BMAR 02

Product

* anything that can be offered in a market for attention, acquisition, use, or consumption that might satisfy a need or want.
* Includes:
* Physical object
* Services
* Events
* Person
* Places
* Organization
* Ideas
* physically tangible items

Kotler

“product is anything that can meet a need or a want; even a retail store or a customer service representative is considered a product.”

Core Benefit

Generic Product

Expected Product

Augmented Product

Potential Product

Five Product Levels (Kotler)

Core Benefit

the fundamental need or want that the customer satisfied when they buy the product

Generic Product

a basic version of the product made up of only those features necessary for it to function

Expected Product

the set of features that the customers expect when they buy the product

Augmented Product

any product variations, extra features, or services that help differentiate the product from its competitors

Potential Product

includes all augmentations and transformations the product might undergo in the future

Consumer

Industrial

2 Classification of Products According to Use

Consumer goods

goods that are purchased for personal consumption and/or household use

Industrial goods

purchased in order to make other goods, to serve as a raw material or input in the production of other goods

Undifferentiated

Differentiated

2 Classification of Products According to Differentiation

Undifferentiated goods

* products whose physical characteristics are so identical, that it would be difficult, if not impossible, to distinguish one purchased from one vendor or another
* most are products that are sourced from nature

Differentiated goods

* varied in their characteristics and features that make them distinguishable from one another

Consumable

Semi-Durable

Durable

3 Classification of Products According to Durability

Durability

the length of time a consumer can derive benefit from the product or good purchased

Consumable goods

* a product whose benefit can only be used by a consumer for a short period of time, sometimes only a few minutes

Semi-durables

* provide benefits to the consumer for a longer period of time, usually spanning several months
* are manufactured for long-term use by consumer

Durables

* products that are manufactured to last a long time
* capable of providing consumers with years of beneficial use
* usually expensive, and many, therefore, require an augmented product to market them effectively

Convenience

Shopping

Specialty

Unsought

4 Classification of Products According to Type

Convenience goods

products that are purchased frequently, usually inexpensive, and do not require much purchase effort and evaluation

Shopping goods

purchased less frequently than convenience goods, are relatively more expensive, and require some amount of information search and evaluation prior to purchase

Specialty goods

goods that require an unusually large effort on the part of consumers to acquire

Unsought goods

goods that consumers seldom actively look for, and are usually purchased for extraordinary reasons, such as fear or adversity, rather than desire

Services

* are form of product that consist of activities, benefits, or satisfaction offered for sale that are essentially intangible and do not result in the ownership of anything
* generally considered more difficult to market due to its four major attributes:
* Intangibility
* Variability
* Inseparability
* Perishability

Experience

* a product which involves experiential aspects of consumption rather than utilitarian ones
* allows consumers to engage in fantasies, feelings and fun and often carries subjective meanings and characteristics

Hirschman and Holbrook, 1982

“Experience is a product which involves experiential aspects of consumption rather than utilitarian ones. This type of product allows consumers to engage in fantasies, feelings and fun and often carries subjective meanings and characteristics”

Product

Customer

2 Types of Experience

Product experience

* the overall value of a product or service to customers
* defined in terms of customer perceptions as they use the product or service in a variety of contexts
* a component of customer experience, a broader concept that includes all interactions between your firm and the customer
* mainly achieved through design and quality control

Customer experience

* the impression your customers have of your brand as a whole throughout all aspects of the buyer's journey
* results in their view of your brand and impacts factors related to your bottom-line including revenue
* two primary touch points are people and product
* critical to the sustained growth of any business
* promotes loyalty, helps you retain customers, and encourages brand advocacy

Price

* the amount of money charged for a product or service
* the sum of all the values that consumers exchange for the benefits of having or using the product or service
* has been the major factor affecting buyer choice in poorer countries, among less affluent groups and with commodity products
* other factors have become more important in buyer choice behavior in recent decades

Marketing Objectives

Marketing-mix Strategy

Costs

Organizational Considerations

Internal Factors Affecting Pricing Decisions

Marketing Objectives

* the company must decide on its strategy for the product
* if the company has selected its target market and positioning carefully, then its marketing-mix strategy, including price, will be straightforward
* pricing strategy is largely determined by past decisions on market positioning

Marketing-mix Strategy

* price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective marketing program
* decisions made for other variables may affect pricing decisions

Costs

* set the floor for the price that the company can charge for its product
* the company wants to charge a price that both covers all its costs for producing, distributing, and selling the product, and delivers a fair rate of return for its effort and risk
* may be an important element in its pricing strategy

Fixed

Variable

Total

3 Types of Cost

Fixed costs

* costs that do not vary with production or sales level
* rent, heat, interest, executive salaries, etc.

