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Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University

Marketing management is a broad scope of the study of marketing focusing on the practical application of the techniques and marketing activities of a certain company or business.

To familiarize the students with the basic concepts and principles of marketing and to develop their conceptual and analytical skills to be able to manage marketing operations of a business firm.

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University contains Following topics.

Unit II-Product and Pricing Decisions: Product – concept and classification; Major product decisions; New product development; Packaging and labelling; Product support services; Branding decisions; Product life cycle – concept and appropriate strategies adopted at different stages. Pricing- Objectives, Factors affecting price of a product, Pricing policies and strategies. Ethical issues in product and pricing decisions.

Product concept and classification of marketing Management

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – One of the important elements of marketing mix is Product. Any firm is known by the product it is offering. The other elements of marketing mix are based on it. So there it is very important that the firm must have a sound product policy. Product is any object which satisfies the consumer needs. It can be in any form like tangible or intangible.

Products can be classified based on consumer versus industrial goods and goods versus services.

The two most commonly used methods of classifying products are:

(1) Consumer goods versus industrial goods, and

(2) goods products (i.e., durables and non-durables) versus service products.

Consumer Goods and Industrial Goods

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – The traditional classification of products is to dichotomize all products as being either consumer goods or industrial goods. When we purchase products for our own consumption with no intention of selling these products to others, we are referring to consumer goods . Conversely, industrial goods are purchased by an individual or an organization in order to modify them or simply distribute them to the ultimate consumer in order to make a profit or meet some other objective.

Classification of Consumer Goods

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – A classification long used in marketing separates products targeted at consumers into three groups: (1) Convenience goods, (2) shopping goods and (3) specialty goods.

convenience good is one that requires a minimum amount of effort on the part of the consumer. Extensive distribution is the primary marketing strategy. The product must be available in every conceivable outlet and must be easily accessible in these outlets. These products are usually of low unit value, they are highly standardized, and frequently they are nationally advertised.

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – Consumers desire to compare products categorized as shopping goods. Automobiles, appliances, furniture, and homes are in this group. Shoppers are willing to go to some lengths to compare values; therefore, these goods need not be distributed so widely. Although many shopping goods are nationally advertised, often it is the ability of the retailer to differentiate itself that creates the sale. Discounting, or promotional price-cutting, is a characteristic of many shopping goods because of retailers’ desire to provide attractive shopping values.

Specialty goods represent the third product classification. From the consumer’s perspective, these products are so unique that they will go to any lengths to seek out and purchase them. Almost without exception, price is not a principle factor affecting the sales of specialty goods.

Classification of Industrial Goods

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – Although consumer products are more familiar to most readers, industrial goods represent a very important product category. For some manufacturers, industrial goods are the only product sold. The methods of industrial marketing are somewhat more specialized. Industrial products can either be categorized from the perspective of the producer and how they shop for the product, or the perspective of the manufacturer and how they are produced and how much they cost. The latter criteria offers a more insightful classification for industrial products.

Goods Versus Services

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – Service products are reflected by a wide variety of industries—utilities, barbers, travel agencies, health spas, consulting firms, medical facilities and banks are but a few. They account for nearly 50 percent of the average consumer’s total expenditures and 70 percent of jobs. Like goods products, service products are quite heterogeneous. Nevertheless, there are several characteristics that are generalized to service products.

Intangible: With the purchase of a good, one has something that can be seen, touched, tasted, worn or displayed. This is not true with a service. Although one pays money and consumes the service, there is nothing tangible to show for it.

Simultaneous Production and Consumption: Service products are characterized as those that are being consumed at the same time they are being produced. In contrast, goods products are produced, stored, and then consumed. A result of this characteristic is that the provider of the service is often present when consumption takes place.

Little Standardization: Because service products are so closely related to the people providing the service, ensuring the same level of satisfaction from time to time is quite difficult.

High Buyer Involvement: With many service products, the purchaser may provide a great deal of input into the final form of the product. For example, in the case of a cruise, a good travel agent would provide a large selection of brochures and pamphlets describing the various cruise locations, options provided in terms of cabin location and size, islands visited, food, entertainment, prices, and whether there are facilities for children.

