PRODUCT POSITIONING –

It refers to the manner in which a product is offered to a

particular customer of a particular segment for the aim to meet the customer's needs. E.g.:
Wagon R is positioned as a compact car for the smart urban, MTR‟s Ready to eat foods
positioned as a convenient and a ready to eat foods, Coco cola‟s brand globally is
positioned as Taste the feeling

It refers to the manner in which a marketer changes

the whole product in order to satisfy a particular segment or customer. Mostly
repositioning is done when a product is changed physically.

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Definition of product

According to Philip Kotler, “Product is anything that can be offered to someone to satisfy a
need or a want”.

According to William Stanton, “Product is a complex of tangible and intangible

attributes, including
packaging, colour, price, prestige and services that satisfy needs and wants of people”.

Components of the product

The components of the product include core product, associated features, brand name, logo,
Package and label.

1 The Core Product

It is the basic element of the product. For example if we take Dove Soap, the fragrance of the
soap, the moisturizing ability, the pristine white colour, the brand name, the price, the
positioning as luxury soap all have gone into the marketing of product personality. The core
component is the soap, the generic constituent, as in the case of any other bathing soap, the
only difference being the other components are superimposed on this basic component to
develop the total personality of Dove.

2 The Associated Features

The Product includes several associated features besides the core ingredient. In the example
of Dove soap the fragrance of the soap, the moisturizing ability, the pristine white colour etc
are its associated features. The total product personality is mostly enhanced through the
associated features. Further, these also aid in distinguishing the product from its competitors.

3 The Brand Name

A brand is defined as a name, term, symbol, design or a combination of them which is
intended to identify the goods and services of one seller and to differentiate them from those
of competitors. A trade mark is a brand with legal protection, thus ensuring its exclusive use
by one seller. In the current age consumers do not just pick products but they pick brands.
The brand image is developed through advertising and other promotional measures to remain
etched in the consumers‟ minds.

4 The Logo
It is the brand mark/symbol and an essential aspect of the product, extending its support to
the brand effectively. Symbols and pictures ensure product/brand identification and recall
with their importance being enhanced in rural markets where brands are mostly recognized
by their picture in the logo.
5 The Package
It is another important component of the total product personality, particularly in packaged
consumer products. The package performs three essential roles:

a Ensures protection to the product

Provides information about the product
Increases aesthetics and sales appeal.
Conventionally packaging was used to protect the product from damage en route and to
facilitate handling at various points of distribution. Later on it also became a major tool in the
promotion of the product. Currently packaging contributes to the total sales appeal of the
product.
6 The Label
It is the part and parcel of a package. It provides written information about the product
helping the buyer to understand the nature of the product, its distinctive features, its
composition, its performance. The components discussed above make a preliminary impact
on the consumer. The other „P‟ i.e Price, Place and Promotion also play an important role in
shaping the total product personality.

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SOME PRODUCT TERMS / PRODUCT DECISIONS

PRODUCT MIX is the list of all products offered by a company. It is defined as the
composite of products offered for sale by a firm or a business. The product mix is three
dimensional:

Breadth is measured by the number or variety of products manufactured by a single

manufacturer. E.g.: LG produces a variety of electrical gadgets such as television sets,
washing machines, refrigerators etc.

Depth refers to the assortment of sizes, colors and models offered within each product
line. E.g.: LG manufactures different varieties or models of refrigerators and washing
machines, etc.

Consistency refers to the close relationship of various product lines or their end use to
production requirements or to distribution channels. E.g: LG produces those goods which
fall under the category of electrical appliances.

FACTORS INFLUENCING PRODUCT MIX

1. Market demand: The demand of the product determines whether the product should
be manufactured or its production discontinued. New products are introduced in the
market after the need of the product is identified.
2. Cost of product: The Company can develop products which are low in costs and
produce those products. Nirma, washing powder, a low priced product was launched to
counter Surf which was priced high.
3. Quantity of production: The Company can add more items on its product line in case
the production of the new product is to be made on large scale.
4. Advertising and distribution factors: An organization does not incur any additional
efforts to advertise or distribute when the company adds one or more products to its
product line.
5. Use of residuals: In case the by-products can be developed or utilized; a company
should produce such products. Sugar manufacturing companies can also use molasses.
5. Competitor’s action: In order to meet the competition/market a firm may decide to
include or eliminate a product.
6.
7. Full utilization of marketing capacity: The Company can start to produce another
product to utilize the capacity completely if the existing marketing resources are not
being utilized.
8. Goodwill of the company: When the company has good reputation in the market, new
product can be launched without much difficulty.

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PRODUCT LINE is a group of products that are closely related, either because
they function in a similar manner or are sold to the same customer groups or are
marketed through the same types of outlets, or fall within given price ranges. Many
businesses offer a range of product lines which may be unique to a single organization
or may be common across the industry.

PRODUCT DIFFERENTIATION: Product differentiation is the modification

of a product to make it more attractive to the target market. This involves differentiating it
from competitors „product as well as own product offerings. Three things that
continuously change in product differentiation are PRODUCT QUALITY, PRODUCT
DESIGN, and PRODUCT SUPPORT SERVICES:

PRODUCT DIVERSIFICATION:
Product Diversification refers to the product expansion either in the depth and/or in
width. Depth of product-line implies the assortment of colors, sizes, designs, quality,
stability, etc. It refers to adding a new product to the existing product line or mix. e.g. -
Godrej Company used to manufacture cupboards, locks, safes, refrigerators etc. on a
large scale but has now diversified into cosmetics, soaps etc

PRODUCT MODIFICATION: Product modification may be defined as a deliberate

alteration in the physical attributes of a product or its packaging. It is the process by which
the existing products are modified to suit the changing demand on account of changes.
E.g.: Television manufacturers are bringing out certain modifications in order to suit the
changing demand.

