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LESSON 10
BUSINESS PLAN AND PRODUCT CONCEPTS

Learning Objectives:
At the end of the lesson the student will be able to:

 Present the crafted business plan; and

 Demonstrate and present product concepts.

1. Pricing Practices

 Price

A price is the quantity of payment or compensation given by one party to another in

return for one unit of goods or services. A price is influenced by production costs, supply of the
desired item, and demand for the product. A price may be determined by a monopolist or may
be imposed on the firm by market conditions

Historically, price has been the major factor affecting buyer choice. However, in recent
decades, non-price factors have gained increasing importance. Yet, the price is still one of the
most important elements of the marketing mix. It may determine very much of a firm’s market
share and its profitability.

Worthy of note is the fact that the price is the only element in the marketing mix that
produces revenue. All other elements, in fact, represent costs: the product must be developed
and produced, the place means facility and transportation costs, and promotion is costly
anyway. Also notable: the price is one of the most flexible marketing mix elements. While
product features and channels, for instance, are rather inflexible, prices can be changed
quickly to meet changing conditions

 Pricing Strategies

Price is the value that is put to a product or service and is the result of a complex set of
calculations, research and understanding and risk-taking ability. A pricing strategy takes into
account segments, ability to pay, market conditions, competitor actions, trade margins and
input costs, amongst others. It is targeted at the defined customers and against competitors.
 Premium pricing: high price is used as a defining criterion. Such pricing strategies
work in segments and industries where a strong competitive advantage exists for the
company. Example: Porche in cars and Gillette in blades.

 Penetration pricing: is the quantity of payment or compensation given by one party to

another in return for one unit of goods or services. This is done when a new product is
being launched. It is understood that prices will be raised once the promotion period is
over and market share objectives are achieved. Example: Mobile phone rates in India;
housing loans etc.
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  Economy pricing: no-frills price. Margins are wafer thin; overheads like marketing
and advertising costs are very low. Targets the mass market and high market share.
Example: Friendly wash detergents; Nirma; local tea producers.

 Skimming strategy: high price is charged for a product till such time as competitors
allow after which prices can be dropped. The idea is to recover maximum money
before the product or segment attracts more competitors who will lower profits for all
concerned. Example: the earliest prices for mobile phones, VCRs and other electronic
items where a few players ruled attracted lower cost Asian players.

These are the four basic strategies, variations of which are used in the industry.

 Pricing Practices

Pricing is one of the vital constituents of marketing mix. After the burial of barter
system, price has acquired a central position in the exchange process. Price is viewed
differently for different marketable objects. For a physical product it is invariably called as a
price. In the matters of various services it has different names, such as rent, fare,
commissions, premium, interest, salary, taxes, etc. A price is a unit value of an object
expressed in terms of money. In a more formal way, a price represents the value of the
product or service for both the seller and the buyer. (138) Pricing has a significant role in
overall marketing functions. It is the only element of marketing mix which creates revenue for
the enterprise; all other elements like product, marketing channels and promotion are cost
items. It is true to say that without prices there can be no marketing. Revenues earned via
price reflect the success of performance marketing activities. It is equally important for all
types of enterprises involved in the exchange of either physical products or services. The rise
in the relative importance of price is attributable to rapid cost increases, more foreign
competitions for many products and services, greater price awareness on the part of
consumers, and shortages leading to high prices in some product categories. Further, suitable
prices assist an enterprise in maximizing profits and maximizing sales. Price is also the only
objective criterion for customers for assessing quality of different items. Viewing its
performance and making a final choice in the process of buying decisions. Price also helps
the channel members to compensate themselves suitably for their functions. Similarly, it also
helps in deciding promotional policies regarding budget determination. However price is not
synonymous. Utility is a qualitative measure of a product, to satisfy human events. Value on
the other hand, is a quantitative measure of the exchange power of product relating to other
product. Both utility and value are interconnected with the price which can be expressed as
under.

UTILITY VALUE PRICE

Creates Measures as

Factors Affecting Individual Prices

1. All costs and profits must be covered by all pricing.
2. Cutting cost is the most effective approach to cut pricing.

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 3. Review pricing on a regular basis to ensure that they reflect cost dynamics, market
demand, competitive reaction, and profit goals.
4. To ensure sales, prices must be fixed.

The prices that any firm can charge for its products are subject to many influences. Some
or all the following consideration may apply in a particular case:
1. Trade laws
2. Nationally advertised prices
3. Desired customer clientele
4. Competitor price policies
5. Market strategy
6. Manufacturer's suggested prices
7. Type of merchandise handled
8. Seasonal nature of sales
9. Demand factor of certain products
10. Price lining

2. Concepts and Practices of Merchandising

Merchandising includes the determination of quantities, setting prices for goods and
services, creating display designs, developing marketing strategies, and establishing
discounts or coupons.

