high convenience. The product comes in three
flavors( chocolate, vanilla, and strawberry) and would come in
individual packs, ten to a box, at Rs 110 a box.`

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New Product development
After receiving this information, researchers measure product dimensions
by having consumers respond to following type of questions:
1. Communicability and believability- Are the benefits clear to you and
believable? If the score are low, the concept must be refined or revised.
2.Need level- Do u see this product solving a problem or filling a need for
you?
3Gap level-Do the products currently meet this need and satisfy u? the
greater the gap, the higher the expected consumer interest. Marketers
can multiply the need level by the gap level to produce a need –gap
score. high score means the consumer sees the product as filling a strong
need not satisfied by available alternatives

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New Product development
4.Perceived Value-Is the price reasonable in relationship to the value?
The higher the perceived value, the higher is expected consumer
interest.
5.Purchase Intention-Would you(definitely, probably, probably not,
definitely not)buy the products? Consumers who answered the
first three question positively should answer `definitely` here.

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New Product development
6.User targets, purchase occasions, purchasing frequency-
who would use this product, when, and how often?
➢ Respondents answers indicate whether the concepts has a broad
and strong consumer appeal, what product it compete against, and
which consumer are the best targets

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Conjoint Analysis

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Conjoint Analysis

➢Consumer preferences for alternative product

concepts can be measured with conjoint analysis,
a method for deriving the utility values that
consumers attach to varying levels of a product’s
attributes.
➢Conjoint analysis has become one of the most
popular concept-development and testing tools.
With conjoint analysis, respondents see different
hypothetical offers formed by combining varying
levels of the attributes, then rank the various
offers.
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Conjoint Analysis
Management can identify the most appealing offer and its estimated
market share and profit. In a classic illustration, academic research
pioneers Green and Wind used this approach in connection with
developing a new spot removing, carpet-cleaning agent for home use.

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Conjoint Analysis
Suppose the new-product marketer is considering five design elements:
Three package designs (A, B, C – as shown in the slide)
Three brand names (K2R, Glory, Bissell)
➢Three prices ($1.19, $1.39, $1.59)
➢ A possible Good Housekeeping seal (yes, no)
➢A possible money-back guarantee (yes, no)

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Utility Functions Based on
Conjoint Analysis

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Utility Functions Based on Conjoint Analysis
➢Although the researcher can form 108 possible product concepts, it
would be too much to ask consumers to rank them all from most to
least preferred.
➢A sample of, say, 18 contrasting product concepts is feasible. The
marketer now uses a statistical program to derive the consumer’s
utility functions for each of the five attributes .

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Utility Functions Based on Conjoint Analysis
➢Utility ranges between zero and one; the higher the utility, the
stronger the consumer’s preference for that level of the attribute.
➢Looking at packaging, package B is the most favored, followed by C
and then A (A hardly has any utility). The preferred names are Bissell,
K2R, and Glory, in that order. The consumer’s utility varies inversely
with price.

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Utility Functions Based on Conjoint Analysis
➢A Good Housekeeping seal is preferred, but it does not add that much
utility and may not be worth the effort to obtain it. A money-back
guarantee is strongly preferred.
➢The consumer’s most desired offer is package design B, brand name
Bissell, priced at $1.19, with a Good Housekeeping seal and a money-
back guarantee.

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Utility Functions Based on Conjoint Analysis
➢We can also determine the relative importance of each attribute to
this consumer—the difference between the highest and lowest utility
level for that attribute.
➢The greater the difference, the more important the attribute. Clearly,
this consumer sees price and package design as the most important
attributes, followed by money-back guarantee, brand name, and a
Good Housekeeping seal.

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New Product development
4.Marketing Strategy Development
➢ Following a successful concept test, a new product manager will
develop a preliminary three part strategy plan for introducing the
new product into the market
➢ The first part describe the target market size, structure, and
behavior: the planed product positioning; and sales , market share,
and profit goals sought in first few years

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New Product development
5.Business Analysis
➢ After management develops the product concept and marketing
strategy, it can evaluate the proposal business attractiveness.
➢ Management need to prepare sales, cost and profit projection to
determine whether they satisfy company objectives. If they do, the
concept can move to the development stage.
➢ Total estimated sales are sum of estimated first time sales,
replacement sales, and repeat sales. Sales estimation methods
depend on whether the product is purchased once, infrequently or
often
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Product Life-Cycle Sales for Three
Types of Products

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Product Life-Cycle Sales for Three Types of
Products
➢Total estimated sales are the sum of estimated
first-time sales, replacement sales, and repeat
sales.
➢Sales-estimation methods depend on whether the
product is purchased once (such as an
engagement ring or retirement home),
infrequently, or often.
➢For onetime products, sales rise at the beginning,
peak, and approach zero as the number of
potential buyers is exhausted (as shown in Figure
19.6a).
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Product Life-Cycle Sales for Three Types of
Products
➢If new buyers keep entering the market, the curve
will not go down to zero.
➢Infrequently purchased products—such as
automobiles, toasters, and industrial equipment -
exhibit replacement cycles dictated by physical
wear or obsolescence associated with changing
styles, features, and performance.
➢ Sales forecasting for this product category calls
for estimating first-time sales and replacement
sales separately (as shown in Figure 19.6b).
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Product Life-Cycle Sales for Three Types of
Products
➢Frequently purchased products, such as consumer
and industrial nondurables, have product life-cycle
sales resembling Figure 19.6c.
➢The number of first-time buyers initially increases
and then decreases as fewer buyers are left
(assuming a fixed population).
➢ Repeat purchases occur soon, providing the
product satisfies some buyers. The sales curve
eventually falls to a plateau representing a level of
steady repeat-purchase volume; by this time, the
product is no longer a new product.
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Projected Five-Year Cash Flow
Statement (in Rupees Million)

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 Projected Five-Year Cash Flow
Statement (in Rupees Million)
➢Costs are estimated by the R&D, manufacturing, marketing, and
finance departments. Table 19.3 illustrates a five-year projection of
sales, costs, and profits for the instant breakfast drink.
➢Row 1 shows projected sales revenue over the five-year period. The
company expects to sell Rs. 500 million (approximately 500,000 cases
at Rs. 1,000 per case) in the first year.