PRODUCT STANDARDIZATION: Standardization implies a limitation of the number

of varieties or the types of uniform quality that can be manufactured so as to reduce the
unnecessary varieties. Eg. Ready-made Shirts and Trousers are manufactured in standard
sizes

PRODUCT ELIMINATION: Products which cannot be improved or modified to suit the

market needs need to be replaced by other profit generating products, this process of
withdrawal is known as product elimination. Eg. Maruti 800 was replaced in the market for
other cars manufactured by Maruti Suziki.

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PRODUCT CLASSIFICATION

The product nature is found to have significant impact on the method of product positioning.
Product classification assists the marketers to put the products before the consumer better.
They can be segmented, targeted and positioned better. It can be undertaken on the basis of
three essential characteristics namely durability, tangibility and user type. Durability implies
the average life of the product available for consumption, tangibility means the physical
attributes of the product and user type provides information regarding consumer products and
industrial products. The following figures show a typical product classification:

Classification on the basis of Durability and Tangibility

TABLE

A Products can be classified on the basis of durability and tangibility.

On the basis of durability

they can be classified as non durable products. On the basis of tangibility, they can be
classified as physical products and services.

Non durable goods: Non durable goods are tangible goods normally consumed in
either one or a couple of uses. These are purchased regularly and also consumed
frequently. Smooth distribution and easy availability at all possible locations makes
these products succeed in the market. The marketer has to advertise heavily to increase
the purchase and build brand preference. Most of the fast moving consumer goods
category products belong to this class. Examples include food items and toiletries.
Durable goods: Durable goods are tangible goods that can normally be used for
many years. These products need more personal selling, after sales service, are often
supported by guarantee and warranty programs. Examples include LCD TVs, mobile
phones, washing machines and microwaves.
Services: On the basis of tangibility, products can be also be classified as physical
products and services. Services are intangible, inseparable and inconsistent products.
Service essentials include quality control, credibility of the supplier and adaptability to
changing consumption behaviour. Examples include hospitality service, airlines
services, insurance and banking services.

B Products can be classified on the basis of consumer goods

Consumer products can be divided on the basis of the time and effort the buyer is willing to
take out for the purchase of the product. They can be divided into two parts:
(i) Convenience Products:
They are goods that a customer purchases frequently, with minimum effort and time to make
a buying decision. Example being soft drinks, soaps, bread, milk etc. These can be further
classified into three categories:

(a) Staple Goods: The products which are purchased on a regular basis. The decision to
buy the product is programmed once the customer puts the item on his list of regular
purchases. Example bread, milk, eggs.

(b) Impulse Goods: The consumer purchases these without any planning or search
efforts. The desire to buy impulse is a result of the shopping trip. This is why
impulse products are located where they can be easily noticed. Example chocolates,
magazines.
(c) Emergency Goods: They are purchased to fulfill urgent need. The consumer ends up
paying more. Examples of consumer shopping for tooth brushes or shaving blades at
tourist destinations.
(ii) Shopping Products:
These are the goods where the customer while selecting the product for purchase makes due
comparisons on the bases of quality, price, style and suitability. Shopping products can be
homogenous or heterogeneous.
1. Homogeneous Products: They are products which are alike, with the sellers engaging on
price war. Manufacturers end up distinguishing based on design, services offered or other
freebies.
2. Heterogeneous Shopping Products: They are products that are considered to unlike or no
standardized.
The consumers always shop for a best quality buy. Price becomes secondary in
case the focus is on style or quality.

(iii) Specialty Products:

These are goods with unique characteristic or brand identification for which a sufficient
number
of buyers are willing to make a special purchasing effort. Consumers have strong convictions
towards the brand, style, or type. For example Cars, High end Watches, Diamond jewellery
etc.

(iv) Unsought Products

These are products that are available in the market but the potential buyers do not know about
Their existence or there do not want to purchase them. There are two types of such products:
1 Regularly Unsought Products: The products which exist but the consumers do not want to
purchase them as of now, but might eventually purchase them. Example: Life Insurance
Products or Doctor’s services.

2 New Unsought Products: The marketer’s task is to inform target consumers of the
existence of the product, stimulate demand and persuade then to buy the product. Example:
Oral Polio Vaccine was unsought initially, but heavy promotion and persuasion by the
government has lead to eradication of polio.

C Products can be classified on the basis of Industrial Products

The Products used as inputs to produce consumer products are known as industrial products.
They are used for non-personal and business purposes. Examples being raw materials, tools,
machinery, lubricants etc.

Types of Industrial Products:

(i) Materials and Parts: These are goods that are used for manufacturing the product.
These are further divided into two types:

(a) Raw Material: The raw materials could be either agri based products like sugar
cane, rubber. Wheat etc or they can natural products like iron ore, crude
petroleum etc. Farm products are renewable as they involve agricultural
production. The natural products are very often limited and often available in
great bulk and low unit value. There are a few but large producers and marketers
supplying natural products. Long term supply contracts are a common
phenomenon in these categories, as the industry needs an uninterrupted supply of
products and services for running their business process.