Variable costs

* vary directly with the level of production
* packaging, etc.

Total costs

* the sum of the fixed and variable costs for any given level of production

Organizational Considerations

* management must decide who within the organization should set prices.
* companies handle pricing in a variety of ways
* in small companies, prices are often set by top management rather than by the marketing or sales departments
* in large companies, pricing is typically handled by divisional or product line managers
* in industrial markets, salespeople may be allowed to negotiate with customers within certain price ranges
* top management sets the pricing objectives and policies, and it often approves the prices proposed by lower-level management or salespeople
* in industries in which pricing is a key factor (such as in aerospace, steel, and oil), companies will often have a pricing department to set the best prices or help others in setting them
* this department reports to the marketing department or top management
* others who have an influence on pricing include sales managers, production managers, finance managers and accountants

The Market and Demand

Competitors’ Costs, Prices, and Offers

Other External Factors

External factors affecting Pricing Decisions

Pure Competition

Monopolistic Competition

Oligopolistic Competition

Pure Monopoly

4 Types of Market

Pure Competition

* the market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper, or financial securities
* no single buyer or seller has much effect on the going market price.

Monopolistic Competition

* the market consists of many buyers and sellers that trade over a range of prices rather than a single market price

Oligopolistic Competition

* the market consists of a few sellers that are highly sensitive to each other’s pricing and marketing strategies
* the product can be **uniform** (steel, aluminum) or **non-uniform** (cars, computers)

Pure Monopoly

* the market consists of one seller
* may be a **government monopoly** (a postal service), a **private regulated monopoly** (a power company) or a **private non-regulated monopoly**

Competitors’ Costs, Prices, and Offers

* competitor reactions to the company’s own pricing moves
* the company’s pricing strategy may affect the nature of the competition it faces

Other External Factors

* the company must also consider other factors in its external environment
* **economic conditions** can have a strong impact on the firm’s pricing strategies
* economic factors such as boom or recession, inflation and interest rates affect pricing decisions because they affect both the costs of producing a product and consumer perception of the product’s price and value
* the company must also consider what impact its prices will have on other parties in its **environment**
* the company should set prices that give resellers a fair profit, encourage their support and help them to sell the product effectively
* the **government** is another important external influence on pricing decisions
* **social concerns** may have to be considered

Premium pricing

Good-value

Overcharging

Economy

4 New Product Pricing Strategies

Premium Pricing Strategy

producing a high-quality product and charging the highest price

Good-value Strategy

represents a way to attack the premium pricer

Overcharging Strategy

the company overprices the product in relation to its quality

Market-skimming

Market-penetration

2 Pricing Strategies

Market-skimming pricing

many companies that invent new products initially set high prices to ‘skim’ revenues layer by layer from the market

Market-penetration pricing

companies set a low initial price to penetrate the market quickly and deeply – to attract many buyers quickly and win a large market share

Cost-Based

Cost-Plus

Target Profit

Value-Based

Competition-Based

Profit-Oriented/Based

6 General Pricing Approaches

Cost-Based Pricing

* the practice of setting prices based on the cost of the goods or services being sold
* a profit percentage or fixed profit figure is added to the cost of an item, which results in the price at which it will be sold.

Cost-Plus Pricing

* the simplest pricing method
* adding a standard mark-up to the cost of the product

Target Profit Pricing

* break-even pricing
* the firm tries to determine the price at which it will break even or make the target profit it is seeking
* uses the concept of a break-even chart, which shows the total cost and total revenue expected at different sales volume levels

Value-Based Pricing

* uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing
* means that the marketer cannot design a product and marketing program and then set the price
* price is considered along with the other marketing mix variables before the marketing program is set

Competition-Based Pricing

* consumers will base their judgements of a product’s value on the prices that competitors charge for similar products

Going-rate

Sealed-bid

Two Forms of Competition-based Pricing

Going-Rate Pricing

* the firm bases its price largely on competitors’ prices, with less attention paid to its own costs or to demand
* the firm might charge the same as, more, or less than its chief competitors

Sealed-bid Pricing

* a firm bases its price on how it thinks competitors will price rather than on its own costs or on demand
* would-be suppliers can submit only one bid and cannot know the other bids
* until the advent of the Internet, haggling (one-to-one negotiations) and a non-negotiable price had grown to dominate pricing

Profit-Oriented/Based Pricing

* places an emphasis on the finances of the product and business
* a business’s profit is the money left after all costs are covered
* price per product is set higher than the total cost of producing and selling each product to ensure that the company makes a profit on each sale