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Projected Five-Year Cash Flow
Statement (in Rupees Million)
➢Row 2 shows the cost of goods sold, which hovers
around 33 percent of sales revenue. We find this
cost by estimating the average cost of labor,
ingredients, and packaging per case.
➢Row 3 shows the expected gross margin, the
difference between sales revenue and cost of
goods sold.
➢Row 4 shows anticipated development costs,
including product-development cost, marketing
research costs, and manufacturing development
costs.
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Projected Five-Year Cash Flow
Statement (in Rupees Million)
➢Row 5 shows the estimated marketing costs over
the five-year period.
➢Row 6 shows the allocated overhead to this new
product to cover its share of the cost of executive
salaries, heat, light, and so on.
➢ Row 7, the gross contribution, is gross margin
minus the preceding three costs.
➢Row 8, supplementary contribution, lists any
change in income to other company products
caused by the new product introduction.
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 Projected Five-Year Cash Flow
Statement (in Rupees Million)
➢Row 9 shows net contribution, which in this case is the same as gross
contribution. Row 10 shows discounted contribution.
➢Row 11 shows the cumulative discounted cash flow, the accumulation
of the annual contributions in row 10.
➢Two points are of central interest. First is the maximum investment
exposure, the highest loss the project can create.

SHREYA JHA
 Projected Five-Year Cash Flow
Statement (in Rupees Million)
➢The company will be in a maximum loss position of Rs. 192.50 million
in year 1. The second is the payback period, the time when the
company recovers all its investment, including the built-in return of
15 percent.
➢The payback period here is about three and a half years.

SHREYA JHA
New Product development
6.Product Development
➢ The job of translating target customer requirement into a working
prototype is helped by a set of method known as Quality function
deployment(QFD).
➢ The methodology takes the list of desired customer attributes(CAs)
generated by market research and turns them into a list of
engineering attributes(E As) that engineers can use.

SHREYA JHA
New Product development
➢ The R&D department will develop one or more physical versions of
the product concept. it goals is to find a prototype that embodies
the key attributes described in the product-concept statement, that
performs safely under normal use and conditions, and that the firm
can produce within budgeted manufacturing cost.
➢ When prototype are ready, they must be put through rigorous
functional tests and customer tests befor they enter the market
place.
➢ Alpha testing is testing the product within the firm to see how it
performs in different applications.

SHREYA JHA
New Product development
➢ After refining the prototype further, the company move to beta
testing with customers
➢ Consumer testing can take several forms, from bringing customers
into a laboratory to giving them samples to use in their homes.
➢ P&G has on site labs such as diaper testing centre where dozens of
mothers bring their babies to be studied

SHREYA JHA
New Product development
7.Market Testing
➢ After management is satisfied with functional and psychological
performance, the product is ready to be dressed up with a brand
name and packaging and put into market test.
➢ In a authentic setting marketers can learn how large the market is
and how consumers and dealers react handling, using , and
repurchasing the product.

SHREYA JHA
New Product development
Method of consumer goods market testing
a) Simulated Test marketing
➢ It calls for finding 30 qualified shoppers and questioning them about
brand familiarity and preferences in a specific product category
➢ These consumers attend a brief screening of both well -known and new
TV ads. once ad advertises the new product but is not singled out for
attention.
➢ Consumer receive a small amount of money an are invited into a store
where they may buy any item. the company notes how many consumers
buy the new brand and competing brands. This provides a measure of
ads relative effectiveness against competition ads in stimulating trial.

SHREYA JHA
New Product development
b) Controlled Test Marketing
➢ In this a research firm manages panel of stores that will carry new
products for a fee. The company with the new product specifies the
number of stores and geographic locations it want to test.
➢ The research firm delivers the product to the participating stores
and control shelf position; number of facings, displays, and POP and
pricing.
➢ Electronic scanners measure sales at checkout.the company can
also evaluate the impact of local advertising and promotions

SHREYA JHA
New Product development
c) Test Markets
➢ The ultimate way to test consumer product is to put it into full
blown test markets. The company choose a few representative
cities, and the sales f forece tries to sell the trade on carrying the
product and giving it good self exposure.
➢ The company puts on a full advertising and promotion campaign
similar to the one it would use in national marketing
➢ Test marketing also measures the impact of alternative marketing
plans by varying the marketing program in different cities.

SHREYA JHA
New Product development
8) Commercialization
➢ In this process company will face its largest cost to date.it will need
to conract for manufacture or build or rent a full scale
manufacturing facility.
a) When(Timing)
1.First Entry
2.Parallel Entry
3.Late Entry

SHREYA JHA
New Product development
b) Where(Geographic Strategy)
➢ The company must decide whether to launch the new product in a
single locality, a region, several regions, the national market, or the
international market. Most will develop a planned market rollout
overtime company size is also an important factor.
c) Whom(Target market Prospects)
➢ Within the rollout markets, the company must target initial
distribution and promotion to best prospect groups

SHREYA JHA
New Product development
d) How(introductory market strategy)
➢ A company must develop an action plan for introducing new
product into rollout markets, because new-product launches often
take longer and cost more money than expected, many potentially
successful offerings suffer from underfunding.
➢ It is important to allocate sufficient time and resources-but also not
overspend- as the new product gain traction in the market place

SHREYA JHA
Stages in the Adoption Process

Awareness

Interest

Evaluation

Trial

Adoption

SHREYA JHA
Adopter Categorization on the
Basis of Relative time of
Adoption

SHREYA JHA
 Adopter Categorization on the
Basis of Relative time of Adoption
➢A person’s level of innovativeness as “the degree to which an
individual is relatively earlier in adopting new ideas than the other
members of his social system.” Some people are the first to adopt
new clothing fashions or new appliances; some doctors are the first to
prescribe new medicines.
➢The adopter categories are shown in Figure,After a slow start, an
increasing number of people adopt the innovation, the number
reaches a peak, and then it diminishes as fewer non adopters remain.