(b) Manufactured Materials and Parts: These include component materials like
glass, iron, plastic or components like battery, bulbs or steering etc. The
component materials are further fabricated from aluminium, pig iron to steel and
cloth from yarn. Components enter the final product without being changed or
Modified. In this case price, quality and services are important factors while
Making a decision.
(i) Capital Items: They are the goods used in producing the finished goods. They
Include tools, machines, computers etc. They can be categorized into installations
like lifts, mainframe computers etc and equipment’s like fax machines, EPBX
Machines. Installations are major purchase for the organization. Equipment’s include
hand tools and office equipment’s like personal computers, laptops. These
Equipment’s are not everlasting and they need to be refilled at different periods of
time.
(ii) Supplies and Business Services: They are goods which are required for developing
or managing the finished products. They can be of two kinds namely maintenance
and repair items and operating supplies. Maintenance supplies include painting,
nailing and operating supplies include writing papers, consumables for computer,
lubricants and coal. Business services can be classified as maintenance service like
copier repair, window and glass cleaning and business advisory services include
Consultancy, advertising and legal services.
MEANING AND IMPORTANCE OF PRICE

Price is one of the most important elements of the marketing mix. This is the only element
which generates revenue for an organization and determines its growth. The other three main
elements of the marketing mix are Product, Place and Promotion. A firm incurs a certain cost
to produce a Product or service. The Place element is concerned with the sale and distribution
of the product through various channels, therefore a firm incurs some expense there, like in
choosing the sales-methods, payment to salesmen, expense incurred on transporting products
to place of selling, etc.

The Promotion element, concerned with the advertising and

promotion of the firm’s product leads to expenditure on different promotion and advertising
media like TV& Radio advertising, sample-promotion, etc. All of these are the variable costs
for an organization, that is, these costs change with the changes in level of production and
sales activity; therefore influence the process of setting the right price for the product. „Right
price‟ denotes the level of price which can cover all these expenditures on the final product
and brings some profit to the firm.

Meaning of Price-
The term price denotes money value of a product. It represents the amount of money that
customers pay to the sellers to gain benefits of having or using a good or service. In fact it is
marketers' assessment of the value customers see in the product. So price indicates the money
value which a buyer is ready to exchange for purchase of certain good or service.

Definition of Price-
The definition of Price according to Philip Kotler is- “Price is the amount of money charged
for a product or service.” Similarly according to Stanton “Price is the amount of money
needed to acquire some combination of goods and its companying services.”

Importance of Pricing
Pricing is an important element of the marketing mix of the firm. All other Ps of
marketing i.e. Product, Place and Promotion are highly dependent on the price at
which the firm can sell its products to the buyers. Price will usually be set relatively
high by the firm if manufacturing is expensive, distribution and promotion are
exclusive.

On the contrary a low price may be a viable substitute for product quality,
but firm requires effective promotion and an energetic selling effort to increase its
market share. Similarly consumers‟ buying decisions also depends upon price of the
product up to a great extent. Highly priced commodities generally witness a sluggish
sale trend in comparison to moderately priced goods.

A. Importance of Pricing for Firm-

Pricing is significant for firms in the following manner-
1. To determine firm’s Competitive Position and Market share-
Pricing Policy of a firm is a major determinant of a firm’s success as it affects the
firm‟s competitive position and share in the market. If prices are too high, the
business is lost. If prices are too low, the firm may be lost. The wrong price can also
negatively affect sales and cash flow to the firm.
2. To achieve the financial goals of the company-
Price has an important bearing on the firm’s financial goals, i.e. Revenue and Profit.
For a given level of production, higher price means a higher revenue and higher
profitability (revenue minus costs).With the help of price; a firm can make estimates
of expected revenue and profits.
3. To determine the quantum of production –
Price also helps in determining the quantum of production which should be carried
out by the firm. The management of a firm can make estimates of profit at different
levels of production at different prices and can choose the best combination of
production, volume, and price.
4. To determine the product positioning and distribution in the market-The sale
of product is supported by extensive advertising and promotional campaigns. What
type of promotional techniques is to be used and how much cost will be incurred,
these decisions depend upon prospective revenues of the firm, which again are
influenced by the product price.
5. To determine the quality and variants in production-Before setting the price,
managers try to explore „Will customers buy the product at that price?‟ to fit the
realities of the marketplace. This helps them to determine various product models
that can be produced to fit different market segment, e.g. Samsung offers Samsung
Grand for a medium-income group and Galaxy S7 Edge for a high-income group of
consumers.
6. To establish consistency with the other variables in the marketing mix- Pricing
decisions and policies directly influence the nature and quality of product, its
packaging, promotion policies, channels of distribution etc. For instance, a firm may
decide to improve the quality of a product, increase the number of accompanying
services and spend more on promotion and packaging etc. only if it is confident to
sell its product at the price which is good (high) enough to cover the cost of
additional improvements and services. If this same product cannot command a very
high price in the market, then the company will have to keep normal quality, reduce
the number of accompanying services, go with different, less-expensive channels of
distribution and simplify packaging etc. Therefore there is no doubt that the nature
and type of product, promotion and distribution policies of the firm are influenced
by the price-policy of the firm.
7. Helpful in maintaining system of free enterprise and long run survival of firms-
Pricing is the key activity in the economy of a country which permits system of free
enterprise. It influences factor prices, i.e. Wages, interest, rent and profit, by
regulating production and allocating resources in a better way. The firms which are
not able to market their products at good prices cannot survive in the long run as
they are not able to pay for various factors of production. So pricing weeds out
inefficient firms and shows way to long run survival.
8. Improvement in company’s image-
A company’s image is important to its success and pricing helps to make that image.
A firm with an established reputation for quality at existing price lines may
introduce a new product at either higher or lower prices to attract different market
segments. Buyers who are aware of its prestige might desire to purchase its products
because price no longer remains a limiting factor for them. For example different
models of Apple mobiles have good demand in the market in spite of being high
priced.

