SETTING

PRODUCT
S T R AT E G Y

Dr. Apeksha Chanpaneri

Product Characteristics
and Classifications

• Product
– Anything that can be offered to a
market to satisfy a want or need.
– It including physical goods,
Associated services, experiences,
events, persons, places, properties,
organizations, information, and ideas.

Dr. Apeksha Chanpaneri

Product Levels: The
Customer-Value
Hierarchy

Five Product Levels

Dr. Apeksha Chanpaneri

• Core benefit: Explains what the buyer really buys, Basic step in designing products,
Defines problem solving benefits/ services that consumers seek.
• Basic product: At this level, the core benefit is turned into a basic product, Basic step
in designing products.
• Expected product: Represents basic requirements, a customer finds essential to buy
a product, Attributes & conditions required by the customers.
• Augmented product: Intangible component of the product along with formal &
core components, Product built by adding consumer services & benefits, certain
Helps to attract & retain customers
• Potential product: These offerings differ from 1 market to another because of
varying competitive conditions, Driving force- to competitive advantage.
Dr. Apeksha Chanpaneri
Consumer-Goods Classification

Convenience

Shopping

Specialty

Unsought

Dr. Apeksha Chanpaneri

• Convenience products

• Bought frequently, immediately with minimum comparison and buying effort.

• Are low priced
• Available in many locations

• EX. Soap, candy, newspapers, fast food

Dr. Apeksha Chanpaneri

• Shopping Product

- Characteristically compared on the basis of suitability, quality, price and style while selection and
purchase.

- Distributed through fewer outlets

e.g. Furniture, clothing, used cars, major appliances, hotel and airline services

Dr. Apeksha Chanpaneri

• Specialty Product

- Has unique characteristics or brand identification for which a significant group of buyer is willing to
make a special purchase effort.

- ex. Specific brands, types of cars, high priced photographic equipment, designer clothes, services of
medical/ legal specialists

Dr. Apeksha Chanpaneri

• Unsought Product;
• Consumer either does not know about/ know about but does not normally think of buying it.
• Require a lot of advertising, personal selling and marketing efforts.
• e.g. Life insurance, pre planned funeral services and blood donations.

Dr. Apeksha Chanpaneri

INDUSTRIAL GOODS CLASSIFICATION

Materials and parts: These are goods that enter the

manufacturer’s product completely. They fall into two major
groups: (a) Raw materials and (b) Manufactured materials and
parts.

Capital items: are long-lasting goods that facilitate developing or

managing the finished product.

Supplies/business services: short-term goods and services that

facilitate developing or managing the finished product.
Dr. Apeksha Chanpaneri
 PRODUCT LIFE-CYCLE
• Product have a limited life

• Product sales pass through distinct stages, each posing

different challenges, opportunities, and problem to the seller

• Profit rise and fall at different stage

• Products requires different marketing, financial, purchasing,

and human resource strategies in each life cycle stage.
Dr. Apeksha Chanpaneri
 MARKETING STRATEGIES:
INTRODUCTION STAGE
• Rapid Skimming Strategy: Introducing a new product at high price and high promotional
expenses. The purpose of high price is to recover profit per unit as much as possible. The high
promotional expenses are aimed at convincing the market the product merits even at a high price.

• Ex.

• Slow Skimming Strategy: This strategy involves launching a product at a high price and low
promotion. The purpose of high price is to recover as much as gross profit as possible. And, low
promotion keeps marketing expenses low. Ex.
• Rapid Penetration: The strategy consists of launching the product at a low price and high
promotion. The purpose is the faster market penetration to get larger market share.

• Ex.

• Slow Penetration: The strategy consists of introducing a product with low price and low-level
promotion. Low price will encourage product acceptance, and low promotion can help
realization of more profits, even at a low price. Ex.
 Marketing Strategies: Growth Stage

• To sustain rapid market share growth now:

– Improve product quality and add new features

– Add new models

– Enter new market segments

– Increase distribution coverage and enter new distribution channels ex. Online availability

– Shift from awareness and trial communications to preference and loyalty communications

– Lower prices to attract the next layer of price-sensitive buyers

Marketing Strategies: Maturity Stage

Market modification

Product modification: quality improvement,

Feature improvement, Style improvement

Marketing program modification

Marketing Strategies: Decline Stage

• Eliminating Weak Products

• Harvesting and Divesting
Harvesting calls for gradually reducing a product or business’s costs while trying to
maintain sales.
Divesting: A product with strong distribution and residual goodwill, it can probably
sell it to another firm.
Ex. Tata Communications is the best example of divestment strategy. It has started
the process of selling its data centre business to reduce its debt burden.
INTRODUCING NEW
MARKET
OFFERINGS
New-Product Options: Make or Buy

• Buy other companies

• Buy patents from other companies

• Buy a license or franchise from another company

• New-to-the-world items

• Improvise existing products

New-Product Development Process
Generating Ideas
• Interacting with employees
• Interacting with outsiders
• Studying competitors
• Adopting creativity techniques
USING IDEA SCREENING

• Purpose: To drop poor ideas

• The description states the product ideas, target market, and the
competition and roughly estimate market size, product price,
development time and costs, manufacturing costs, and the rate of
return.
 Concept development and testing
• Concept development
• Concept testing: Presenting the product concept to target consumers, physically and
getting their reactions.