SHREYA JHA
Adopter Categorization on the Basis of
Relative time of Adoption
➢Innovators are technology enthusiasts; they are venturesome and
enjoy tinkering with new products and mastering their intricacies.
➢Early adopters are opinion leaders who carefully search for new
technologies that might give them a dramatic competitive advantage.

SHREYA JHA
Adopter Categorization on the Basis of
Relative time of Adoption
➢Early majority are deliberate pragmatists who adopt the new
technology when its benefits are proven and a lot of adoption has
already taken place.
➢ Late majority are skeptical conservatives who are risk averse,
technology shy, and price sensitive.
➢ Laggards are tradition-bound and resist the innovation until the
status quo is no longer defensible.

SHREYA JHA
Characteristics of an Innovation
• Relative advantage
• Compatibility
• Complexity
• Divisibility
• Communicability

SHREYA JHA
Characteristics of an Innovation
➢relative advantage—the degree to which the innovation appears
superior to existing products.
➢ compatibility—the degree to which the innovation matches the
values and experiences of the individuals..

SHREYA JHA
Characteristics of an Innovation
Third is complexity—the degree to which the innovation is difficult to
understand or use. Fourth is divisibility—the degree to which the
innovation can be tried on a limited basis. Fifth is communicability—the
degree to which the benefits of use are observable or describable to
others.

SHREYA JHA
Characteristics of an Innovation
Other characteristics that influence the rate of adoption are cost, risk
and uncertainty, scientific credibility, and social approval. The new-
product marketer must research all these factors and give the key ones
maximum attention in designing the product and marketing program

SHREYA JHA
Product life-cycle Marketing
Strategies

SHREYA JHA
PLC Marketing Strategies
➢A company`s positioning and differentiation strategy
must change as the product, market and competitors
change over the period the PLC
➢PLC asserts four things
1. Product have a limited life.
2. Product sales pass through distinct stages, each
posing different challenges, opportunities, and
problem to the seller.
3. Profit rise and fall at different stage of PLC.
4. Products require different marketing, financial,
manufacturing purchasing, and human resource
strategies in each life cycle stage
SHREYA JHA
Product life Cycles

SHREYA JHA
Product life Cycles
1. Introduction
➢ A period of slow sales growth as the product is introduced in the market,
profit are non existence because of heavy expenses of product introduction.
2.Growth
➢ A period of rapid market acceptance and substantial profit improvement
3. Maturity
➢ A slow down in sales growth because the product has achieved acceptance by
most buyers
➢ Profits stabilize or decline because of increased competitions
4.Decline
➢ Sales shows a downward drift and profit erode

SHREYA JHA
Marketing strategies at different stages of PLC
1. Introduction Stage
➢ Since it takes time to roll out a new product, work out the technical
problems, fill dealer pipelines, and gain consumer acceptance, sales
growth tends to be slow in the introduction stage.
➢ Profits are negative or low, and promotional expenditures are at
their highest ratio to the sale because the need to inform potential
customers, induce product trial, and secure distribution in retail
outlets.

SHREYA JHA
Marketing strategies at different stages of PLC

➢ Firms focus on those buyers who are most ready

to buy, usually in higher- income groups. Price
tends to high because cost are high.
➢ Companies that plan to introduce a new product
must decide when to enter the market.
➢ To be the first can be rewarding, but risky and
expensive. To come in later makes sense if the
firm can bring superior technology, quality, or
brand strength.

SHREYA JHA
Marketing strategies at different stages of PLC
2. Growth stage
➢ The growth stage is marked by a rapid climb in sales. Early adopters
like the product, and additional consumer start buying it.
➢ New competitors enter, attracted by the opportunities. They
introduce new product features and expand distribution.
➢ Prices remain where they are or fall slightly, depending on how fast
demand increases.
➢ Companies maintain their promotional expenditures at the same or
at the slightly increased level to meet competition and to continue
to educate the market.

SHREYA JHA
Marketing strategies at different stages of PLC
➢ Sales rise much faster than promotional expenditures, causing a
welcome decline in the promotional –sales ratio.
➢ Profit increased during this stage as the promotion costs are spread
over a larger volume and unit manufacturing costs falls faster than
price decline.
➢ Firms must watch for a change from an accelerating to a
decelerating rate of growth in order to prepare new strategies.
➢ E.g. Men Cosmetic market in India .

SHREYA JHA
Marketing strategies at different stages of PLC
During the growth stage, the firm uses several strategies to sustain
rapid market growth
➢ It improves product quality and adds new product features and
improve styling.
➢ It adds new model and flanker products(i.e product of different
sizes, flavor, and so forth to protect the main product)

SHREYA JHA
Marketing strategies at different stages of PLC

➢ It enters into new market segments

➢ It increases its distribution coverage and enters
new distribution channels.
➢ It shifts from product awareness advertising to
product preference advertising.
➢ It lowers price to attracts the next layer of price-
sensitive buyers

SHREYA JHA
Marketing strategies at different stages of PLC

3. Maturity stage
➢ At some point, the rate of sales growth will slow,
and the product will enter a stage of relative
maturity.
➢ This stage normally lasts longer than the previous
stages and posses a big challenges to marketing.
Most product are in the maturity stage of the life
cycle.

