Definition: Product Policy

Product policy is defined as the broad guidelines related to the production and development of a product.
These policies are generally decided by the top management of a company i.e. board of directors. It is like
a long term planning with respect to the product-mix of the company in order to deliver maximum
customer satisfaction.
Product policy of a company has certain objectives
1. Survival: - The main objective of any company is to stay in the market profitably.
2. Growth: - Based on the long term goals of the company the policies are defined to get a good growth in
the market.
3. Flexibility: - The product policy needs to be flexible to the changing needs of the customers,
government regulations, global trends and economy.
4. Scalability: - The companies should use its resources properly to make the most of its valuable
resources. With time the company needs to develop economies of scale to improve profits.

Pricing policy is the determination of what price a business will charge for a product or service, and this
price determination is made by considering

1. costs of production,
2. value of the product or service,
3. demand for the product or service, and
4. competition for the product or service in the marketplace.

Pricing policy reflects a business's market understanding and it's ability to take risks. It is pricing policy--
based on costs, value, demand and competition-

Pricing Strategies

In terms of the marketing mix some would say that pricing is the least attractive element. Marketing
companies should really focus on generating as high a margin as possible. The argument is that the
marketer should change product, place or promotion in some way before resorting to pricing reductions.
However price is a versatile element of the mix as we will see.

The Role and Importance of Trading Blocs are as follows:

Trading blocs have played a positive role in the development of international trade. This can be explained with the help of following
points:

1. Economic integration:

Trading blocs have resulted in economic integration. It represents various forms of economic integration in a region like SAARC,
OPEC, ASEAN, EU etc. Trading blocs unifies different independent economies and bring the nations closer.

Trading blocs helps in enhancing degree of regional co-operation and interrelationship. It brings the nation closer by unifying
independent economies and facilitates economic cooperation among the members of the group.

2. Free transfer of resources:

Trading blocs helps in elimination of tariff, and non-tariff barriers and facilitates free transfer of resources across the border of
member countries. This help in optimum utilisation of available resources.
This is because no country in the world is self-sufficient and they need to depend upon one another for the fulfillment of their
requirement.

3. Increase in Trade:

Free transfer of resources helps in increasing the productivity of member nations. They eliminate trade barriers and encourage free
trade. This increase import and export activities of member nations, which results into increase in trade revenues.

Trading blocs are sound and efficient to create sustainable economic growth. Trading blocs are created to encourage trading
partners to buy and sell goods already made in their home countries. It also encourages economies of scale.

4. Employment opportunities:

Large-scale production and distribution leads to an increase in employment opportunities directly and indirectly. This results into
increase in income level of the people, which enhances the standard of living of the economy.

Trading blocs tend to increase in income and employment level of the member countries. Capital is required to generate more and
more employment opportunities. Trading blocs lead to free transfer of resources viz natural, human and capital resources, which are
optimally utilised for creating employment opportunities.

5. Benefit to the consumers:

Formation of trading blocs enables transfer of technologies across borders resulting into improvement in productivity and quality of
goods and services ultimately benefiting the consumers to a greater extent.

Removal of trade barriers and free transfer of resources have resulted into mass production and distribution. This facilitates
provision of quality product in competitive prices to the consumers.

6. Cooperative spirit:

Trading blocs leads to economic, political and cultural integration of member -countries. This develops a spirit of cooperation and
coordination among member nations. This helps in maintaining good relations among the member nations.

7. Competition:

Trading blocs has resulted into increase in competition between companies of entire region. It also facilitates to face competition
effectively. Trading blocs gives competitive advantage not only to large establish firms but also to the newly emerging firm.

8. Development of region:

Trading bloc plays an important role in contributing the development, industrialisation and economic growth of whole region.
Trading blocs are a sound and efficient way to create sustainable economic growth.

Liberal policies and removal of trade barriers has resulted in the growth of industries in those regions. This in turn increased the
production and distribution activities leading to economic growth of those regions.
marketing pricing

Penetration Pricing.

The price charged for products and services is set artificially low in order to gain market share. Once this
is achieved, the price is increased. This approach was used by France Telecom and Sky TV. These
companies need to land grab large numbers of consumers to make it worth their while, so they offer free
telephones or satellite dishes at discounted rates in order to get people to sign up for their services. Once
there is a large number of subscribers prices gradually creep up. Taking Sky TV for example, or any cable
or satellite company, when there is a premium movie or sporting event prices are at their highest – so they
move from a penetration approach to more of a skimming/premium pricing approach.

Economy Pricing.

This is a no frills low price. The costs of marketing and promoting a product are kept to a minimum.
Supermarkets often have economy brands for soups, spaghetti, etc. Budget airlines are famous for
keeping their overheads as low as possible and then giving the consumer a relatively lower price to fill an
aircraft. The first few seats are sold at a very cheap price (almost a promotional price) and the middle
majority are economy seats, with the highest price being paid for the last few seats on a flight (which
would be a premium pricing strategy). During times of recession economy pricing sees more sales.
However it is not the same as a value pricing approach which we come to shortly.