Agents and brokers

Industrial Distributors

Wholesalers

Retailers

Non-traditional Channels

Marketing Intermediaries in the Distribution Channel

Agents and brokers

* _______ are sales representatives of manufacturers and wholesalers
* _______ are entities that bring buyers and sellers together.
* usually hired on commission basis by either a buyer or a seller
* are go-betweens whose job is to make deals
* do not own or take possession of goods

Industrial distributors

* independent wholesalers that buy related product lines from many manufacturers and sell them to industrial users
* often have a sales force to call on purchasing agents, make deliveries, extend credit, and provide information
* used in such industries as aircraft manufacturing, mining, and petroleum

Wholesalers

* firms that sell finished goods to retailers, manufacturers, and institutions (such as schools and hospitals)
* historically, their function has been to buy from manufacturers and sell to retailers

Retailers

* firms that sell goods to consumers and to industrial users for their own consumption

Non-traditional Channels

* help differentiate a firm’s product from the competition
* the internet, mail-order channels, or infomercials
* although it may limit a brand’s coverage, they can give a producer serving a niche market a way to gain market access and customer attention without having to establish channel intermediaries
* can also provide another avenue of sales for larger firms

Reduce the Number of Transactions

Ease the Flow of Goods

The Functions of Distribution Channels

Sorting out

Accumulating

Allocating

Flow of Goods

Sorting out

breaking many different items into separate stocks that are similar

Accumulating

bringing similar stocks together into a larger quantity

Allocating

breaking similar products into smaller and smaller lots

Promotion

* fourth and the final P of the marketing mix
* covers matters such as advertising, sales promotions, public relations, and personal selling strategies
* keeps the product in the minds of the customer and helps stimulate demand for the product

Build awareness

Create interest

Provide information

Stimulate demand

Reinforce the brand

Objectives of Promotion

Build awareness

people will know that your product exists

Create interest

since people or the consumers are already aware of the product, they can now build curiosity regarding to the benefits of your product and how these products can satisfy their needs and wants

Provide information

because of their curiosity, as the marketer, you need to provide important information regarding your product

Stimulate demand

those people who are convinced to buy your product, they are now creating demand towards your product

Reinforce the brand

make a name to your product or branding

Advertising

Sales Promotion

Personal Selling

Public Relations

Direct Marketing

5 Promotional Tools

Advertising

* to turn the people’s attention to a specific thing
* any form of paid non-personal presentation and promotion of ideas, goods, or services through mass media such as newspapers, magazines, television, or radio by an identified sponsor for the purpose of inducing people to buy
* the process of delivering a message about ideas, goods, and services, through the media, paid by an individual sponsor
* constitutes the most visible communication tool in a marketer’s arsenal
* it is expensive therefore only larger companies can afford it

Print

Outdoor

Broadcast

Surrogate

Celebrity

Types of Advertising

Print Advertising

* oldest media
* printed on some type of paper
* can be seen in magazines and newspapers
* effective if people can read it
* reaches large number of people

Outdoor Advertising

* publicized product or service outdoors
* suitable for small business
* must be attention seeker

Broadcast Advertising

* reaches wider audience
* great impact on listener or viewers
* can be seen or heard on radios, television, and internet commercials

Surrogate Advertising

* to advertise indirectly
* banned by law

Celebrity Advertising

* uses public figures like celebrities, models, singers, and many others

Increasing the sales of the product

People will become aware of the product

Create brand awareness

Creates regular demands

Provides information about the market

Helps in educating the people

Importance of Advertising

Identify your purpose

Target your audience

Select a Medium

Steps in Advertising Procedure

Identify your purpose

* you are informing the customers about the product/services and how they are going to avail it
* you are also persuading them that your products/services are better than your competitors
* you are reminding the consumers to use the products or services

Target your audience

* you are going to determine or identify the people that will use or buy the products or services
* market research will tell you who and where your target customers are.

Select a Medium

* you are going to determine what medium you are going to use to reach your potential customers with the most effective, efficient, and affordable you can select for the advertising

Sales Promotion

* set of marketing activities to boost the sales of the products or services
* the process of persuading a potential customer to buy the product
* used by organizations, including the manufacturers, distributors, retailers, and not-for-profit institutions
* targeted the final buyers

Consumer Oriented Promotion Tools

Trade-oriented Sales Promotion

2 Tools of Sales Promotion

Consumer Oriented Promotion Tools

* Free samples
* Premium offers
* Coupons
* Personality Promotions
* Exchange Scheme
* Installment Sales
* Discounts

Trade-oriented Sales Promotion

* Cash Bonuses
* Stock Return
* Credit Terms
* Dealer Conferences
* Dealer Trophies
* Push Incentives