SHREYA JHA
Marketing strategies at different stages of PLC

➢ The maturity stage divides into three phases:

growth, stable and decaying maturity.
➢ In the first phase the sales growth rate start to
decline. There are no new distribution channel to
fill.
➢ In the second phase , sales flatten on a per capita
basis because of market saturation. most potential
customers have tried the product and the future
sales are goverened by population growth and
replacement demand.
SHREYA JHA
Marketing strategies at different stages of PLC

➢ In the third phase, decaying maturity, the absolute

level of sales start to decline, and customer begin
switching to other products.
➢ This phase poses the most challenges, the sales
slowdown create over capacity in industry, which
leads to intensified competition. Competitors
scramble to find niches
➢ They engage in frequent markdown, they increase
ad and trade and consumer promotion

SHREYA JHA
Marketing strategies at different stages of PLC
➢ They increase R&D budgets to develop product
improvements and line extensions.
➢ A shakeout begins, and weaker competitors
withdraw.
➢ The industry eventually consists of well-
entrenched competitors whose basic drive is to
gain or maintain market share.
➢ Dominating the industry are a few giant firm-
perhaps a market leader, a service leader, and a
cost leader- that serve the whole market and make
their profit mainly through high volume and lower
costs SHREYA JHA
Marketing strategies at different stages of PLC

➢ Surrounding these dominant firm is a multitude of

market nichers, including market specialists,
product specialists, and customizing firms.
➢ The issue facing a firm in a mature market is
whether to struggle to become on of the big three
and achieve profit through high volume and low
cost, or to pursue a niching strategy and achieve
profit through low volume and high margin

SHREYA JHA
Marketing strategies at different stages of PLC

➢ Sometimes market will become polarized between

low- and high end segments, and the firm in middle
see their market share steadily erode. E.g.
Electrolux.
Strategies
➢ Three potentially useful ways to change the course
for a brand are market, product and marketing
program modification

SHREYA JHA
Marketing strategies at different stages of PLC

1. Market Modification
➢ A company might try to expand the market for its
mature brand by working with the two factors that
make up sales volume
Volume = no. of brand users x usage rate
A No. of brand user
a) Convert non user- small sachet shampoo market
in India

SHREYA JHA
Marketing strategies at different stages of PLC

b) Enter new market segment

➢ J&J successfully promoting its baby shampoo to
adult user.
➢ Pears soap has introduced a pink soap specially
targeted at children
c) Attract competitors customer

SHREYA JHA
Marketing strategies at different stages of PLC

B. Increase the Usage Rates Among Users

a) Use the product on more occasion
➢ e.g. milkmaid(Nestle) for making variety of dessert
preparations at home.
b) Use more of the product on each occasion
➢ E.g. drink a large glass of orange juice.
C ) Use the product in new ways
➢ Use aspirin daily as a medicine for reducing
chances of a stroke.
SHREYA JHA
Marketing strategies at different stages of PLC

2. Product Modification
➢ Managers also try to stimulate sales by modifying
the product characteristics through quality
improvement, feature improvement, or style
improvement.
a) Quality Improvement
➢ Pillsbury Chakki fresh atta, good for family heart,
rich in fiber, more hygienic.

SHREYA JHA
Marketing strategies at different stages of PLC
b) Feature improvement
➢ Adding new feature such as size, weight, materials,
additives, and accessories..
c) Style improvement
➢ It aims at increasing product esthetic appeal. A
style strategy might give the product a unique
market identity. yet style competition has problem.
➢ It isdificult to predict whether people and which
people will like a new style.
➢ A style change usually reuires discontinuing of old
style and the company risks losing customer. E.g.
New Coke. SHREYA JHA
Marketing strategies at different stages of PLC

3. Marketing Program Modification

a) Price
➢ Would a price cut attract new buyers? If so, should
we lower the prices through prices through price
specials, volume or early purchase discounts,
freight cost absorption or easiest credit terms? Or
would it be better to raise the price, to signal
higher quality?

SHREYA JHA
Marketing strategies at different stages of PLC

b) Distribution
➢ Can the company obtain more product support and
display in existing outlet? Can it penetrate more
outlets? Can the company introduce the product
into new distribution channels?
c) Advertising
➢ Should we increase advertising expenditure?
Change the message or ad copy? The media mix?
What about the timing, frequency, or size of ads?

SHREYA JHA
Marketing strategies at different stages of PLC
d) Sales promotion
➢ Should the company step- up sale promotion-trade
deals, price-off coupons, rebates, warranties, gifts and
contests?
e) Personal selling
➢ Should we increase the no. or quality of salesperson?
Should we change the basis for sales force
specialization? Revise sales territories of sales force
incentive? Can we improve sale call planning?
f) Service
➢ Can the company speed up delivery/ can we extend
more technical assistance to customers? More credit?
SHREYA JHA
Marketing strategies at different stages of PLC
4. Decline Stage
➢ Sales decline for a no. of reason, including technical
advances, shifts in consumer tastes and increased
domestic and foreign competition..
➢ All can lead to over capacity, increased price cutting
and profit errosion,
➢ As sales and profit decline, some firm withdraw from
market. Those remaining may reduce the no. of
products they offer
➢ They may withdraw from small market segments and
weaker trade channels, and they may cut their
promotional budgets and reduce prices further.
SHREYA JHA
 Common
Product Life-Cycle Patterns

SHREYA JHA
Common
Product Life-Cycle Patterns
a) Growth –slump- maturity pattern
➢ It is characteristics of kitchen appliances. Sales grow rapidly when
the product is first introduced.then fall to certain level that is
suatained by late adopter buying the rodct for first time and early
adopter replacing it.

SHREYA JHA
Common
Product Life-Cycle Patterns
b) The cycle –recycle pattern
➢ It describe the sales of new drugs. The pharma company
aggressively promotes its new drug, and this produces the first
cycle. later the sales starts declining and compny gives the drug
another promotion push, which produces the second cycle.
c) Scalloped PLC
Sales pass through succession of life cycles based on the discovery of
the new product characteristics uses and users . E.g. nylon.

SHREYA JHA
 Style, Fashion, and Fad Life
Cycles

SHREYA JHA
Style, Fashion, and Fad Life Cycles

1. Style
➢ T is a basic mode of expression appearing in a field of human
endeavor.
➢ Style appears in homes, clothing(formal casual, funky); and
art(realistic, surrealistic, abstract)
➢ A style can last for generations ang go in out of vouge.