B. Importance of Pricing to Consumers-

1. Helpful in decision-making-
Goods and services offered by various producers at different prices help the
consumer to make rational and informed buying decisions. For example, a person
may choose to buy a T.V. from one shop which offers the product at Rs 20,000, or
from another shop which offers the same T.V. at Rs 21,500 but gives free-repairs service
for five years.
2. Helps in satisfaction of needs: Goods and services offered by different producers
at different prices help the consumer to take that buying-decision which will give
him/her maximum satisfaction. By making a market survey and comparing the
prices of different variants available vis a vis his budget, the consumer tries to
make the best choice. It gives him value for his money spent, and maximizes his
satisfaction and welfare.
3. Helps determine the purchasing power and standard of living of the
consumer-
If a consumer purchases expensive, luxury items, it implies that he/she has a
higher purchasing power and enjoys good standard of living. On the other hand, if
a consumer purchases only low-priced, essential items, then he/she has a lower
purchasing power and standard of living. This tendency generally persuades
consumers to buy branded goods to flaunt their status.
4. Enhancement in social welfare–
Pricing decisions affect the competitive strength of the firm in the market. Since
each firm tries to outsell others through price reduction and better quality products
in competitive market, consumers are benefitted. In this way, quality goods are
available at competitive price which maximizing social welfare in society.

FACTORS AFFECTING PRICING

The decisions related to price and pricing policies of a firm are affected by several factors
present in marketing environment. A firm plans production keeping in view the customers'
needs, market characteristics, competing firms, behaviour of suppliers and distributors for its
product and certain legislative factors. These factors give important inputs to the management
for marketing-decisions. A firm also gives due consideration to these factors while
determining price of the product. These are studied under two categories-
A. Internal factors
B. External factors.

A. Internal factors
Internal factors are the forces which are within the control of a firm up to certain extent. The
Firm can regulate and change these factors as per requirement. For example all the P‟s of
Marketing mix, procurement of raw material, employment of labour and cost of production
etc. not only determine the success of firm’s operations, but also have great influence on
Product pricing. The factors can be discussed as following-

1. Objectives of the firm: A firm may have various objectives and pricing contributes in
achieving them. Firms may pursue different objectives such as maximizing revenue,
Maximizing profit, maximizing market share or maximizing customer satisfaction. The
Pricing policy should be established only after clear consideration of the firm’s
objectives.
2. Role of Top Management: Usually, it is the top management that takes a firm’s pricing
decisions. But pricing activities are so crucial for future sales and profits that a marketing
manager has to remain involved with the pricing. The role of the marketing manager is to
assist the top management in price-determination and ensure that pricing takes place
within the policies laid down by top-management.
3. Cost of the Product: There is a direct relation between the cost of production and price
of a product. If the cost of acquiring material and manufacturing cost of the product are
high, the price of the product in the market will also be higher and vice versa. The firm
should also fix prices that are realistic, considering current demand and competition in the
market.
4. Product Differentiation: The price of a product also depends upon its specifications.
Generally, producers add more and more features to their products to attract customers,
and the customers pay a price for them. Therefore, a highly differentiated product will
have more features and attributes, and a higher price than one which is less-differentiated.
5. Marketing Mix: Price being an important element of the marketing-mix must be
coordinated with the other elements- product, place and promotion. The price should be
such that it covers the expenses on the other elements of the marketing mix and
corresponds to them ideally. For example- a high-priced branded electronic product
should be sold in high-end urban showrooms instead of rural markets; the promotion
technique should be TV-advertising and not personal-selling, etc.
6. Size of the organization: If the size of firm is big and the scale of production is large, it
can afford to set lower product price and increase its sales. On the other hand small sized
firm keep high price of its products.
7. Location of the organization: Location of the organization is an important determinant
of the price of a product. The price and product-size will vary depending upon whether
the market is located in a rural or urban area. For example, in the kirana stores in smaller
towns and villages, one will find the Rs 1 or Rs 2 shampoo-sachets instead of a big 200ml
or 250ml bottle found in departmental stores in a large city of the same shampoo.
8. Nature of Goods: If product is necessity good, firm may set a moderate price keeping in
view social welfare purpose; but if the product is luxury good in nature and is being
demanded by high end consumers; its price will be high.
9. Promotional programs: The extent of promotional programs and advertisement
expenditure also influence the price of a product. If it is huge, the product will have high
price and vice-versa.

B. External Factors

Factors are forces which are beyond control of the firm. A firm cannot alter or
Change these factors or forces for its advantage. These factors can be discussed as
Following-
1. Demand: The market demand for a product has a direct impact on its pricing. Since
Demand is affected by prospective buyers, their incomes, tastes and preferences etc., they
Should be taken into account while making decision of pricing. For an instance if the
Demand for a product is inelastic, as in case of necessity goods, a high price may be fixed.
But if the demand for a product is elastic, i.e., changeable in response to change in price,
The firm should not fix higher prices; rather fix lower prices to grab major market share.
2. Buyers’ behaviour: Buyers‟ behaviour also affects the pricing decisions. If they are
habitual of the product the price may be fixed high. Similar pricing decisions are taken by
the firm, if buyers have a particular perception of the product being a symbol of prestige/
status, or utility, e.g. luxury cars.
3. Competition: Market-competition plays a crucial role in pricing. In a highly-competitive
Market, a seller’s objective is to give maximum utility at minimum-possible price. Each
Firm tries to outsell others offering lesser price and better quality products in the market.
Therefore, prevailing information about what price the competitors are charging for
Similar products and what possibilities exist for increasing/decreasing price also affect
pricing.
4. Raw Material or Input suppliers: Pricing decisions take into consideration three parties
the supplier of raw material, the manufacturer, and the final consumer. If the supplier
Charges a high price for inputs, the manufacturer shifts this burden to the consumer by
Charging a higher price for the final product. On the other hand, if a manufacturer is
Making large profit on a particular product, suppliers will also try to cash in on these
Profits by charging a higher price for the raw material. When this happens, the
Manufacturer would only want to absorb the additional cost and not increase the prices
Further.
5. Prevalent Economic Conditions: During a boom-period in the economy, when market
conditions are favourable due to „bullish attitude‟ or inflationary trend, firms can afford to
fix higher prices of their products. On the other hand, during slump-period when market
conditions are un-favourable due to „bearish attitude‟, firms have to lower the prices of
products to keep the business going and to clear off their old stocks.

