UNIT- 03

What is a product?
Anything of value that fulfils the requirement of the end-user is known as a Product. It can be goods or services,
tangible or intangible, physical or psychological. The customers and competitors largely depend upon the products
offered by the company.
Layers or Levels of Product

1. Core or Generic Product

It is the raw product that satisfies the customer’s primary need. The core product is at its raw form, not
bearing any brand name and remains undifferentiated.
For example: – Wheat is a grain that one can consume.
2. Basic Product
The core products differentiated from the rest become the basic product. It adds some necessary features to
the products like Brand Name, Packaging and Label, etc.
For example: – Fortune Chakki Fresh Atta (wheat flour).
3. Expected Product
These products include the key features that customers look forward to. It also contains standard
features that a product should have.
For example: – Chapati is prepared from wheat flour.
4. Augmented Product
To differentiate products from competitors, companies add distinctive features to them. These additions
depend on the market survey conducted for the product. They try to create a Unique Selling Proposition
(USP) for their products.
For example -Brown Bread and Cookies.
5. Potential Product
It refers to all the possible features that a product can have in the future. These features depend on the market
conditions and economic changes.
Major Product Decisions
The major product decisions, which are also the types of product decisions, are discussed briefly below:

1. Core or Generic Product

It is the raw product that satisfies the customer’s primary need. The core product is at its raw form, not
bearing any brand name and remains undifferentiated.
For example: – Wheat is a grain that one can consume.
2. Basic Product
The core products differentiated from the rest become the basic product. It adds some necessary features to
the products like Brand Name, Packaging and Label, etc.
For example: – Fortune Chakki Fresh Atta (wheat flour).
3. Expected Product
These products include the key features that customers look forward to. It also contains standard
features that a product should have.
For example: – Chapati is prepared from wheat flour.
4. Augmented Product
To differentiate products from competitors, companies add distinctive features to them. These additions
depend on the market survey conducted for the product. They try to create a Unique Selling Proposition
(USP) for their products.
For example -Brown Bread and Cookies.
5. Potential Product
It refers to all the possible features that a product can have in the future. These features depend on the market
conditions and economic changes.
Major Product Decisions
The major product decisions, which are also the types of product decisions, are discussed briefly below:

New Product Decision

A new product incorporates the elements of newness and varies from the existing ones. It may include new features,
qualities or be introduced differently. Besides, adding new products can result in growth, profitability, increased
market share and more.
To remain profitable and maintain sales, organizations need to launch new products. However, the products may fail,
so the marketers must take new product decisions wisely.
The product decisions may include:

1. Original Product
2. Improved Product
3. Modified Product
4. Development of Product
5. Launching Products, etc.
Product Mix
It refers to the aggregate range of products that a company owns. In other words, the total number of products that a
company offers for sale is the product mix of the company.
Product mix decisions depend upon the following four characteristics:
1. Length
2. Width
3. Depth
4. Consistency
There are various decisions the marketers have to take regarding the product mix. It may include:-
1. Expansion
2. Contraction
3. Product Differentiation
4. Deepening and Alteration, etc.
Product line
This refers to a range of closely-related products belonging to the same class. They are sold to the same customers,
having identical attributes marketed by the same distribution channel but for different segments.
The product decision relating to a product line are:
1. Line Stretching
2. Line Filling
Design
It indicates the appearance or personality of the product. The marketers have to decide whether to go for
the standard design or the creative design.
Changing the product’s design may be effective but can be risky too. The customer may or may not like the design
and face problems while using the product.