Merchandising has two broad objectives:

1. Buy and store the inventory or product that is expected or needed by the people.
2. Achieve the objective of the business i.e., Growth, profit etc., that is possible when
inventory is sold. It means store or buy that product that be sold is the basic philosophy of
merchandising, which benefits both the customer and also the businessmen. That is
customer is pleased as he gets product of his desire and retailer gets profit as
merchandise is sold.

Types of Merchandise:
Merchandise can be broadly classified under following heads:
1. Staple:
These are necessaries of life that are used every day. E.g. – Food, Clothing,
Stationery, Cosmetics, toiletries etc.
2. Fashion:
Consumption of these goods is dependent on current fashion. Demand lasts until its
fashion. Depending on nature of goods, fashion may be for seasons or years. Retailer
has to stocks the product until the fashion lasts. If the stock remains unsold as goods
become out of fashion, has he has to adopt marketing strategy like discount, ‘buy one
get one offer’ to clear stock.
3. Fads:
Goods that are in demand for a very short period of time. It can be said as fashion
which lasts for a very short period of time. It is risky to store such goods in bulk
quantity as there is no guarantee regarding duration of demand.

4. Seasonal:

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 Goods that are demand in particular seasons. Based on weather features, we can
classify seasons as Monsoon, Summer, Winter accordingly specific products like,
Umbrella, Sweaters, Cool Goggles, soft drinks, Ice creams etc., are demanded
accordingly the product is to be stored. Similarly season of festivals, marriages have
its own demand for sweets, Jewelry, Clothing, etc.

10 Retail Merchandising Best Practices

1. Speak to your customers
2. Make your window display count
3. Turn your staff into retail merchandising statements
4. Leverage informational signage
5. Keep things fresh
6. Implement cross-merchandising
7. Use in-store tech
8. Implement “try before you buy”
9. Monitor your sales per category
10. Don’t forget about compliance

3. Advertising and Promotions

Advertising and promotions are often used interchangeably by small businesses that don't
really understand the process of effectively bringing products or services to the marketplace.
The more subjective disciplines of advertising and promotions support objective, upfront
marketing research. Understanding what each of these terms means and how they relate to
each other will help you effectively increase your sales.

Advertising

Advertising is paying to get your message to potential customers. Unlike public relations,
advertising lets you control your message. A classic advertising strategy includes
demonstrating a need or a problem to your potential customer; offering a solution to help fill
that need or solve the problem; and showing how your product or service does that. Good
advertising sells the benefits of a product or service, rather than simply discuss the product or
service.

Advertising a product that is overpriced or unavailable in stores doesn't make sense,

nor does placing an ad for women's personal care products in a men's sports magazine. This
is why marketing functions come first in the sales process. Advertising supports marketing and
applies a specific message to specific audiences defined by market research as the best way
to achieve success.

Promotions

Promotions are events, activities, sponsorships, and contests that create and increase
awareness of your product or service. Promotions differ from advertising because they are
less educational in nature than traditional advertisements. Sponsoring a youth sports
organization, giving away free samples at a mall, offering coupons in grocery stores, or
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promoting a sweepstakes or contest that bring customers to your website are all examples of
promotions. Promotions should be geared toward the consumer demographic your market
research determined is your best potential customer.
Seven Ps Marketing Mix

The 7 P’s Marketing mix is a marketing tool and strategy that will help your business to
develop its marketing and business success by focusing on specific areas. Historically, the
marketing mix was just 4 P’s, but 3 more were added and it is now suggested that all 7 are
considered as part of your marketing and promotional strategy, particularly if you are a service
provider.

The 7 P’s
The original 4 P’s of the marketing mix tool are:
1. Product
2. Price
3. Place
4. Promotion
The additional 3 P’s added, are:
5. People
6. Process
7. Physical Evidence

1. PRODUCT- this could be your SERVICE if you are a service provider Is your product
branded effectively? How do your customers rate the quality of your product? Is there
recurrent negative feedback about the same thing? Are there improvements that could
be made? Is your product brand strong? Do you offer a guarantee? Do you have
availability or stock? Could you take on more customers or orders?

2. PRICE How does your product compare when it comes to the market price? When
was the last time you reviewed your pricing? When was the last time you altered your
price in-line with inflation, or market supply and demand? Is your pricing model clear
and easy to communicate? Do you know your profit margin on each product you offer?
Do you provide any added-value to your offering? Do you offer the most appropriate
payment methods for the customer? Do you offer credit facilities?