6. Government Regulations: If Government policies exert regulatory pressures, promote

Anti-price rise sentiment etc, then the companies cannot fix a higher price to capture the
Market. On the other hand, if government policies are supportive and promote businesses
Through healthy competition in the market, then firms can fix higher prices.

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Pricing methods

A. Demand-oriented pricing-
When customer demand sets up the price of a product in the market, it is called Demand
oriented pricing. There is an inverse relationship between the price and quantity demanded
of a commodity. Higher is the price of a product, lower will be its demand and lower is the
price of a product, higher will be its demand in a market. The basic equilibrium price is
determined by the forces of demand and supply. It is fixed at the level where quantity
demanded and quantity supplied is equal.

Under this method demand is the most important factor. Price is fixed by simply adjusting it
to the market conditions. When customer demand sets up the price of a product in the
market, it is called Demand oriented pricing.
There is an inverse relationship between the price and quantity demanded of a commodity.
Higher is the price of a product, lower will be its demand and lower is the price of a product,
higher will be its demand in a market. The basic equilibrium price is determined by the forces
of demand and supply. It is fixed at the level where quantity demanded and quantity supplied
is equal.

Some demand based methods of pricing are given below:

1) Perceived value pricing
Perceived value pricing uses buyers‟ perception of value and not the sellers cost as the key to
pricing. The company uses the non-priced variable in the marketing mix to build up
perceived value in the buyers‟ mind. Price is set to match the perceived value.

2) Differential Pricing
Different customers have different desires and wants. Intensity of the demand for the product
would also be different.
3) Skimming Pricing:
Skimming involves setting a very high price for a new product initially and to reduce
the price gradually as competitors enter the market. It is remarked, „launching a new
product with high price is an efficient device for breaking up the market into segments
that differ in price elasticity of demand. The initial high price serves to skim the
cream of the market, that is, relatively insensitive to price.

4) Penetration Price Policy:

As opposed to the concept of skimming price strategy, the penetration pricing, intends to
help the product penetrate into markets to hold a position. This can be done only by
adopting a low price in the initial period or till such time the product is finally accepted by
customers. This is an attempt to set new product price low, relative to the cost. It involves
setting low initial price to establish market share, prompt the competitors and/ or to
capitalize production economies.

B. Cost-oriented pricing-
A method of setting prices that takes into account the company's profit objectives and
covers its costs of production is called Cost-oriented pricing. In thisthemarketer mainly
takes production costs as the key factor for determining the initial price, but normally
overlooks the target market’s demand for that product. This pricing again is of three
types.
A Cost plus Pricing
b. Mark-up Pricing
c. Break-even Pricing
d. Cost plus Pricing

A Cost plus Pricing

Cost plus pricing is a cost-based method for setting the prices of goods and services.
This type of pricing is most common type of product pricing. In this approach the cost
estimates of a product is made and margin of profit is added to determine the price.

b. Mark-up Pricing-
Mark-up is the difference between the cost of a good or service and its selling price. This
pricing policy is generally adopted by the resellers who obtain the product from
producers or whole sellers use a percentage increase on the top of product cost to arrive
at an initial price. Retailers apply a set percentage for each product category according to
their marketing objectives

c. Break-even Pricing-
Break even pricing is the practice of setting a price point at which a business will earn
zero profits on a sale. The cost of production is composed of fixed cost of production and
variable cost of production. Fixed cost arises on fixed factors of production, which do
not change during short run. Variable cost of production arises on variable factors of
production, and increase with increased volume of production. Break even analysis uses
market demand as a basis of price determination.

C. Competition-oriented pricing or market driven pricing-

Competitive pricing is setting the price of a product or service based on what other firms
are charging. This type of pricing generally takes place in perfect competitive market
situation. Here product is homogeneous and buyers and sellers are well informed about
market price and market conditions. The seller has no control on price and has to accept
this customary or market driven price. He cannot increase price rather has to adjust his
cost to this customary price by reducing the quantity of the product. For example, Airtel
initially kept high prices for its mobile services, but by entry of Vodafone, Idea and
reliance Jio the prices for various mobile services have been slashed. The advantage of
competitive pricing is that it avoids price competition that can damage the company, but
disadvantage is that this pricing method may only cover production costs, resulting in
low profits to the firm.