SHREYA JHA
Style, Fashion, and Fad Life Cycles

2. Fashion
➢ It is a currently accepted or popular style in a given
field.
➢ Fashions passes through four stages: distinctiveness,
emulation, mass fashion and decline.
➢ The length of fashion cycle is hard to predict.
Fashion end because they represent a purchase
compromise, and consumer start looking for missing
attributes.
➢ E.g. As automobiles become smaller they become
less comfortable, and then a growing no. of buyers
start wanting larger cars
SHREYA JHA
Style, Fashion, and Fad Life Cycles

3. Fads
➢ Fads are a fashions that come quickly into public
view, are adopted with great zeal, peak early and
decline very fast.
➢ Their acceptance cycle is very short and they tend to
attract only a limited following who are searching for
excitement or want to distinguish themselves from
others.
➢ Fad fail to survive because they don’t normally
satisfy a strong need.
➢ The marketing winner are those who recognize fads
early and leverage them into products with staying
power. SHREYA JHA
Pricing

SHREYA JHA
Objectives
• How do consumers process and evaluate prices?
• How should a company set prices initially for
products or services?
• How should a company adapt prices to meet
varying circumstances and opportunities?
• When should a company initiate a price change?
• How should a company respond to a competitor’s
price challenge?

SHREYA JHA
Gillette Commands a
Price Premium

SHREYA JHA
Synonyms for Price
• Rent • Special assessment
• Tuition • Bribe
• Fee • Dues
• Fare • Salary
• Rate • Commission
• Toll • Wage
• Premium • Tax
• Honorarium

SHREYA JHA
Common Pricing Mistakes
• Determine costs and take traditional industry margins
• Failure to revise price to capitalize on market changes
• Setting price independently of the rest of the marketing mix
• Failure to vary price by product item, market segment, distribution
channels, and purchase occasion

SHREYA JHA
Consumer Psychology
and Pricing

Reference Prices

Price-quality inferences

Price endings

Price cues

SHREYA JHA
Consumer Psychology
and Pricing
1.Reference prices
➢Consumers compare an observed price to an internal reference price
they remember or an external frame of reference such as a posted
“regular retail price.”
2.Price-quality inferences
➢ Consumers use price as an indicator of quality. Image pricing is
especially effective with ego-sensitive products such as perfumes,
expensive cars, and designer clothing.

SHREYA JHA
Consumer Psychology
and Pricing
3.Price endings
➢Many sellers believe prices should end in an odd
number. Customers see an item priced at Rs. 299
as being in the Rs. 200 rather than the Rs. 300
range; they tend to process prices “left-to-right”
rather than by rounding.
➢Another explanation for the popularity of “9”
endings is that they suggest a discount or bargain.
Prices that end with 0 and 5 are also popular and
are thought to be easier for consumers to process
and retrieve from memory.
SHREYA JHA
Possible Consumer Reference Prices

• “Fair price” • Lower-bound price

• Typical price • Competitor prices
• Last price paid • Expected future price
• Upper-bound price • Usual discounted price

SHREYA JHA
Price Cues
• “Left to right” pricing ($299 vs. $300)
• Odd number discount perceptions
• Even number value perceptions
• Ending prices with 0 or 5
• “Sale” written next to price

SHREYA JHA
When to Use Price Cues
• Customers purchase
item infrequently
• Customers are new
• Product designs vary
over time
• Prices vary seasonally
• Quality or sizes vary
across stores

SHREYA JHA
Steps in Setting Price
Select the price objective

Determine demand

Estimate costs

Analyze competitor price mix

Select pricing method

Select final price

SHREYA JHA
Step 1: Selecting the Pricing Objective

• Survival
• Maximum current
profit
• Maximum market
share
• Maximum market
skimming
• Product-quality
leadership

SHREYA JHA
Step 2: Determining Demand

Price Sensitivity

Estimating
Demand Curves

Price Elasticity
of Demand

SHREYA JHA
Inelastic and
Elastic Demand

SHREYA JHA
Factors Leading to Less Price Sensitivity
• The product is more distinctive
• Buyers are less aware of substitutes
• Buyers cannot easily compare the quality of substitutes
• The expenditure is a smaller part of buyer’s total income
• The expenditure is small compared to the total cost of the end
product
• Part of the cost is paid by another party
• The product is used with previously purchased assets
• The product is assumed to have high quality and prestige
• Buyers cannot store the product

SHREYA JHA
Step 3: Estimating Costs

Types of Costs
Accumulated
Production
Activity-Based
Cost Accounting
Target Costing

SHREYA JHA
Cost Terms and Production
• Fixed costs
• Variable costs
• Total costs
• Average cost
• Cost at different
levels of production

SHREYA JHA
Cost Per Unit at Different Levels of
Production

SHREYA JHA
Break-Even Chart for
Determining Target-Return
Price and Break-Even Volume

SHREYA JHA
Tata motors developed ‘Nano’its small car
with a target price

SHREYA JHA
Step 5: Selecting a Pricing Method
• Markup pricing
• Target-return pricing
• Perceived-value pricing
• Value pricing
• Going-rate pricing
• Auction-type pricing

SHREYA JHA
Step 5: Selecting a Pricing Method
1. Cost –based Pricing
a) Mark-up pricing( Cost plus pricing)
b) Absorption cost pricing (Full cost pricing)
c) Target rate of return pricing
d) Marginal cost pricing

SHREYA JHA
Step 5: Selecting a Pricing Method
2. Demand Based Pricing
a) “What the traffic can bear” pricing
b) Skimming pricing
c) Penetration pricing
3. Competition-oriented Pricing
a) Premium pricing
b) Discount Pricing
c) Parity pricing/ Going rate pricing

SHREYA JHA
Step 5: Selecting a Pricing Method
4. Product Line Pricing
5. Tender Pricing
6. Affordability-based Pricing

SHREYA JHA
Step 5: Selecting a Pricing Method
1. Cost –based pricing
a) Mark-up pricing
➢ In mark-up pricing the selling price of the product is fixed by adding
a particular margin or mark up to its cost.
➢ Usually, distributive trade and marketing firms, who don’t have
manufacturing of their own, prefer this pricing method.
➢ The mark-up may vary depending on the product, the market and
the company`s policy.