3. PROMOTION What marketing communications do you have? Do they need updating?

Do they give the right messages? How could you refine your sales process? What PR
activity are you doing? Do you have a marketing budget? Should it stay the same, or
change this year? Do you network to promote your business?

4. PLACE Is your product available in the place where your customers shop? Is your
product visible to your target market? Are you visible on social media?

5. PEOPLE Do you have the right people to sell your product/service? Do you have the
right amount of marketing support? Are the right people in your team, in the right
roles? Do you need more, or less resources? Could you outsource some of your work
to reduce commitment on costs? Do you have the right culture within the team? Do
you have a good recruitment, training and appraisal system for staff?

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 6. PROCESS Is your sales process efficient? Are your processes customer focused? Do
you have a good process for dealing with technology issues? Have you established
systems for as many things as possible within your marketing and sales process?
7. PHYSICAL EVIDENCE Is your product packaging reflective of the quality of the
product? This could apply to the way a service is delivered, including any physical
documentation What is the online experience if the product is delivered digitally?

These are just ideas and you will for sure come across other questions and thoughts
that are relevant to your business. Why not get your team together (or you partner / best friend
if you are a sole trader) and have some fun by trying to really cover all the individual elements
of your business. Be constructively critical and realistic with what you can achieve within
certain timeframes. Why the marketing mix is still used from the 80s until now the marketing
mix concept may seem dated as it was developed in the 1980s and we now live and work in a
rapidly changing commercial environment. However, it remains effective as the logic behind
each of the 7 Ps remains constant yet they are flexible enough to be able to be adapted to suit
the new style of communications, for example social media.

4. Determining Location and Facilities

Facility Location is the right location for the manufacturing facility and it will have sufficient
access to the customers, workers, transportation, etc. For commercial success, and
competitive advantage following are the critical factors:

Overall objective of an organization is to satisfy and delight customers with its product and
services. Therefore, for an organization it becomes important to have strategy formulated
around its manufacturing unit. A manufacturing unit is the place where all inputs such as raw
material, equipment, skilled labors, etc. come together and manufacture products for
customers. One of the most critical factors determining the success of the manufacturing unit
is the location.

Location Selection Factors

For a company which operates in a global environment; cost, available infrastructure, labor
skill, government policies and environment are very important factors. A right location provides
adequate access to customers, skilled labors, transportation, etc. A right location ensures
success of the organization in current global competitive environment.

Industrialization

A geographic area becomes a focal point for various facility locations based on many
factors, parameters and issues. These factors are can be divided into primary factors and
secondary factors. A primary factor which leads to industrialization of a particular area for
particular manufacturing of products is material, labor and presence of similar manufacturing
facilities. Secondary factors are available of credit finance, communication infrastructure and
insurance.

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Errors in Location Selection

Facility location is critical for business continuity and success of the organization. So it
is important to avoid mistakes while making selection for a location. Errors in selection can be
divided into two broad categories behavioral and non-behavioral. Behavioral errors are
decision made by executives of the company where personal factors are considered before
success of location, for example, movement of personal establishment from hometown to new
location facility. Non-behavioral errors include lack of proper investigative practice and
analysis, ignoring critical factors and characteristics of the industry.

Location Strategy

The goal of an organization is customer delight for that it needs access to the
customers at minimum possible cost. This is achieved by developing location strategy.
Location strategy helps the company in determining product offering, market, demand forecast
in different markets, best location to access customers and best manufacturing and service
location.

Factors Influencing Facility Location

If the organization can configure the right location for the manufacturing facility, it will
have sufficient access to the customers, workers, transportation, etc. For commercial success,
and competitive advantage following are the critical factors:
 Customer Proximity: Facility locations are selected closer to the customer as to
reduce transportation cost and decrease time in reaching the customer.
 Business Area: Presence of other similar manufacturing units around makes business
area conducive for facility establishment.
 Availability of Skill Labor: Education, experience and skill of available labor are
another important, which determines facility location.
 Free Trade Zone/Agreement: Free-trade zones promote the establishment of
manufacturing facility by providing incentives in custom duties and levies. On another
hand free trade agreement is among countries providing an incentive to establish
business, in particular, country.
 Suppliers: Continuous and quality supply of the raw materials is another critical factor
in determining the location of manufacturing facility.
 Environmental Policy: In current globalized world pollution, control is very important,
therefore understanding of environmental policy for the facility location is another
critical factor.

Performance Task

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 1. Using your imagination and creativity. Create your own video/advertisement and poster
of your business/product. You can adapt an advertising jingle/song for a particular product.

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