Branding
Branding is one of the vital decisions taken under product decisions. It involves the visual and symbolic elements of
the product.
Branding helps in monitoring the Brand Image, Loyalty and Acceptance.
The marketers distinguish the product using:
1. Band Name
2. Trade Marks
3. Logo
4. Brand Marks, etc.
Packaging
Packaging is the outermost covering of the product. It enables product protection, conveys information and creates
sale appeal. And is not restricted to just the safety of the product.
Packaging has evolved as the medium of marketing. Marketers use packaging to reposition or renovate their
products.
Packaging decisions include:
1. Size
2. Design
3. Innovation
4. Aesthetics
5. Convenience
6. Material
7. Environmental factors
Labelling
The label is a part of the packaging. It contains all the essential details about the product in written form. Also, it
conveys information regarding performance, features, quality and price, etc.
The marketers must perform an in-depth analysis at the time of Labelling. It is a medium of communicating with
customers. Vital decisions based on labelling are:
1. Brand Label
2. Descriptive Label
3. Grade Label
4. Informative Labels
Positioning
Positioning builds a unique image of the product in the target audience’s mind. Also, it differentiates products from
others using benefits and attributes in the customer’s mental space.
The product decision concerning positioning are:
1. Segmentation
2. Differentiation
3. Aggregation
Support
Support or Customer Support is the company’s added benefit for the customers. It may be offered to the end-user by
after-sale services, grievances management, and so on. It assists in creating loyal customers and recurring sales.
Different customer support services possess varied cost structures. Therefore, marketers must make decisions
to reduce costs and improve customer experience.

Product Marketing Ethics

Product marketing ethics is a minor term than Marketing ethics. The marketers must pay attention to the following
ethical issues while marketing:
  Deceitful Practices: The marketers often put faulty or low-quality products for sale without informing
customers. They also ask for additional charges in the name of customer services.
The customers acknowledge it while consuming and are left with no other option than to pay for it.
 Ecofriendly Products: The companies must carry out production considering the statutory guidelines for
pollution control. The product must not harm the environment at any stage, from production to post-
consumption.
The marketers should convey instructions on the packaging about product disposal.
 Quality Products: The companies should produce quality products and disclose complete details. They
should contain important information like ingredients, uses and precautions.
Also, the packaging must mention all the areas of concern related to the product.

Product Development

Definition: Product development refers to the creation of a new product which has some utility; or up-gradation of
the existing product; or enhancement of the production process, method or system. In simple words, it is all about
bringing a change in the present goods or services or the mode of production.

In simple terms product development comprises of the following elements:

 Creation and Innovation pave the way for new inventions and generation of a new product which provides
utility to the consumers.
 Improvement of the existing products is essential to upgrade the old products and to attain perfection.
 Enhancement of the existing production process, methods, techniques and system helps in the betterment of
customer experience. It is more cost-efficient for the organization too.
For Example; One of the most popular electronic brands Sony came up with the idea of coloured television in the
year 196o. Sony, with its new product development, has given a modern edge to the technological advancement in the
entertainment world.
Content: Product Development
1. Identifying the Need
2. Process
3. Conclusion
Identifying the Need for Product Development
Have you ever wondered; Why is the change needed in organizations? Why do the companies keep on modifying
their ways? What makes companies invest a tremendous amount in research and development?
To answer these questions, let us go through the following reasons for which companies plan for product
development:

Slow or Static Product Growth

When the company notices a downfall in the product performance regularly, which is not due to change in the
economy or other factors which are beyond control, it should inspect the product line to find out the reason.
Pressure to Lower the Product Price
A business which is controlled merely by the price factor may land nowhere. If a company encounters that the
customers are shifting to the competitors’ product due to the price factor and land up cutting down the prices of its
product, it must opt for product development.
Diminishing Business from the Most Valuable Customers
The company finds out that its high revenue-generating customers prefer the competitor’s product over its product.
Then, it must analyze the change in the customer’s demand and the features offered by the competitor’s product to
meet that requirement.
Decrease in Inquiries by Prospective Customers
A product itself has the capability of acquiring customers. If the product becomes obsolete or unworthy for its buyers
and is unable to attract inquiries from the potential customers, the company must consider product development.
Rise in Salesforce Turnover
When it becomes difficult for the sales team to sell a particular product to the customers, they tend to grab better
opportunities in other companies. This leads to salesforce turnover. It signifies that something is wrong with the
product due to which it is being rejected in the market.
Entry of New Competitor with Innovative Product
A new competitor enters the market and successfully acquires the company’s prevailing market share. The company
needs to analyze that the competitor’s innovative product is providing a higher level of satisfaction to the customers,
which the company’s product failed to do.
Change in Customer’s Demand
When the company finds out that the customers are frequently demanding a particular change in the product or
seeking for some additional feature which the competitor is offering at the similar price, it should look forward to
product development.
Competitors Exit the Market
Sometimes, many competitors leave the market since they have sensed the downfall. At this point, the company must
look up to product development to retain the customers through innovation.
Product Development Process
Product development is a strategic approach. It should be well planned and systematically executed to achieve desired
results and avoid loss.
Given below is the step by step process for introducing a new product in the market:

Idea Generation: The first step is knowing customer’s requirement through market research by taking feedback,
conducting surveys and going through the competitor’s product. From this research, a product idea is developed.
Idea Screening: The product idea is to be well studied and investigated to find out the need for introducing the new
product, the requirement of additional machinery, selection of marketing channel and its break-even point.
Concept Testing: The next stage is enquiring about the product feasibility by conducting concept testing. The new
product idea is revealed to a group of consumers, and they are asked to share their response over it. If the majority is
in favour of the product, then further steps are to be taken.
Business Analysis: In this step, the organization decides whether the product is financially viable for it or not.
Product’s demand, cost, competitiveness, profitability, expected sales, overheads, etc. are analyzed.
Product Development: At this stage, the manufacturing of a new product, it’s financing, marketing and distribution
as well as advertisement and promotion takes place. However, initially, a small quantity is produced as a test batch.
Test Marketing: The product is then launched in the market on a small scale. If it attains success and can generate
customers, the large-scale production is planned.
If the product is rejected in the market, the company finds out the shortcomings and rectifies it. If the product fails
again in the market, the company tends to dump it.
Commercialization: At this point, the company executes large-scale production and distribution of the successful
new product. It advertises and markets the product on a massive scale to acquire a considerable customer base.
Review Market Performance: Lastly, the company keeps track of the product’s performance in the market to know
customer satisfaction level, demand, profitability, sales volume, competitor’s strategy, the satisfaction of the
middlemen involved, etc.
Conclusion
Product development is essential for the growth of all; the business, the consumers and the economy. No business can
survive the competition without adding the element of innovation to its product line.
Developing a successful product for the consumers require a lot of brainstorming, planning, research, trials and
rectification.
5 reasons why packaging is important
1. Protection
The primary purpose of packaging is to protect its contents from any damage that could happen during transport,
handling and storage. Packaging retains the product intact throughout its logistics chain from manufacturer to the
end user. It protects the product from humidity, light, heat and other external factors. This is the most important
purpose of packaging.
2. Safety
Above all, packaging has an important role in keeping its contents and consumers safe. Packaging should contain
important information of the product and its safety. For example, for food products the packing date, best before
date and a list of ingredients must be clearly visible on the packaging. No harmful chemical, smell, or taste should
transfer from packaging materials to the food whether it is produced from virgin material or recycled material.
Moreover, it must become clear from the packaging if it contains toxic substances.
3. Attractiveness
Packaging counts an important part of the product brand and marketing. A unique packaging can increase the
product attractiveness and thus affect to the willingness to buy the product. Packaging is as important as the product
itself. Its purpose is to stand out from the shelf or website, enhance sales, provide relevant information on the product
and augment interest. Two thirds of people say that the packaging has an effect on their buying decisions.
4. Usability
functional, “life-saver” packaging that is incredibly user-friendly. The usability of the packaging is judged by the
consumers only. A packaging which is simple to open and close, easy to fold and sort after usage, and which can
be reused or recycled will satisfy some of the consumers’ requirements.

5. Sustainability
More and more consumers are paying attention to the packaging materials’ carbon footprint, re-usability and
recyclability before making their buying decision. In fact how sustainable packaging is perceived, the more positive
impact it has to the sales numbers. The packaging design has a crucial role in defining how easy it is to separate the
materials from each other and thus how easy the packaging is to reuse and recycle.

