UNIT III
3.1 PRODUCT, PRODUCT LEVELS AND CLASSIFICATION OF PRODUCTS
1. Definition of Product
A product is
anything offered to a market to satisfy the needs and wants of consumers. It
can be tangible (goods like clothes, furniture) or intangible
(services like banking, education). In marketing, a product is seen not just as
a physical item but as a bundle of benefits that delivers
value to customers.
2. Levels of Product (Philip Kotler’s Model)
Products can be understood at five levels:
1. Core
Benefit – The fundamental need or problem solved by the product.
Example: A car provides
transportation.
2. Basic
Product – The essential features that allow the product to function.
Example: Engine, wheels,
seats in a car.
3. Expected
Product – The set of attributes buyers normally expect.
Example: Air conditioning,
mileage, safety features in a car.
4. Augmented
Product – Additional benefits or services that exceed customer
expectations.
Example: Warranty, free
servicing, GPS navigation.
5. Potential
Product – Future possibilities and innovations that can add value.
Example: Self-driving or
electric features in cars.
3. Classification of Products
Products are broadly classified into consumer products and industrial
products:
A) Consumer Products (for personal use)
1. Convenience
Products
o
Low-priced, frequently bought, little effort in
purchase.
o
Examples: Soap, toothpaste, snacks.
2. Shopping
Products
o
Purchased less frequently, involve comparison of
quality, price, style.
o
Examples: Clothes, electronics, furniture.
3. Specialty
Products
o
Unique, expensive, strong brand preference,
buyers make special effort.
o
Examples: Luxury cars, branded jewelry.
4. Unsought
Products
o
Not actively sought by consumers, bought only
when needed.
o
Examples: Insurance, medical services, fire
extinguishers.
B) Industrial Products (used in production)
1. Raw
Materials – Natural products like cotton, iron ore, crude oil.
2. Capital
Items – Long-term assets like machinery, buildings.
3. Supplies
and Services – Short-term goods and services like office stationery,
repair services.
4. Components
and Parts – Used in making final products (e.g., microchips for
phones).
3.2
PRODUCT LIFE CYCLE (PLC) & STRAGTEGIES
1. Meaning of PLC
The Product Life Cycle (PLC) is
the concept that every product passes through a series of stages from its
introduction in the market to its decline.It helps marketers understand sales
patterns, profits, and the strategies needed at each stage.
2. Stages of Product Life Cycle
a) Introduction Stage
Features:
a) High
costs of production and promotion.
b) Sales
grow slowly.
c) Profits
are usually negative or very low.
Strategies:
a) Heavy
advertising and promotional campaigns to create awareness.
b) Skimming
pricing (high price) or penetration pricing (low price).
c) Focus
on building brand identity and distribution network.
b) Growth Stage
Features:
a) Sales
increase rapidly.
b) Profits
start to rise.
c) Competitors
enter the market.
Strategies:
a) Improve
product quality and add features.
b) Expand
distribution channels.
c) Competitive
pricing to gain market share.
d) Strong
promotion to differentiate from competitors.
c) Maturity Stage
Features:
a) Sales
reach peak and market becomes saturated.
b) Intense
competition.
c) Profit
margins may decline.
Strategies:
a) Product
modification (new versions, styles, packaging).
b) Price
reductions and discounts to attract buyers.
c) Strong
brand loyalty programs.
d) Explore
new markets or customer segments.
d) Decline Stage
Features:
a) Sales
and profits decline sharply.
b) Market
shrinks as new substitutes or innovations replace the product.
Strategies:
a) Reduce
promotional expenses.
b) Harvesting
(maximize short-term profits while phasing out).
c) Discontinue
the product if unprofitable.
d) Sell
to niche markets that still demand the product.
3. Importance of PLC
·
Helps in planning marketing strategies.
·
Guides decisions about product
innovation and discontinuation.
·
Helps manage resources
effectively across product portfolio.
3.3 PRICING, OBJECTIVES, STRATEGIES, AND PRICING METHODS
1. Pricing
·
Pricing is the process of
determining the value a customer pays to acquire a product or service.
·
It directly affects revenue, demand,
competition, and overall market position.
·
Price is the only element of the
marketing mix (4Ps) that generates revenue, while others create cost.
2. Objectives of Pricing
Firms set
prices with different goals in mind, depending on their market situation:
- Profit Maximization: The most common objective,
where the firm aims to set a price that gives maximum profit in the long
run.
- Sales Maximization: Sometimes companies prefer
higher sales volume, even with lower margins, to build market share.
- Market Penetration: New products often enter
with low prices to attract customers quickly and discourage competitors.
- Market Skimming: New and innovative
products may start with high prices to recover R&D costs and attract
status-conscious buyers.
- Survival Objective: During intense competition
or crisis (like recession), businesses may price just enough to stay
afloat.
- Customer Value & Loyalty: Setting fair prices to
build trust and maintain long-term relationships with customers.
3. Pricing Strategies
Marketers
adopt different approaches depending on their goals:
- Penetration Pricing – Keeps price low initially
to gain quick market entry and higher sales volume (common in FMCG).
- Price Skimming – Sets a high price at
launch, then reduces it over time (common in electronics and smartphones).
- Competitive Pricing – Adjusts prices according
to competitor levels, useful in markets with many alternatives.
- Value-based Pricing – Focuses on what the
customer thinks the product is worth, rather than its production cost.
- Psychological Pricing – Uses consumer psychology
(e.g., ₹99 instead of ₹100, or premium packaging with higher price).
- Premium Pricing – High price to highlight
exclusivity, quality, or brand status (luxury watches, designer clothing).
- Dynamic Pricing – Price fluctuates with demand
and supply (airlines, hotels, ride-sharing apps).
4. Pricing Methods
These are
the practical ways companies calculate price:
a.
Cost-Plus Pricing: Cost of production + fixed profit margin. Simple but ignores demand
and competition.
b. Mark-up Pricing: Price set by adding a
percentage to cost, widely used in retail.
c.
Break-even Pricing: Price calculated to cover only the cost, without profit; useful in new
product launches.
d. Target Return Pricing: Designed to achieve a specific
return on investment (ROI).
e.
Perceived Value Pricing: Relies on customer’s willingness to pay based on
perceived benefits (common in branded goods).
f.
Auction or Bid Pricing: Price decided by bidding (common in construction
projects, government contracts).
5. Factors Influencing Pricing
Internal
Factors:
- Cost of Production: The minimum price must
cover cost, otherwise the firm makes a loss.
- Company Objectives: A firm focusing on premium
branding will price differently from one focused on mass sales.
- Product Life Cycle Stage: New products may be priced
higher (skimming) or lower (penetration), while older products may need
discounts.
- Marketing Mix Integration: Price must fit with
promotion, product quality, and distribution strategy.
External
Factors:
- Demand Conditions: Higher demand often allows
higher pricing, while low demand forces discounts.
- Customer Perception: If consumers see the
product as high-value, they accept a higher price.
- Competition: Strong competitors limit
how high a company can price.
- Government Regulations: Taxes, price ceilings, or
anti-profiteering laws affect pricing freedom.
- Economic Environment: Inflation, recession, or
exchange rate fluctuations influence pricing decisions.
- Channel Members: Wholesalers, retailers,
and e-commerce platforms often demand margins, affecting final consumer
price.
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