Perceived value(Price)
Communicability &
believability
Purchase intention

Need level User targets, purchase

occasions & frequency
 PRODUCT DEVELOPMENT

– Physical prototypes: R & D department is to find prototype that

embodies the key attributes in product – concept statement.

- Performed safely under normal use and conditions

- Production under budgeted manufacturing cost

– Customer tests: alpha(within the firm) & beta(customers) testing

• Market testing

– Consumer-goods market testing

– Business-goods market testing

Methods of Consumer-Goods Market
Testing
Sales-wave research: Consumers who initially try the product at no
cost are reoffered.

Simulated test marketing: selected customers

Controlled test marketing: Specific areas (Number of stores and

geographic

Test markets: few cities and full marketing communication

Development to
Commercialization
• Commercialization

– When (timing)

– Where (Geographic Strategy)

– To Whom (Target-Market Prospects)

– How (Introductory Market Strategy)

 DEVELOPING
PRICING
STRATEGIES AND
PROGRAMS
PROCESS OF SETTING THE PRICE

1: Selecting the price objectives

2: Determining Demand
3: Estimating Costs
4: Analysing competitor's Costs, Prices, and Offers
5: Selecting the pricing method
6: Selecting the final price
Step 1: Selecting the Pricing Objective

Maximum current
profit
Survival

Maximum market
Other objectives
share (Lower price)

Product-quality Maximum market

leadership (Starbucks, skimming (Price high –
BMW) slowly drop)
 Step 2:Determining Demand
• Each price will lead to a different level of demand and have different impact on company’s marketing
objectives

• Price sensitivity: Price conscious

• Estimating demand curves

– Surveys: How may units consumers want buys at different proposed price

– Price experiments: Price changes in different territory

– Statistical analysis: Past data, report analysis

• Price elasticity of demand

If the demand hardly change with small change in price called as inelastic

If the demand changes considerably than elastic

 Step 3: Estimating Costs
• Types of costs and levels of production

– Fixed costs

– Variable costs

– Total costs

Ex. Samsung: Plant capacity: 1000 tablet per day

Production of less than 1000 tablet: Per unit cost is high

• Accumulated production

– Experience/learning curve: Method is improve, Workers learn shortcuts, material flow more smoothly
• Target Costing: Costs change with production scale and experience

• Concentrated efforts by designers, engineers, and purchasing agents to reduce through target costing
 Step 4: Analyzing Competitors’ Prices
• Firm must take competitors’ costs, prices, & reactions into account
– Value-priced competitors
Step 5: Selecting a Pricing
Method
• Markup pricing
– Add a standard markup to the product’s cost
Ex. Manufacturing chocolate

Variable cost per unit: Rs. 10

Fixed cost: Rs. 3,00,000
Expected unit sales: 50,000 unit
Desired return on sale: 20%

Unit Cost: VC + FC/Expected unit sales

= 16 per unit
• Target-return pricing

– Price that yields its target rate of return on investment

• Perceived-value pricing

Perceived value pricing is that value which customers are willing to pay for a particular
product or service based on their perception about the product.

Ex. Based on buyer’s image of product, channel deliverables, warranty quality,

customer support, and softer attributes (e.g., reputation)
 NIKE CASE
• Nike, a well-known brand of today, endorsed in professional NBA player Michael Jordan and created
a special line of shoes called the Air Jordan(s). Nike seems to understand all too well the need to
develop strong customer-perceived value.

• Jordan released a limited edition every year with a set amount available.

• All the hype about the line of Air Jordan as well as the limited edition Jordans, are consumer-
perceived.
• Value Pricing: Companies that adopt value pricing win loyal customers by
charging a fairly low price for a high quality offering.

• Ex. IKEA, P&G

• EDLP: Every day low pricing

• High low pricing: The retailer charges higher prices on an everyday basis but runs
frequent discount/promotions with prices temporarily lower than the EDLP.
• Going rate pricing: The firm bases its price largely on competitors price.

• Auction type pricing:

1. English auction: 1 seller and many buyers

2. Dutch auction: 1 seller and many buyers or one buyer and many sellers:

Auctioneer announces a high price for the product and than decrease the price until a
bidder accepts, Buyer announce something he/she wants buy and than potential seller
compete to offer the lowest price.

3. Sealed – bid auctions

Step 6: Selecting the Final Price
• Additional factors to select final price:

✓ Impact of other marketing activities

✓ Company pricing policies
✓ Gain-and-risk-sharing pricing
✓ Impact of price on other parties
 DESIGNING
A N D M A N A G I N G I N T E G R AT E D
MARKETING CHANNELS
• Marketing channels

– Sets of interdependent organizations participating in the process of making a

product or service available for use or consumption.