4 Characteristics of Good Industrial Packaging

 It should minimize damage. Packages go through a lot of stress. ...
 It should contain appropriate cushioning. Cushioning is loose material between your products in their
industrialized packaging. ...
 It should be sealed effectively. ...
 It should be efficient.

Role of labeling in packaging:

 Product Identification: label helps the customers in identifying the product and brand. It popularizes the
product and brand among the customers.

 Product Grades: label tells about the grade of the product. For example, air conditioners come with a star
grading system, such as 1 star, 2 stars, 3 stars, 4 stars, and 5 stars. The label helps the consumer purchase a
product according to its quality.
  Product Description: label introduces, describes, and expresses the product. The label includes the
information about – who manufactured the product, when and where it was manufactured, ingredients of the
product, how to use it safely, and best before date. The information helps the customers make an informed
choice.

 Product Promotion: labels help in promoting products. Graphs, figures, and signs attract customers. This
motivates the customers to make a purchase.

Meaning of Pricing:
Pricing is a process of fixing the value that a manufacturer will receive in the exchange of services and
goods. Pricing method is exercised to adjust the cost of the producer’s offerings suitable to both the
manufacturer and the customer.

Objectives of Pricing

The main objectives of pricing can be learnt from the following points −

 Maximization of profit in short run

 Optimization of profit in the long run

 Maximum return on investment

 Decreasing sales turnover

 Fulfill sales target value

 Obtain target market share

 Penetration in market

 Introduction in new markets

 Obtain profit in whole product line irrespective of individual product profit targets

 Tackle competition

 Recover investments faster

 Stable product price

 Affordable pricing to target larger consumer group

 Pricing product or services that simulate economic development

Objectives of Pricing:

 Survival- The objective of pricing for any company is to fix a price that is reasonable for the consumers and
also for the producer to survive in the market. Every company is in danger of getting ruled out from the
market because of rigorous competition, change in customer’s preferences and taste. Therefore, while
 determining the cost of a product all the variables and fixed cost should be taken into consideration. Once the
survival phase is over the company can strive for extra profits.

 Expansion of current profits-Most of the company tries to enlarge their profit margin by evaluating the
demand and supply of services and goods in the market. So the pricing is fixed according to the product’s
demand and the substitute for that product. If the demand is high, the price will also be high.

 Ruling the market- Firm’s impose low figure for the goods and services to get hold of large market size. The
technique helps to increase the sale by increasing the demand and leading to low production cost.

 A market for an innovative idea- Here, the company charge a high price for their product and services that
are highly innovative and use cutting-edge technology. The price is high because of high production cost.
Mobile phone, electronic gadgets are a few examples.

The 5 most common pricing strategies

 Cost-plus pricing. Calculate your costs and add a mark-up.
 Competitive pricing. Set a price based on what the competition charges.
 Price skimming. Set a high price and lower it as the market evolves.
 Penetration pricing. Set a low price to enter a competitive market and raise it later.
 Value-based pricing. Base your product or service’s price on what the customer
believes it’s worth.
Choosing the right pricing strategy
1. Cost-plus pricing
Many businesspeople and consumers think that cost-plus pricing, or mark-up pricing, is the
only way to price. This strategy brings together all the contributing costs for the unit to be sold,
with a fixed percentage added onto the subtotal.
Dolansky points to the simplicity of cost-plus pricing: “You make one decision: How big do I
want this margin to be?”
The advantages and disadvantages of cost-plus pricing
Retailers, manufacturers, restaurants, distributors and other intermediaries often find cost-
plus pricing to be a simple, time-saving way to price.
Let’s say you own a hardware store offering a large number of items. It would not be an
effective use of your time to analyze the value to the consumer of each nut, bolt and washer.

Ignore that 80% of your inventory and instead look to the value of the 20% that really
contributes to the bottom line, which may be items like power tools or air compressors.
Analyzing their value and prices becomes a more worthwhile exercise.