Price Skimming.

Price skimming sees a company charge a higher price because it has a substantial competitive advantage.
However, the advantage tends not to be sustainable. The high price attracts new competitors into the
market, and the price inevitably falls due to increased supply.
Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were
tempted into the market and the watches were produced at a lower unit cost, other marketing strategies
and pricing approaches are implemented. New products were developed and the market for watches
gained a reputation for innovation.

The diagram depicts four key pricing strategies namely premium pricing, penetration pricing, economy
pricing, and price skimming which are the four main pricing policies/strategies. They form the bases for
the exercise. However there are other important approaches to pricing, and we cover them throughout the
entirety of this lesson.

Psychological Pricing.

This approach is used when the marketer wants the consumer to respond on an emotional, rather than
rational basis. For example Price Point Perspective (PPP) 0.99 Cents not 1 US Dollar. It’s strange how
consumers use price as an indicator of all sorts of factors, especially when they are in unfamiliar markets.
Consumers might practice a decision avoidance approach when buying products in an unfamiliar setting,
an example being when buying ice cream. What would you like, an ice cream at $0.75, $1.25 or $2.00?
The choice is yours. Maybe you’re entering an entirely new market. Let’s say that you’re buying a
lawnmower for the first time and know nothing about garden equipment. Would you automatically by the
cheapest? Would you buy the most expensive? Or, would you go for a lawnmower somewhere in the
middle? Price therefore may be an indication of quality or benefits in unfamiliar markets.

Product Line Pricing.

Where there is a range of products or services the pricing reflects the benefits of parts of the range. For
example car washes; a basic wash could be $2, a wash and wax $4 and the whole package for $6. Product
line pricing seldom reflects the cost of making the product since it delivers a range of prices that a
consumer perceives as being fair incrementally – over the range.

If you buy chocolate bars or potato chips (crisps) you expect to pay X for a single packet, although if you
buy a family pack which is 5 times bigger, you expect to pay less than 5X the price. The cost of making
and distributing large family packs of chocolate/chips could be far more expensive. It might benefit the
manufacturer to sell them singly in terms of profit margin, although they price over the whole line. Profit
is made on the range rather than single items.

Optional Product Pricing.

Companies will attempt to increase the amount customers spend once they start to buy. Optional ‘extras’
increase the overall price of the product or service. For example airlines will charge for optional extras
such as guaranteeing a window seat or reserving a row of seats next to each other. Again budget airlines
are prime users of this approach when they charge you extra for additional luggage or extra legroom.
Captive Product Pricing

Where products have complements, companies will charge a premium price since the consumer has no
choice. For example a razor manufacturer will charge a low price for the first plastic razor and recoup its
margin (and more) from the sale of the blades that fit the razor. Another example is where printer
manufacturers will sell you an inkjet printer at a low price. In this instance the inkjet company knows that
once you run out of the consumable ink you need to buy more, and this tends to be relatively expensive.
Again the cartridges are not interchangeable and you have no choice.

Product Bundle Pricing.

Here sellers combine several products in the same package. This also serves to move old stock. Blu-ray
and videogames are often sold using the bundle approach once they reach the end of their product life
cycle. You might also see product bundle pricing with the sale of items at auction, where an attractive
item may be included in a lot with a box of less interesting things so that you must bid for the entire lot.
It’s a good way of moving slow selling products, and in a way is another form of promotional pricing.

Promotional Pricing.

Pricing to promote a product is a very common application. There are many examples of promotional
pricing including approaches such as BOGOF (Buy One Get One Free), money off vouchers and
discounts. Promotional pricing is often the subject of controversy. Many countries have laws which
govern the amount of time that a product should be sold at its original higher price before it can be
discounted. Sales are extravaganzas of promotional pricing!

Geographical Pricing.

Geographical pricing sees variations in price in different parts of the world. For example rarity value, or
where shipping costs increase price. In some countries there is more tax on certain types of product which
makes them more or less expensive, or legislation which limits how many products might be imported
again raising price. Some countries tax inelastic goods such as alcohol or petrol in order to increase
revenue, and it is noticeable when you do travel overseas that sometimes goods are much cheaper, or
expensive of course.

Value Pricing.

This approach is used where external factors such as recession or increased competition force companies
to provide value products and services to retain sales e.g. value meals at McDonalds and other fast-food
restaurants. Value price means that you get great value for money i.e. the price that you pay makes you
feel that you are getting a lot of product. In many ways it is similar to economy pricing. One must not
make the mistake to think that there is added value in terms of the product or service. Reducing price does
not generally increase value.
See also eMarketing Price and international Marketing price.
Our financial objectives in terms of price will be secured on how much money we intend to make from a
product, how much we can sell, and what market share will get in relation to competitors. Objectives such
as these and how a business generates profit in comparison to the cost of production, need to be taken into
account when selecting the right pricing strategy for your mix. The marketer needs to be aware of its
competitive position. The marketing mix should take into account what customers expect in terms of
price.

There are many ways to price a product. Let’s have a look at some of them and try to understand the best
policy/strategy in various situations.