– Intermediaries: merchants, agents, and facilitators

Producer Intermediaries Final User

•A marketing channel
system
– Push strategies include trade shows,
showrooms, getting retailers to stock a
product, and creating a supply chain to
facilitate distribution. (motivate retailers)
Strategy:
- Low brand loyalty
- Impulse item

– Pull strategy: motivates customers to

actively seek out a specific product and it
best for new products or in the case when
a manufacturer has a strong and visible
brand.
Ex. Advertisement, Promotion etc. (Pre-
booking of product or appointment of
services)
• Multichannel marketing or
Omnichannel marketing
– Using two or more marketing
channels to reach customer
segments in one market area.

– Deliver the right production

information to customer
service through online, in
store or phone.
 CHANNEL
Forward flow: Flow of activity from the company to the customers.
FLOW
Backward flow: Flow of activity from customers to the company
Both way: flow occurs in both the directions

Goods/ Services FORWARD C

C U
O S
M Payment for Goods/ Returns BACKWARD T
P O
A M
N BOTH WAYS E
Information
Y R
S
CHANNEL LEVEL
 Ex. Direct through Company’s
CONCEPT website
MANUFACTURER CUSTOMER
CHANNELS
Ex. Tupperwear,
Amazon.com
MANUFACTURER
TYPES RETAILER CUSTOMER

ROLES
MANUFACTURER WHOLESALER RETAILER CUSTOMER

FUNCTIONS
Ex. FMCG Sector
MANUFACTURE
AGENTS WHOLESA CUSTOMER
R
SELECTION RETAILER
LER
 Ex. Material
INDUSTRIAL like steel

MARKETING Ex. Heavy

CHANNEL Machinery

Ex. Fruits,
vegetables
, Tyres Ex. Light
machiner
y tools,
Paints
VERTICAL MARKETING SYSTEMS
• Vertical Marketing Systems (VMS) consists of producers, wholesalers, and retailers

acting as a unified system - that seek to maximize profits for whole channel.

• Here, one channel members-

➢owns the others,

➢has contracts with them or

➢use so much power that they all cooperate.

• Ex. Maker : Microchip maker INTEL

• Retailer: Walmart
TYPES OF VERTICAL MARKETING
SYSTEMS
Vertical
marketing
systems (VMS)

Corporate Contractual Administered

VMS VMS VMS

Wholesaler- Retailer Franchise

sponsored cooperatives organizations
voluntary
chains
 CORPORATE
VMS

 Combines successive
stages of production and
distribution under single
ownership.

Ex. AMUL makes dairy

products and operates their
franchise of ore than 10000
retail outlets.
 CONTRACTUAL VMS
• Independent firms join contractually at different levels to create efficiencies and economies.

• 3 types :

1. Wholesaler-sponsored voluntary chains: Wholesalers organise voluntary chains

of retailers to help standardize their selling practices. For this purpose, a program
is initialized by the wholesaler in which the independent retailers are agreeing to buy
their purchases from that wholesaler at discounted rates and standardize their selling
practices.

2. retailer cooperatives: retailers organize a new or jointly owned business to carry on

wholesaling and possibly production.

3. Franchisee
Franchise organizations: are contractual marketing systems in which a channel
member, called a franchiser, links several stages in the production-distribution
process. There are three forms of franchisees;

• Manufacturer-sponsored retailer franchisee system

Ford licenses dealers to sell its cars. The dealers are independent business people who got
sponsored by manufacturer.

• Manufacturer-sponsored wholesaler franchisee system

Coca-Cola licenses bottlers (wholesalers) in various markets who buy Coca-Cola syrup
concentrate and then carbonate, bottle and sell the finished product to retailers in local
markets.
• Service-firm-sponsored retailer franchisee system in which a service firm
licenses the retailers to bring its service to consumers.
• Example;
ADMINISTERED VMS
• One member of the channel is large and powerful enough to coordinate the
activities of the other members without an ownership stake.

• Examples:
 HORIZONTAL MARKETING SYSTEMS
• Horizontal marketing systems is a channel arrangement in which two or more
companies at one level join together to follow a new marketing
opportunity.

• The major benefit is that companies combine their capital, production capabilities,
marketing resources and therefore accomplish more.

• Ex. If Coca-Cola and Nestle formed a joint venture to market ready-to-drink coffee
and tea worldwide.
APPLICATION

Your family runs a specialty Ice cream parlor.

It manufactures its own ice cream in small batches and sells it only in pint-sized containers. After
someone not affiliated with the company sent six pints of your ice cream to a popular talk-show
host, she proclaimed on her national tv show that it was the best ice cream she had ever eaten.

Immediately after the broadcast, orders came flooding in, overwhelming your small-batch
production schedule and your limited distribution system.

The company’s shipping manager thinks she can handle it, but you disagree. list the reasons why
you need to restructure your channel of distribution.