The major drawback of cost-plus pricing is that the customer is not taken into consideration.
For example, if you’re selling insect-repellent products, one bug-filled summer can trigger huge
demands and retail stockouts. As a producer of such products, you can stick to your
usual cost-plus pricing and lose out on potential profits or you can price your goods based on
how customers value your product.
2. Competitive pricing

“If I’m selling a product that’s similar to others, like peanut butter or shampoo,” says Dolansky,
“part of my job is making sure I know what the competitors are doing, price-wise, and making
any necessary adjustments.”
That’s competitive pricing strategy in a nutshell.

You can take one of three approaches with competitive pricing strategy:

Co-operative pricing
In co-operative pricing, you match what your competitor is doing. A competitor’s one-
dollar increase leads you to hike your price by a dollar. Their two-dollar price cut leads to the
same on your part. By doing this, you’re maintaining the status quo.
Co-operative pricing is similar to the way gas stations price their products for example.
The weakness with this approach, Dolansky says, “is that it leaves you vulnerable to not
making optimal decisions for yourself because you’re too focused on what others are doing.”

Aggressive pricing
“In an aggressive stance, you’re saying ‘If you raise your price, I’ll keep mine the same,’” says
Dolansky. “And if you lower your price, I’m going to lower mine by more. You’re trying to
increase the distance between you and your competitor. You’re saying that whatever the other
one does, they better not mess with your prices or it will get a whole lot worse for them.”

Clearly, this approach is not for everybody. A business that’s pricing aggressively needs to be
flying above the competition, with healthy margins it can cut into.

The most likely trend for this strategy is a progressive lowering of prices. But if sales volume
dips, the company risks running into financial trouble.

Dismissive pricing
If you lead your market and are selling a premium product or service, a dismissive pricing
approach may be an option.

In such an approach, you price as you wish and do not react to what your competitors are
doing. In fact, ignoring them can increase the size of the protective moat around your market
leadership.

Is this approach sustainable? It is, if you’re confident that you understand your customer well,
that your pricing reflects the value and that the information on which you base these beliefs is
sound.

On the flip side, this confidence may be misplaced, which is dismissive pricing’s Achilles’ heel.
By ignoring competitors, you may be vulnerable to surprises in the market.
3. Price skimming

Companies use price skimming when they are introducing innovative new products that have
no competition. They charge a high price at first, then lower it over time.

Think of televisions. A manufacturer that launches a new type of television can set a high price
to tap into a market of tech enthusiasts (early adopters). The high price helps the business
recoup some of its development costs.
Then, as the early-adopter market becomes saturated and sales dip, the manufacturer lowers
the price to reach a more price-sensitive segment of the market.
Dolansky says the manufacturer is “betting that the product will be desired in the marketplace
long enough for the business to execute its skimming strategy.” This bet may or may not pay
off.

Risks of price skimming

Over time, the manufacturer risks the entry of copycat products introduced at a lower price.
These competitors can rob all sales potential of the tail-end of the skimming strategy.
There is another earlier risk, at the product launch. It’s there that the manufacturer needs to
demonstrate the value of the high-priced “hot new thing” to early adopters. That kind of
success is not a given.
If your business markets a follow-up product to the television, you may not be able to capitalize
on a skimming strategy. That’s because the innovative manufacturer has already tapped the
sales potential of the early adopters.
4. Penetration pricing

“Penetration pricing makes sense when you’re setting a low price early on to quickly build a
large customer base,” says Dolansky.

For example, in a market with numerous similar products and customers sensitive to price, a
significantly lower price can make your product stand out. You can motivate customers to
switch brands and build demand for your product. As a result, that increase in sales volume
may bring economies of scale and reduce your unit cost.

A company may instead decide to use penetration pricing to establish a technology standard.
Some video console makers (e.g., Nintendo, PlayStation, and Xbox) took this approach,
offering low prices for their machines, Dolansky says, “because most of the money they made
was not from the console, but from the games.”