Some common methods of Competition-oriented pricing or market driven pricing are:

a) Going rate pricing
Fixing the price as per the market trend is known as going rate pricing. This method practiced
in such products which are easily available in the market and have no variants. The
marketer does not analyze the market for its intensity of demand or the perceptions of the
value of the products in the mind of buyers. It is not necessary that the price should be same
as the competitor or the industry leader.

b) Sealed Bid pricing

In all those business lines where the firms bid for jobs, competition based pricing is
followed rather than its costs and demand. The firm fixes its prices on how the competitors
price their products. It means that if the firm is to win a contract or a job, it should quote less
than the competitors. With all this, the firm cannot set its price below a certain level. That is,
it cannot price below the cost. On the other hand, a higher price above its costs may reduce
the chances of winning the deal. The net effect of the two opposite pulls can be well
described in terms of “expected profit” of a particular bid.

c) Discriminatory Pricing
It implies that a firm sells the same product / service at two or more prices that do not reflect
a proportional difference in costs.
D. Value- based pricing-
Value-based price is a pricing strategy which sets prices primarily, according to the
perceived or estimated value of a product or service to customer rather than according to
the cost of the product. In this type of pricing price of a product is determined on
customers‟ perception of value rather than the seller’s cost. Pricing begins with analysis
of consumers‟ needs and value perceptions and then company sets its target price and
designs the product. It is quite opposite to cost based pricing as higher value of product
is perceived due to company’s brand image or marketing at prestigious retail outlets. For
example, the products sold at „Fab-India‟ or „Forest Essentials‟ cosmetics are considered
as premium products by the customers and so are priced high.

A Value-based pricing strategy can be advantageous because it goes inside the mind of the
intended consumer to predict what the consumer would be willing to pay for a product
and so helps firm in setting price.

1. ________ Packaging cab be defined as an art, science and technology of preparing goods
for transport and sale.
2. Attractive packaging is an also an efficient _________.
3. Marketers define packages as the __________of marketing.
4. Packaging may be ________which refers to the product’s immediate container.
5. Good packaging may lead to improved __________.
6. Consumer packaging is also intended to offer better convenience to the consumer and
protect the product from _____________.
7. __________ plays an important role for determining customer acceptance or rejection of
a product.
8. A __________is one which holds the required volume of a product for ultimate
consumption is economical and can be easily purchased by the consumer.
9. A __________is either for the consumer whose consumption is large or is bought to save
cost.
10. Environmental awareness among the consumers has promoted the introduction of
___________awarded on the basis of a product’s environmental friendliness.

Answers –
1. Packaging 2. Point of purchase 3. fifth „P‟ 4. Primary 5. consumer acceptance.6
pilferage and damage. 7. Colour 8 consumer package 9 bulk package 10 „eco- label‟

1. Price indicates the ----------which a buyer is ready to exchange for purchase of certain
good or service.
a) satisfaction
b) money value

2. Buyers who are aware of Firm‟s----------- might desire to purchase its products because
price no longer remains a limiting factor.
a) location
b) prestige

3. Availability of quality goods at competitive price ------------social welfare in society.

a) neutralizes
b) minimizes
c) maximizes

4. Generally price will be set relatively --------by the firm if manufacturing is expensive,
distribution and promotion are exclusive.
a) high
b) low

5. Management of a firm can make estimates of ------------at different levels of production at

different prices and can choose the best combination of production, volume, and price.
a) cost
b) profit
1. Define a product. What are the various viewpoints to explain the concept of a product?

Unit 5

Meaning of Promotion
Promotion focuses on communicating with the target market. Promotion, thus, informs,
persuades and reminds the target group of the availability of the product, the place where it is
available, and the price of the product. Thus it includes the Integrated Marketing
Communication, the Process of Communication, and the promotion mix or the tools to
promote product, service or idea. Promotion is a fact of life and is essential for every
business.

Importance of Promotion
Promotion element of marketing mix performs the following functions:
1. Information: It informs (awareness and education) customers about the launch of new
product/service/idea and the place of availability.
2. Persuasion: The promotion is to persuade the customers to use one particular brand in
this brands-cluttered world.
3. Remind: Promotion has to continuously remind the customers of the brand and enforce
customer loyalty, It is true not only during normal times, but even when the product is in
shortage, so that customers do not forget your brand. During the World War II Bourn
Vita was in short supply, yet the company continued to advertise for this very purpose

4. Relationship: Promotion is meant to create relationships through constant promotion and

involvement of customers with the marketer so as to create a lifetime relationship with
them.
5. Adds value: Promotion creates value by influencing consumers‟ perceptions.
6. Assists other company efforts: Promotion accomplishes goals, assists sales
representatives, and enhances the results of other marketing communications.