SHREYA JHA
Step 5: Selecting a Pricing Method

Unit cost= variable Cost +( Fixed Cost/Unit sales)

Markup price= Unit Cost/(1-desired return on sale)

SHREYA JHA
Step 5: Selecting a Pricing
Method
b) Absorption cost pricing or full cost pricing
➢ It rests on the estimated unit cost of the product
at normal level of production and sales
➢ A profit margin is added to this unit cost. The
method uses standard costing techniques and
workout the variable and fixed cost involved in
manufacturing, selling and administering the
product.
➢ By adding these costs the total cost is arrived at.
The selling price of the product is arrived at by
adding the required margin towards profit to
such costs
SHREYA JHA
Step 5: Selecting a Pricing Method

c) Target Rate of return Pricing

➢ It is similar to absorption cost pricing. In
absorption cost pricing mark up is decided on
arbitrary basis.
➢ Rate of return pricing uses rational approach to
arrive at the mark-up. It is arrived in such a way
that the return on investment (ROI) expectation
of the firm is met in the process.

SHREYA JHA
Target-Return Pricing

SHREYA JHA
Break-Even Chart for
Determining Target-Return
Price and Break-Even Volume

SHREYA JHA
Step 5: Selecting a Pricing Method

d) Marginal cost pricing

➢ It aims as maximizing contribution towards fixed
cost. Marginal costs include all the direct
variable costs of the product.
➢ In this method these cost are fully realized. In
addition a portion of fixed cost is also realized.
➢ This method gives the flexibility not to recover a
portion of fixed costs depending on the market
situation.

SHREYA JHA
Step 5: Selecting a Pricing Method

2. Demand based pricing

a) ‘What the traffic can bear’
➢ In this seller sets the maximum price that the
customers are willing to pay for the product
under the given circumstances.
➢ In effect its variant of skimming pricing.
➢ This method bring high profits in the short term,
but the chance of error in judgments is very high
in the method.
SHREYA JHA
Step 5: Selecting a Pricing Method

b) Skimming pricing
➢ This method literally skims the market in the first
instance through high price and subsequently
settle down for a lower price.
➢ It aims at high price and high profits in the
introduction stage of the product.
c) Penetration pricing
➢ This method seeks to achieve greater market
penetration through relatively low price
SHREYA JHA
Step 5: Selecting a Pricing Method

➢ When the new product is capable of bringing in

large volume of sales, but is not a luxury item
and there is no price insensitive segment
backing it,
➢ the firm can choose penetration pricing and
make large-size sales at reasonable price before
competitors enter the market with a similar
products.

SHREYA JHA
Step 5: Selecting a Pricing Method

3. Competition oriented pricing

a) Premium pricing- pricing above the level
adopted by competitors
b) Discount pricing- pricing below such level
c) Parity pricing/ Going rate pricing- rpice matching
with the competitors

SHREYA JHA
Step 5: Selecting a Pricing Method

4. Product Line Pricing

➢ When a firm markets a variety of products
grouped

SHREYA JHA
Perceived-Value Pricing
Customer’s perceived-value
▪ Performance
▪ Warranty
▪ Customer support
▪ Reputation

SHREYA JHA
Auction-Type Pricing

English auctions

Dutch auctions

Sealed-bid auctions

SHREYA JHA
Auction-Type Pricing
➢ English auctions (ascending bids) have one seller and many buyers.
On sites such as eBay and Amazon.com, the seller puts up an item
and bidders raise the offer price until the top price is reached.
➢The highest bidder gets the item. English auctions are used today for
selling antiques, cattle, real estate, and used equipment and vehicles.

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Auction-Type Pricing
➢Dutch auctions (descending bids) feature one seller and many buyers,
or one buyer and many sellers.
➢In the first kind, an auctioneer announces a high price for a product
and then slowly decreases the price until a bidder accepts.
➢In the other, the buyer announces something he or she wants to buy,
and potential sellers compete to offer the lowest price.

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Auction-Type Pricing
➢Sealed-bid auctions let would-be suppliers submit only one bid; they
cannot know the other bids. Government departments and large
public and private enterprises use this method to procure supplies.

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Step 6: Selecting the Final Price

• Impact of other marketing activities

• Company pricing policies
• Gain-and-risk sharing pricing
• Impact of price on other parties

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Price-Adaptation Strategies
Geographical Pricing

Discounts/Allowances

Promotional Pricing

Differentiated Pricing

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Geographical Pricing
Countertrade forms:
• Barter

• Compensation deal

• Buyback arrangement

• Offset

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Geographical Pricing
➢In geographical pricing, the company decides how to price its
products to different customers in different locations and countries.
➢ Should the company charge higher prices to distant customers to
cover the higher shipping costs, or a lower price to win additional
business?
➢How should it account for exchange rates and the strength of
different currencies? Another question is how to get paid.

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Geographical Pricing
➢This issue is critical when buyers lack sufficient hard currency to pay
for their purchases.
➢Many buyers want to offer other items in payment, a practice known
as countertrade. U.S. companies are often forced to engage in
countertrade if they want the business.
➢Countertrade may account for 15 percent to 20 percent of world
trade and takes several forms.

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Geographical Pricing
➢Barter means the buyer and seller directly exchange goods, with no
money and no third party involved.
➢A compensation deal involves the seller receives some percentage of
the payment in cash and the rest in products. A British aircraft
manufacturer sold planes to Brazil for 70 percent cash and the rest in
coffee.

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Geographical Pricing
➢A buyback arrangement means that the seller sells a plant,
equipment, or technology to another country and agrees to accept as
partial payment products manufactured with the supplied
equipment.
➢Offset means the seller receives full payment in cash but agrees to
spend a substantial amount of the money in that country within a
stated time period.

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Price Discounts and Allowances

• Discount
• Quantity discount
• Functional discount
• Seasonal discount
• Allowance

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Price Discounts and Allowances

➢A discount is a price reduction to buyers

➢A quantity discount is a price reduction to those

who buy large volumes.