It should be noted that these four characteristics associated with service products vary in intensity from product to product. In fact, service products are best viewed as being on a continuum in respect to these four characteristics.

What Is Packaging & Labeling in Marketing?

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – Packaging and labeling do more than protect and identify your company’s products. They play a vital role in developing your image and brand within your target market. Failing to pay attention to the design of your packaging and labeling can decrease the visibility and attractiveness of your products, which can be devastating for sales.


Packaging has four distinct marketing functions, according to the book “Essentials of Marketing,” by Charles W. Lamb and colleagues. It contains and protects your product. It promotes your product. It helps consumers use your product — for example, by allowing them to reseal it between uses. Finally, packaging facilitates recycling and reduces environmental damage.


Your product’s label delivers your sales message. You can explain what benefits you offer that competitors don’t, for example, or promote a prize or discount. You also can develop brand goodwill by showing customers you share their values. For instance, images of happy families, healthy athletes and green pastures each speak to different types of consumers. Labels also must fulfill your legal obligations. Food manufacturers, for example, must publish detailed nutritional information in a specific format and employ marketing terms — such as “low-fat” or “reduced cholesterol” — that conform to federal regulations. Finally, your product might need a UPC, or universal product code, especially if it will be sold in high-volume retail outlets.

Product life cycle in Marketing management

Product life cycle is the timeline of demand for the product from its initial stage of introduction.

Product life cycle in Marketing management

Product life cycle comprises of the following four stages −

  • Introduction or innovation
  • Growth
  • Maturity
  • Decline

Introduction Stage

The product is introduced in the market in this stage; it is the initial stage of the product.

  • Sales of the product are low in this stage because there may not be a need of the product in the market.
  • The product may undergo brand trouble.
  • In this stage, there is very little or no profit.
  • The demand for the product is created and developed in this stage.

After this initial stage, the next stage of the product is the growth stage.

Growth Stage

In this stage, the demands and market share increases as well as competition emerges in the market.

  • Generally, the price remains constant in this stage.
  • Marketing and promotional expenses increase.
  • There is rapid increase in sales.
  • The manufacturing cost decreases so there is increase in profit margin.
  • It penetrates other market segment.

In the growth stage, there is a boom in the demand of the product and the profit increases substantially.

Maturity Stage

The price of the product is comparatively low, but the advertisement and promotion cost increases in this stage.

  • This stage remains for a comparatively longer duration.
  • In this stage, there is high competition.
  • Profit is decreased.
  • Sales growth can be divided into the following three categories in the maturity stage −
    • Growth
    • Stability
    • Decay

In growth, there is an increase in the demand of the product. In stability, the demand of the product remains constant. In decay, there is a slight decrease in the demand.

Decline Stage

There is a decrease in sales in this stage. Demand of product also decreases.

  • There is decrease in the price of the product.
  • Margins are lowered.
  • There is introduction of new product in market.
  • New strategies are implemented.

This is the final stage of the product. There is a decrease in demand and sales of the product.

New product development Process

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – If a company needs to launch a new product in the market, there is a different development process to be considered. The following are the factors contributing to new product development −

  • Demand in market
  • Acceptance of a product in the market
  • Acceptance of company strategy in market
  • Economic viability of the product
  • Changing the product as per consumer preference
  • Adapting as per technological development
  • Consideration of Government Policy

The development process has to consider these different perspectives for product development and has to adapt as per the market demand.

Pricing Decision in Marketing Management

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – Pricing is a process to determine what manufactures receive in exchange of the product. Pricing depends on various factors like manufacturing cost, raw material cost, profit margin etc.

There are different pricing methods or strategies which are used by the marketer to attract the customer.

1.) Cost based pricing: this type of pricing strategies uses break even concept which means the point where the total cost = total revenue. Profit will be zero at break even point. At level where the total revenue > total cost there is profit and where total revenue< total cost there is loss.

2.) Demand based pricing: it is of two types;

a) Skimming pricing: it means skim the market initially with high price and high profit, later settle down for the lower price. It means skim the cream initially from the market.

b) Penetration pricing: it seeks to achieve high sale with low price. It is generally used when there are non luxury goods.