Modes of Advertising
There can be different modes of advertising
1. Print Media: It consists of national newspapers, english dailies, vernacular papers,
consumer magazines, trade journals, technical journals, professional journals, directories and
yearbooks.
Advantages of Newspaper Advertising
1. In-depth coverage
2. Mobility
3. Results assessable (coupons)
4. Improved printing due to availability of better technology
5. Cheapest in per capita viewing
6. Flexibility of immediate insertion
Limitations of Newspapers
1. Short shelf life, newspapers are read only once
2. Poor print limits creativity
3. Advertisement space may be expensive and Passive medium
4. No audio-Video element
5. Literate people can only understand the advertisement.
6. Every advertisement has to compete against the clutter of other advertisers
Advantages of Magazine Advertising
1. Permits easy reach to select markets
2. High reader involvement means that more attention will be paid
to the advertisement
3. Magazines have a more shelf life
Limitations of Magazine Advertising
1. Long lead time
2. There is limited flexibility in terms of an ad placement and format
3. Space and advertisement layout costs are higher
Advantages of Yellow Page Advertising
1. Number is many and widely distributed
2. Non-intrusive
3. Advertisements are reasonably inexpensive
Limitations of Yellow Page Advertising
1. The Internet has led to less usage of Yellow Pages
2. Pages look cluttered as same category ads appear on the same page
3. Advertisements slow to reflect market changes
2. Radio
Radio is everywhere and it cannot be ignored. Currently there are 248 FM channels. It
reaches
350 million people in 91 cities.
Advantages of Radio Advertising
1. Radio is selective and has the ability to reach segmented audiences.
2. Radio is economical due to large penetration and rates
3. Radio is fast due to short lead times
Limitations of Radio Advertising
1. Increase in Clutter
2. No visuals
3. Lack of proper attention as listeners give attention to other aspects
3. Television Advertising
Nowadays everything is advertised on TV.
Advantages of TV advertising
1. Product can be shown in use
2. Ability to use humor is increased.
3. Appeals the retailers
4. Realism (because of color, sound and action)
Limitations of TV Advertising
1. Rapidly escalating advertisement cost
2. Zapping with remote control
3. Non-availability of timing
4. Mobiles & Telephones (Telemarketing)
It is more RPI driven. Today it constitutes 15-20% of media plan today.
Advantages of Telemarketing
1. Cost efficient in delivery
2. Less intrusive than the phone calls
3. Place & time independent
4. Direct response
Limitations of telemarketing
1. An increased number of people are averse to telemarketing
2. More people are using technology to screen out unwanted callers
3. If outsourced, there is less control in the process
5. Cinema Advertising
Movie halls and multiplexes use it for revenue generation.
Advantages of Cinema Advertising
1. Captive audience
2. Longer video
3. Larger screen
Limitations of Cinema Advertising
1. Only selective audiences who visit the hall witness the advertisement.
2. High distractions
3. High costs
6. Out-of-Home Advertising
When people think of out-of-home advertising they usually think of colorful billboards along
the
streets and highways. Included in the out-of-home classification, however, are benches,
posters,
signs and transit advertising (advertising on buses, subways, metros, taxicabs and trains).
Advantages of out-of-home advertising
1. Reach to audience
2. Size and dominance
3. Different colours can be used
4. Mass viewing
Limitations of out-of-Home Advertising
1. It draws 2-3 seconds of a reader‟s time, hence it is a glance medium
2. Messages must be brief to fit in 2-3 seconds time frame
3. It is not conducive to a very short, weeklong camp
7. Other Modes
Other modes include cable advertising, Direct Mail advertising, specialty advertising (key
chains, calendars, computer mouse, mugs etc), pay per click advertising, social media
advertising. Banner advertising, advergaming etc..

Role/ Importance/objective of Sales Promotion

UK Institute of Sales Promotion has defined sales promotion as “Any activity which aids
value
to a product or service for a limited time period by offering an incentive to purchase.”
Objective of Sales Promotion
1. Increased trial: Existing customers will increase the sales volume as they will buy in
bulk.
2. Increasing Loyalty: Loyalty keeps customers buying even when it is no more the
cheapest and the best.
3. Widening Usage: Here the marketer has to tell the users of other uses.
4. Creating Interest: Value promotions that create interest are characterized by humor,
inventiveness, typically and style through - being the first to offer a new product as a
promotional medium, linking up with a new celebrity or relevant charity or finding a
totally new way to do something that people enjoy doing.
5. Creating awareness: Though this job is left to advertising, but there are number of sales
promotions very effective at making people aware of products through joint promotions
with other product or service which is already well known in the market.
6. Deflecting Attention from Price: It may lead to price wars which have a destructive
effect on firm‟s profitability
7. Gaining Intermediary Support: Specific programmes directed at wholesalers, retailers,
agents, distributors to gain distribution, display and cooperative advertising, introducing
new customers, sales promotion is a must.
8. Discriminating among users: Usage varies from time to time. In case of airlines, train
companies, and leisure facilities, customers are motivated by price. They book early and
on-line. Particular groups are given additional benefits.
9. Restoring Brand Perceptions and deflecting attention from Complaints after
operational Mishandling of customer accounts: The companies offer special sales
promotion benefits to those who complain.
Types of sales promotion
Many promotional tools/Techniques/Tactics are in use, these are:
1. Price Promotions: Indian print and electronic media are often full of such
advertisements
and these promotions include - Up to 51% off. i.e., cutting down price through discounts. In
India this is very popular especially at the end of season.
Extra Fill Packs - 20% extra free, i.e., extra fill without any additional charge.
Free Offers - Buy two pieces and one piece is free, i.e., extra unit free.
Reduced Shelf Price - The most common form of price promotion is reduced Shelf
Price.
Reduced Price Offers( RPOs) - RPO are flashed on-pack, offering a saving (Rs 10) or
a price slashed through and a lower price given.
Cash Rebates -The customer is invited to collect tokens from a number of packs and
send them to receive cash voucher.
Cash Share-Out - A sum of fixed money is divided among all those returning the
requisite number of proofs of buying the product or service.
Discounts - On single unit of higher value purchase sales through discount coupons is
made.
Repurchase Offers- Manufacturers of consumer durables, like cars, fridges, stereos are
offered a commitment by them to buy back at a specified in the future.
Frequent-user incentive - Most of the airlines offer this facility to their fliers. Economy
class fliers can use free miles to upgrade their tickets.
Coupons - Issue of coupons is very popular way of sales promotion.
Sale - A sign on store item „sale‟ can increase sales by 50%, even if the price is
unchanged
Finance Deals - Many manufacturers, especially, the consumer durables, give either
interest free facility or finance at low rates to buy the product.
2. Prize Promotions: Prize Promotions include free prize draws, sweepstakes, and
competitions.
Free Prize Draws (and lotteries): It involves putting the names of all the entrants in a
computer and deciding winners by chance.
Sweepstakes/Games: “A sweepstake is a contest where the distribution of prizes is
dependent on random distribution of predetermined winning tickets.” The participants
exercise no control.
Competitions: A competition is a contest where the winner is determined on the basis of
exercise of skill.
3. Premium Promotions: In this kind of sales promotion, the benefit comes with an
item of
merchandise. It may be On-packet Offers, with Purchase Premiums, Free Mail-Ins, Partner
Promotions and Tailor-Made offers.
4. Off-the Shelf Offers: The leading off-the-shelf offers can be:
Free Accommodation - Particularly for hotel industry, the offer now extends to be “two
nights for price of one.
Holiday Vouchers - Some companies give cash discount, traveller cheques, duty-free
shopping voucher, etc.
Discount coupons: In India firms like include Snapdeal.com, Sodexo,etc provide
discount coupons which can be redeemable. Snapdeal.com provides discount vouchers
for health and beauty, entertainment and adventures, mobiles, apparel, lifestyle,
electronics and travel categories.
Two-for One Flights: Especially budget airlines offer this facility.
Insurance Offers - Mostly the car manufacturers provide free insurance for the first
year as part of sales promotion during slack season.
5. Hybrid Sales Promotion: Today many companies of different countries try to
improve their image through Trade Fairs.