➢ A functional or trade discount is offered by a

manufacturer to trade channel members if they
will perform certain functions, such as selling,
storing, and record keeping. Manufacturers must
offer the same functional discounts within each
channel. SHREYA JHA
Price Discounts and Allowances
➢ A seasonal discount is a price reduction to those who buy
merchandise or services out of season.
➢An allowance is an extra payment designed to gain reseller
participation in special programs. Trade-in allowances are granted for
turning in an old item when buying a new one. Promotional
allowances reward dealers for participating in advertising and sales
support programs.

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Promotional Pricing Tactics
• Loss-leader pricing
• Special-event pricing
• Cash rebates
• Low-interest financing
• Longer payment terms
• Warranties and service
contracts
• Psychological discounting

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Promotional Pricing Tactics

1. Loss leadership
➢ Supermarkets and department store often drop
the price on well known brands to stimulate
additional store traffic.
➢ This pay if the revenue on the additional sales
compensates for the lower margins on loss
leader item.
➢ Manufacturer of loss leader brands typically
object because this practice can dilute brand
image and bring complaints from retailers who
charge the list price.SHREYA JHA
Promotional Pricing Tactics
2. Special event pricing
➢ Sellers will establish special prices in certain seasons to draw in
more customer. Every august , there are back to school sale.
3. Low interest financing
➢ Instead of cutting its price, the company can offer customers low-
interest financing, automakers have used no –interest financing to
try to attract more customers.

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Special festival
pricing by
Coca-Cola on
the occasion of
Ramzan in
Pakistan.

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Promotional Pricing Tactics
4.Longer payment system
➢ Seller specially mortgage banks and auto companies, stretch loans
over longer periods and thus lower EMI.
5. Psychological discounting
➢ This strategy involves setting an artificially high price and then
offering the product at substantial savings

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Differentiated Pricing
• Customer-segment
pricing
• Product-form pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing

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Differentiated Pricing
1. Price discrimination
➢ Occurs when a company sells a product or service at two or more
prices that do not reflect a promotional difference in costs
➢ In first degree price discrimination, the seller charges a separate
price to each customer depending on the intensity of his demand

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Differentiated Pricing
➢ In second degree price discrimination, the seller charges different
amounts to different classes of buyers
➢ In third degree price discrimination, the seller chargers different
amounts to different class of buyers
A. Customer-segment pricing-different customer group pay different
pricing. E.g different interest for senior citizen.

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Differentiated Pricing
B. Product form pricing – big bazaar sells men's shirt in many style
fabric and levels of quality
C .Image pricing- Some companies price the same product at two
different levels based on image difference. This is common in the
cosmetics and garments industries.
D. Channel pricing- Coca- Cola carries a different price depending on
whether the consumer purchases it in a fine restaurant, a fast food
restaurant, or a vending machine
E. Time pricing- airline

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 Pricing for rural markets
• A large proportion have a low and seasonal income
• Several approaches adopted by retailers and companies to
address this
• Rural retailers often extend credit
• Retailers also “break the bulk” and sell in loose form, in small
quantities
• Companies use a similar strategy by introducing “low-unit
packing” or LUP
• Companies also develop low-priced products with a target
price for rural markets
• Companies might offer refill packs or recyclable and reusable
packs

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Initiating and Responding to Price Changes

Traps in Price Cutting Strategies

• Low-quality trap
• Fragile-market-share trap
• Shallow-pockets trap
• Price-war trap

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Initiating and Responding to Price Changes

Traps in Price Cutting Strategies

➢Low-quality trap. Consumers assume quality is low.

➢Fragile-market-share trap. A low price buys market share

but not market loyalty. The same customers will shift to any
lower-priced firm that comes along.

➢Shallow-pockets trap. Higher-priced competitors match the

lower prices but have longer staying power because of
deeper cash reserves.

➢Price-war trap. Competitors respond by lowering their prices

even more, triggering a price war.
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Increasing Prices
Delayed quotation pricing

Escalator clauses

Unbundling

Reduction of discounts

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Increasing Prices
1. Delayed quotation pricing- the company does not set a final price
until the product is finished or delivered. This pricing is prevalent in
industries with long production lead times, such as industrial
construction.
2. Escalator clauses- the company requires the customer to pay today`s
price and all or part of inflation increase takes place before delivery.

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Increasing Prices
3. Unbundling- the company maintains its price but remove or price
separately one or more elements that were part of former offer.
4. Reduction of discounts- the company instructs its sales force not to
offer its normal cash and quantity discount

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Brand Leader Responses to Competitive Price Cuts

• Maintain price
• Maintain price and add value
• Reduce price
• Increase price and improve quality
• Launch a low-price fighter line

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 The Marketing Research Process

Define the problem

Develop research plan

Collect information Make

decision
Analyze information

Present findings

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 Step 1: Define the Problem

⚫ Define the problem

⚫ Specify decision alternatives
⚫ State research objectives

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Problem definition

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 Step 2: Develop the Research Plan

Data Research
Sources Approach

Research Sampling
Instruments Plan

Contact
Methods

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Step 2: Develop the Research Plan

1.Data Source
➢The researcher can gather secondary data, primary data or both.
➢Secondary data are data to see whether the problem can be Partly or
wholly solved without collecting costly primary data

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 Research Approaches
Observation

Ethnographic

Focus Group

Survey

Behavioral Data

Experimentation

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Research Approaches

a)Observational Research
➢Researchers can get fresh data by observing the relevant actors and
settings, observing as they shop or as they consume products.
b)Ethnographic research
➢It is a particular observational research approach that uses concepts
and tools from anthropology and other social science discipline to
provide deep understanding of how people live and work.

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Research Approaches

c) Focus Group research

A focus group is a gathering of six to ten people who are invited to
spend few hours with skilled moderator in order to discuss a product,
service, organization, or any other marketing entity.
d) Survey Research
➢It is the best suited for descriptive research. Companies undertake
surveys to learn about people`s knowledge, beliefs, preferences, and
satisfaction. It requires development of a survey instrument, usually
a questionnaire, which the respondents are asked to fill up.