Penetration pricing makes sense when you’re setting a low

price early on to quickly build a large customer base.
Eric Dolansky
Associate Professor of Marketing, Brock University
Misconceptions of penetration pricing
“Businesspeople think ‘If I sell more, I'll be more successful,’” says Dolansky. “That’s only true
if your margins are sufficiently high. It’s important to remember that penetration pricing serves
a strategic need, that there is a reason why you benefit from greater volumes in and of
themselves, so that selling more units helps attain your goal of making the most profit.”

The risks of penetration pricing

 Your customers may expect constant low prices.
 Price-sensitive customers can be disloyal.
 A price war with your competitors may ensue.
Ask yourself if you can sustain this pricing for the long term without endangering your
business.

5. Value-based pricing
In value-based pricing, the perceived value to the customer is primarily based on how well it’s
suited to the needs and wants of each customer.
Dolansky says a company applying value-based pricing can gain an advantage over its
competitors in a couple of ways:
 The price is a better fit with the customer’s perspective.

 The pricing brings more profit, allowing you to acquire more resources and grow your
business.
When a price doesn’t work, the answer isn’t just to lower it, but to determine how it can better
match customer value. That may mean altering the product to better suit the market.

In an ideal world, all entrepreneurs would use value-based pricing, Dolansky says. But
entrepreneurs who sell a commodity-like service or product, such as warehousing or plain
white t-shirts, are more likely to compete on low costs and low prices.
For entrepreneurs offering products that stand out in the market—for example, artisanal
goods, high-tech products or unique services—value-based pricing will help better convey the
uniqueness they’re offering.
How do you set a value-based price? Dolansky provides the following advice for entrepreneurs
who want to determine a value-based price.
 Pick a product that is comparable to yours and find out what the customer pays for it.

 Find ways that your product is different from the comparable product.
 Place a financial value on these differences, add everything that is positive about your
product and subtract any negatives.
 Make sure the value to the customer is higher than your costs.
 Justify the price to customers, which might include reaching out to them.
 For an established market, its current price range will help educate you on customers’ price
expectations.
Product diffusion
Product diffusion is the acceptance of a product or service by a target market.
What Is the Product Life Cycle?
The term product life cycle refers to the length of time from when a product is introduced to consumers into the
market until it's removed from the shelves. This concept is used by management and by marketing professionals as a
factor in deciding when it is appropriate to increase advertising, reduce prices, expand to new markets, or redesign
packaging.

Introduction Stage

The introduction phase is the first time customers are introduced to the new product. A company must generally
includes a substantial investment in advertising and a marketing campaign focused on making consumers aware of
the product and its benefits, especially if it is broadly unknown what the item will do.

During the introduction stage, there is often little-to-no competition for a product, as competitors may just be getting
a first look at the new offering. However, companies still often experience negative financial results at this stage as
sales tend to be lower, promotional pricing may be low to drive customer engagement, and the sales strategy is still
being evaluated.

Growth Stage

If the product is successful, it then moves to the growth stage. This is characterized by growing demand, an increase
in production, and expansion in its availability. The amount of time spent in the introduction phase before a
company's product experiences strong growth will vary from between industries and products.

During the growth phase, the product becomes more popular and recognizable. A company may still choose to invest
heavily in advertising if the product faces heavy competition.

Financially, the growth period of the product life cycle results in increased sales and higher revenue. As competition
begins to offer rival products, competition increases, potentially forcing the company to decrease prices and
experience lower margins.

Maturity Stage

The maturity stage of the product life cycle is the most profitable stage, the time when the costs of producing and
marketing decline. With the market saturated with the product, competition now higher than at other stages,
and profit margins starting to shrink, some analysts refer to the maturity stage as when sales volume is "maxed out".

During the maturity stage, competition is at the highest level. Rival companies have had enough time to introduce
competing and improved products, and competition for customers is usually highest. Sales levels stabilize, and a
company strives to have its product exist in this maturity stage for as long as possible.

Decline Stage

As the product takes on increased competition as other companies emulate its success, the product may lose market
share and begin its decline. Product sales begin to drop due to market saturation and alternative products, and the
company may choose to not pursue additional marketing efforts as customers may already have determined whether
they are loyal to the company's products or not.