--------------------------------------------------------------

Factors Affecting the Selection of the Channel of Distribution

Every producer, in order to pass on the product to the consumer, is required to select a
channel for distribution. The selection of the suitable channel of distribution is one of the
important factors of the distribution decisions. The following factors affect the selection of
the channel of distribution:
1) Factors Pertaining to the Product
Keeping in view the nature, qualities and peculiarities of the product, could only the channel
for distribution be properly made. The following factors concerning the product, affect the
selection of the channel of distribution:
 Price of the Product. The products of a lower price have a long chain of distributors. As
against it, the products having higher price have a smaller chain. Very often, the producer
himself has to sell the products to the consumers directly.
 Perishability. The products which are of a perishable nature need lesser number of the
intermediaries or agents for their sale. Under this very rule, most of the eatables (food
items), and the bakery items are distributed only by the retail sellers.
 Size and Weight. The size and weight of the products too affect the selection of the
middlemen. Generally, heavy industrial goods are distributed by the producers themselves
to the industrial consumers.

 Technical Nature. Some products are of the nature that prior to their selling, the
consumer is required to be given proper instructions with regard to its consumption. In
such a case less of the middlemen arc) required to be used.
 Goods Made to Order. The products that are manufactured as per the orders of the
customers could be sold directly and the standardized items could be sold off only by the
middlemen.
 After-Sales Service. The products regarding which the after-sales service is to be
provided could be sold off either personally or through the authorized agents.

2) Factors Pertaining to the Consumer or Market

The following are the main elements concerned with the consumer or the market:
 Number of Customers. If the number of customers is large, definitely the services of the
middlemen will have to be sought for. As against it, the products whose customers are
less in number are distributed by the manufacturer himself.
 Expansion of the Consumers. The span over which are the customers of any
commodity spread over, also affects the selection of the channel of distribution. When the
consumers are spread through a small or limited sphere, the product is distributed by the
producer himself or his agent. As against it, the goods whose distributors are spread
throughout the whole country, for such distributors, services of wholeseller and the
retailer are sought.
 Size of the Order. When bulk supply orders are received from the consumers, the
producer himself takes up the responsibility for the supply of these goods. If the orders
are received piece-meal or in smaller quantities, for it the services of the wholeseller
could be sought. In this way, the size of the order also influences the selection of the
channel of the distribution.
 Objective of Purchase. If the product is being purchased for the industrial use; its direct
sale is proper or justified. As against it, if the products are being purchased for the general
consumption, the products reach the consumers after passing innumerable hands.
 Need of the Credit Facilities. If, for the sale of any product, it becomes necessary to
grant credit to any customer, it shall he helpful for the producer that for its distribution, the
services of the wholesaler and retailer businessmen be sought. In this way, the need
of the credit facilities too influences the selection of the channel of distribution.

3) Factors Pertaining to the Middlemen

The following are the main factors concerned with the middlemen:
 Services Provided by Middlemen. The selection of the middlemen be made keeping in
view their services. If some product is quite new and there is the need of its publicity and
promotion of sales, then instead of adopting the agency system, the work must be
entrusted to the representatives.
 Scope or Possibilities of Quantity of Sales. The same channel should be selected by
means of which there is the possibility of more sales.
 Attitude of Agents towards the Producers' Policies. The producers generally prefer
to select such middlemen who go by their policies. Very often when the distribution and
supply policies of the producers being disliked by the middlemen, the selection of
middlemen becomes quite limited.
 Cost of Channel of Distribution. While selecting the channel of distribution, the cost of
distribution and the services provided by the middlemen or agents too must be kept into
consideration. The producers generally select the most economical channel.

4) Factors Pertaining to the Producer or Company

The following factors, concerning the producer, affect the selection of the channel of
distribution:
 Level of Production. The manufacturers who are financially sound and are of a larger
category, are able to appoint the sales representatives in a larger number and thug could
distribute the commodities (products) in larger quantities. As against it, for the smaller
manufacturers, it becomes necessary to procure the services of the wholesalers and the
retail traders.
 Financial Resources of the Company. From the financial point of view, the stronger
company needs less middlemen.
 Managerial Competence and Experience. If some producer lacks in the necessary
managerial experience or proficiency, he will depend more upon the middlemen. The new
manufacturers in the beginning remain more dependent upon the middlemen.

5) Other Factors
 Distribution Channel of Competitors. While determining the channel of distribution,
the channels of distribution of the competitors too must be borne in mind.
 Social Viewpoint. What is the attitude of society towards the distribution, this fact too
must be kept into consideration while selecting the middlemen.
 Freedom of Altering. While selecting the agents, this fact too must be kept into mind
that in case of need, there must be the liberty of changing or replacing the agents
(middlemen).