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 Focus Group in Session

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Research Approaches

e) Behavioral Data
➢Customer actual purchase reflect preferences and are normally more
reliable than memory based statements made in surveys.e.g. Many
high-income group customer don’t buy expensive customer goods,
while some low income consumer ends up buying expensive
products, contrary to tier stated preferences in the survey
f)Experimental Research
➢The purpose of experimental research is to capture cause-and –effect
relationships by eliminating explanation of the observed findings.

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 Research Instruments

➢Questionnaires
➢Qualitative Measures
➢Technological Devices

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 Questionnaire Do’s and Don’ts
⚫ Ensure questions are free of bias ⚫ Avoid negatives
⚫ Make questions simple ⚫ Avoid hypotheticals
⚫ Make questions specific ⚫ Avoid words that could be
⚫ Avoid jargon misheard
⚫ Avoid sophisticated words ⚫ Use response bands
⚫ Avoid ambiguous words ⚫ Use mutually exclusive categories
⚫ Allow for “other” in fixed response
questions

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 Question Types—Dichotomous

In arranging this trip, did you contact American

Airlines?
 Yes  No

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 Question Types—Multiple Choice

With whom are you traveling on this trip?

 No one
 Spouse
 Spouse and children
 Children only
 Business associates/friends/relatives
 An organized tour group

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 Question Types—Likert Scale

Indicate your level of agreement with the following

statement: Small airlines generally give better service
than large ones.
 Strongly disagree
 Disagree
 Neither agree nor disagree
 Agree
 Strongly agree
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 Question Types—Semantic Differential

American Airlines
Large ………………………………...…….Small
Experienced………………….….Inexperienced
Modern……………………….…..Old-fashioned

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 Question Types—Importance Scale

Airline food service is _____ to me.

 Extremely important
 Very important
 Somewhat important
 Not very important
 Not at all important

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 Question Types—Rating Scale

American Airlines’ food service is _____.

 Excellent
 Very good
 Good
 Fair
 Poor

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 Question Types—
Intention to Buy Scale

How likely are you to purchase tickets on American

Airlines if in-flight Internet access were available?
 Definitely buy
 Probably buy
 Not sure
 Probably not buy
 Definitely not buy

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 Question Types—Completely Unstructured

What is your opinion of American Airlines?

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 Question Types—Word Association

What is the first word that comes to your mind when you
hear the following?
Airline ________________________
American _____________________
Travel ________________________

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 Question Types—Story Completion

“I flew American a few days ago. I noticed that the

exterior and interior of the plane had very bright
colors. This aroused in me the following thoughts and
feelings.” Now complete the story.
____________________________________________
____________________________________________
____________________________________________
____________________________________________
____________________________________________
______________

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 Question Types—Picture
(Empty Balloons)

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 Question Types—Thematic Apperception
Test

Make up a story that reflects what you think is

happening in this picture.
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 Qualitative Measures

Word Association

Projective Techniques

Visualization

Brand Personification

Laddering

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Qualitative Measures

a) Word association
➢ Ask subjects what words come to mind when they hear brand
name. the primary purpose of freedom association task is to
identify the range of possible brand association in consumer minds
b) Projective Technique
➢ Give people an incomplete stimulus and ask them to complete it.
One such approach is bubble exercise.

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Qualitative Measures

c) Visualization
➢ It requires people t create collage from magazine photos or drawing
to depict their perceptions
d) Brand personification
➢ Ask subjects what kind of person they think of when the brand is
mentioned `If the brand were to come alive as a person, what
would be it like, what would it do, where would it live`etc.
e) Laddering
➢ A series of increasingly more specific `why` questions can reveal
consumer motivation, and consumer deeper more abstract goals.

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 Technological Devices

Galvanometers

Tachistoscope

Eye cameras

Audiometers

GPS
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 Sampling Plan

⚫ Sampling unit: Who is to be surveyed?

⚫ Sample size: How many people should be
surveyed?
⚫ Sampling procedure: How should the
respondents be chosen?

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 Table 4.2 Types of Samples

Probability Samples Nonprobability Samples

⚫ Simple random ⚫ Convenience
⚫ Systematic random ⚫ Judgment
⚫ Stratified random ⚫ Quota
⚫ Cluster ⚫ snowball

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Types of Sample
Probability sampling
➢A sampling procedure in which each element of the population has a
fixed probabilistic chance of being selected for the sample
a) Simple Random Sampling-
➢A probability sampling technique in which each element of
population has a equal probability of selection

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Types of Sample
b) Systematic Sampling
➢A probability sampling technique in which the sample is chosen by
selecting a random starting point and then picking every nth element
in succession from the sampling frame.
c) Stratified Sampling
➢A probability sampling that uses a two step process to partition the
population into subpopulations or strata. Elements are selected from
each stratum by a random procedure

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Types of Sample
c) Cluster Sampling
➢First, the target population is divided into mutually exclusive and
collectively exhaustive sub population called cluster. Then, a random
sample of clusters is selected based on a probability sampling
technique

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Types of Sample
Non Probability sampling
a) Convenience Sampling
➢A sampling technique that attempts to obtain a sample of
convenient elements. The selection of sampling units is left on
primarily to the interviewer.
b) Judgmental Sampling
A form of convenience sampling in which the population elements are
purposely selected based on the judgment of the researcher.

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Types of Sample
c) Quota Sampling
➢A technique that is two stage restricted judgmental sampling. The
first stage consists of developing control categories or quotas of
population elements. In the second stage, sample elements are
selected based convenience of judgment.

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Types of Sample
d) Snowball sampling
➢A technique in which an initial group of respondents is selected
randomly. Subsequent respondents are selected based on referrals or
information provided by initial respondents. This process may be
carried out in waves by obtaining referrals for referrals

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 Contact Methods

Mail Questionnaire

Telephone
Interview

Personal
Interview

Online
Interview
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 Pros and Cons of Online Research

Advantages Disadvantages
⚫ Inexpensive ⚫ Small samples
⚫ Fast ⚫ Skewed samples
⚫ Accuracy of data, ⚫ Technological
even for sensitive problems
questions ⚫ Inconsistencies
⚫ Versatility

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Thank You for your participation

For any queries, please contact:

shreyajha28@gmail.com
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