Premium Pricing.

Use a high price where there is a unique brand. This approach is used where a substantial competitive
advantage exists and the marketer is safe in the knowledge that they can charge a relatively higher price.
Such high prices are charged for luxuries such as Cunard Cruises, Savoy Hotel rooms, and first class air
travel.

What is a 'Distribution Channel'

A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it
reaches the end consumer. It can include wholesalers, retailers, distributors, and even the internet. Channels
are broken into direct and indirect forms: A direct channel allows the consumer to buy the good from the
manufacturer, and an indirect channel allows the consumer to buy the good from a wholesaler or retailer.

A distribution channel is the path by which all goods and services must travel to arrive at the intended
consumer. Conversely, it also describes the pathway payments make from the end consumer to the original
vendor. Distribution channels can be short or long and depend on the amount of intermediaries required to
deliver a product or service.

Marketing: Distribution Intermediaries (GCSE)

 Levels: GCSE

 Exam boards: AQA, Edexcel, OCR, IB

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It is common for a business to use one or more kinds of intermediary when it comes to getting a product or service to
the end customer. Here are the main kinds of distribution intermediaries.

Retailers

The most popular distribution channel for consumer goods, retailers operate outlets that trade directly with
household customers. Retailers can be classified in several ways:

 Type of goods being sold (e.g. clothes, grocery, furniture)

 Type of service (e.g. self-service, counter-service)
  Size (e.g. corner shop; superstore)
 Ownership (e.g. privately-owned independent; public-quoted retail group)
 Location (e.g. rural, city-centre, out-of-town)
 Brand (e.g. nationwide retail brands; local one-shop name)

Retailers enable producers to reach a wider audience, particularly if broad coverage by the major retail chains can be
obtained. The big downside to using a retailer is the loss of profit margin. A high street retailer will typically look to
take at least 40-50% of the final consumer price.

Wholesalers

Wholesalers stock a range of products from several producers. The role of the wholesaler is to sell onto retailers.
Wholesalers usually specialise in particular products – for example food products.

Distributors and dealers

Distributors or dealers have a similar role to wholesalers – that of taking products from producers and selling them
on. However, they often sell onto the end customer rather than a retailer. They also usually have a much narrower
product range. Distributors and dealers are often involved in providing after-sales service.

Franchises

Franchises are independent businesses that operate a branded product (usually a service) in exchange for a licence
fee and a share of sales. Franchises are commonly used by businesses (franchisors) that wish to expand a service-
based product into a much wider geographical area.

Agents
Agents sell the products and services of producers in return for a commission (a percentage of the sales revenues).
You will often find agents working in the service sector. Good examples include travel agents, insurance agents and
the organisers of party-based selling events (e.g. Tupperware and Pampered Chef).

Marketing Challenge #
1: Insufficient Resources
2: Increasing Competition
3: Keeping Quality Consistently High
4: Shifts in Trends Toward Paid Promotion
5: Impatience and Unrealistic Expectations
6: Maintaining Ambitious Publishing Schedules

Difference Between Push & Pull Marketing

The primary difference between push and pull marketing lies in how consumers are approached.
In push marketing, the idea is to promote products by pushing them onto people. For push
marketing, consider sales displays at your grocery store. On the other hand, in pull marketing,
the idea is to establish a loyal following and draw consumers to the products.
Push Marketing

Push marketing is a promotional strategy where businesses attempt to take their products to the
customers. The term push stems from the idea that marketers are attempting to push their
products at consumers. Common sales tactics include trying to sell merchandise directly to
customers via company showrooms and negotiating with retailers to sell their products for them,
or set up point-of-sale displays. Often, these retailers will receive special sales incentives in
exchange for this increased visibility.
Example of Push Marketing

One common example of push marketing can be seen in department stores that sell fragrance
lines. The manufacturing brand of the fragrance will often offer sales incentives to the
department stores for pushing its products onto customers. This tactic can be especially
beneficial for new brands that aren't well-established or for new lines within a given brand that
need additional promotion. After all, for many consumers, being introduced to the fragrance at
the store is their first experience with the product, and they wouldn't know to ask for it if they
didn't know it existed.
Pull Marketing

Pull marketing, on the other hand, takes the opposite approach. The goal of pull marketing is to
get the customers to come to you, hence the term pull, where marketers are attempting to pull
customers in. Common sales tactics used for pull marketing include mass media promotions,
word-of-mouth referrals and advertised sales promotions. From a business perspective, pull
marketing attempts to create brand loyalty and keep customers coming back, whereas push
marketing is more concerned with short-term sales.
Example of Pull Marketing

You can often recognize pull marketing campaigns by the amount of advertising that's being
used. Pull marketing requires lots of advertising dollars to be spent on making brand and
products a household name. One example includes the marketing of children's toys. In the first
stage, the company advertises the product. Next, the children and parents see the advertisement
and want to purchase the toy. As demand increases, retailers begin scrambling trying to stock the
product in their stores. All the while, the company has successfully pulled customers to them.