3.) Competition oriented pricing: in a competitive market the companies generally opt for this pricing strategy. It has three types.

a) Premium pricing: it means price above the competitor’s price.

b) Discount pricing: it means price below the competitor’s price.

c) Parity pricing: it means price equals to the competitor’s price.

4.) Value pricing: this method is used when the objective is not to recover the cost of the product but to judge the value of the product in the eyes of the customer. Like homeshop 18.

5.) Product line pricing: in this case the company need not fix the price for each product rather they fix the price for the entire product line which results in optimal sales through optimal profit.

6.) Sealed bid or tender pricing: this is suitable for those companies where institutional customers call the tenders from the companies. The best and lowest price tender is accepted.

7.) Affordable or social welfare pricing: the pricing is done in such a way that all the segments of the market afford to buy and consume the product as per their need. Like government subsidy help each segment of the consumer to buy the product at an affordable pricing.

8.) Differentiated pricing: in this case different price is charged by the company from the different segment. Like charging low price from the whole sellers and high price from the retailers.

9.) Psychological pricing: many sellers use this technique of selling the product. Like 99 store.

10.) Target pricing: here the price is fixed at full cost + mark up.

11.) Loss leader: sometime firm sell multiple products, charge relatively low price on some popular product with the hope that customer who will buy this product will also buy the other product of the firm.

12.) Cyclical pricing: in depression firm reduce the price of the product while in boom increases the price.

13.) Suggested pricing: in this case the manufacturer or whole seller suggests the retailer to charge this price from the customers.

Factors affecting price of a product in Marketing Management

Factors affecting price of a product in Marketing management

Ethical issues in product and pricing decisions

Ethics is a prime concern in marketing, and the areas of price, placement and promotion are no exception. Pricing refers to the way in which prices are set for consumers, considering the cost of inputs, distribution and overhead.

Pricing Strategy Ethics

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – Price collusion can be a major source of ethical pressure in many industries, and artificial price-fixing is illegal in a wide range of countries. Price collusion exists when a number of competitors agree to set prices at a certain level, bypassing the natural market forces of supply and demand and creating an unfair advantage over consumers. Artificially inflating prices of necessary consumer goods such as gasoline or basic food goods can breach consumers’ ethical expectations, as well. Setting different price points for different consumers for the same goods can be considered an unethical move and can land a company on the wrong side of the law and consumer sentiment. Favor fair-market pricing whenever possible to maintain ethical pricing structures, and refuse to do business with suppliers or cooperate with competitors who offer price-fixing deals.

Product Placement Ethics

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – End-caps, point-of-sale displays and demo kiosks are all examples of positioning techniques that are inherently harmless, but which can be used in arguably unethical ways. Candy distributors, for example, are known for placing bright displays at children’s eye level right before checkout counters in grocery stores, knowing that the combination of children’s pleas and parents’ stress while standing in line will result in increased sales. There is nothing illegal about this tactic, but some consumers consider such emotional manipulation to be highly unethical, especially when it involves children. Slotting allowances can be considered unethical by some, as well. Slotting allowances are cash payments paid by large and financially strong brands to secure the best shelf space in retail stores, making it artificially difficult for small brands to gain shoppers’ attention.

Ethics and Promotions

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – Promotions are designed to boost short-term sales by providing irresistible value propositions to consumers. Coupons, holiday sales events, mail-in rebates and giveaways all fall under the promotions category. The “bait and switch” tactic is widely considered unethical, yet many companies still practice this promotions technique. With bait and switch, a company advertises a significant discount on a valuable product, but stocks only a small number of that item in stores. Customers are lured in by the great deal, only to discover that a completely different and often inferior product is being promoted instead. Avoid this tactic at all costs. Even though it is legal, the bait-and-switch tactic can tarnish your ethical reputation quickly.

Other Ethical Considerations

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University – Other areas of marketing present their own distinct ethical challenges. The areas of advertising and sales serve as prime examples. Advertising ethics are highly regulated by law when it comes to honesty, discrimination and young audiences, but advertisers need to go the extra mile to avoid offending viewers even within the boundaries of the law. Sales practices such as cold calling, canvassing and door-to-door solicitation are regulated by local, state and federal regulations.

Unit II Product and Pricing Decisions for Marketing Management Mcom sem 2 Delhi University

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