MODULE MKT 2013 MQF 2.0 VERSION

Principles of Marketing (MKT 2013)

❑ Wants arise either because you have need a product or just because you are
influenced by external factors. For example, you see your friends using a laptop for
their project work. You might also have seen numerous advertisements about how a
laptop can help you in your project work. Due to this influence, you feel you want to
upgrade to a laptop though you may already have a desktop. In this stage, the
marketer should identify the needs of the consumers and offer the products based on
the desire.

2) Information Search:

❑ The stage of the buyer decision process in which the consumer is aroused to search
for more information; the consumer may simply have heightened attention or may go
into active information search.

❑ Example: farhana may actively look for reading materials, phone friends and gather
information in other ways to buy a new computer.

❑ At this stage, the consumer can obtain information from any several sources. These
include personal sources (family, friends, neighbors), commercial sources ( advertising,
salespeople,dealers,packaging, displays), public sources ( mass media, consumer
rating organizations) and experiential sources (handling, examining, using the
product).

❑ At this stage, the consumer is aware of his need or want. He also knows that he wants
to buy a product that can relive his problem. Therefore, he wants to know more about
the product that can relive of his problem. This leads to the information search stage.

❑ The consumer will try to find out the options available and the best solution for his
problem. The buyer will look for information in internal and external business
environments. A consumer may look into advertisements, print, videos, online and
even might ask his friends and family.

❑ When consumers want to buy a laptop, they look for a laptop, its features, price,
discounts, warranty, after sales service, insurance, and a lot of other important
features.

❑ Here, a marketer must offer a lot of information about the product in the form of
informative videos, demos, blog, how-to-do videos, and celebrity interviews.

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3) Evaluation of Alternatives:

❑ The stage of the buyer decision process in which the consumer uses information to
evaluate alternative brands in the choice set.

❑ Example : Farhana has narrowed her choices to four computers and she is interested
in several attribute ; ease of use, price, etc

❑ Marketers should study buyers to find out how they evaluate brand alternatives. If they
know what evaluative processes go on, marketers can take steps to influence the
buyer’s decision.

❑ By now the consumer has done enough research about the kind of product that can
solve his problem. The next step is to evaluate alternative products that can solve his
problem. Various points of information gathered from different sources are used in
evaluating alternatives.

❑ Generally, consumers evaluate the alternatives based on a number of attributes of
the product. Looks, durability, quality, price, service, popularity, brand, social media
reviews are some to the factors that consumers consider.

❑ The market offers many products that can solve the problem of a consumer. Hence
the consumer must make a choice after evaluating the various alternatives available.

❑ At the end of this stage, the consumer will rank his choices and pick a product that
best matches his needs and wants.

4) Purchase Decision:

❑ The buyer’s decision about which brand to purchase.
❑ Generally, the consumer’s purchase decision will be to buy the most preferred brands,

but two factors can come between the purchase intention and the purchase
decision.
❑ Example: if Farhana’s father feels strongly that Farhana should buy the lowest-prices
computer, then the chances of Farhana’s buying a more expensive computer will be
reduced.

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❑ Philip Kotler (2009) says, the final purchase decision may be ‘interrupted’ by two
factors. Customer may get a negative feedback from friends or other customers who
bought it. For example, a customer shortlisted a laptop, but his friend gave a negative
feedback. This will make him to change his decision. Furthermore, the decision might
also change. Sudden change in business plans, financial crunch, unexpected higher
prices, etc. might lead the consumer to drop the idea of buying the laptop.

❑ The Consumer chooses the product that he wants to buy, but many times, he may not
actually buy it for various reasons. At this stage, a marketer should find out the various
reasons due to which the consumer is hesitating to buy. The reasons could be price,
value, and change in the needs of the consumer.

❑ Marketer needs to step up the game. Start by reminding the customers of the reason
behind their decision to buy the product. Furthermore, give as much information
regarding your brand reiterating that you are the best provider of the product that
can fulfill his needs.

5) Postpurchase Behavior:

❑ The stage of the buyer decision process in which consumers take further action after
purchase, based on their satisfaction or dissatisfaction.

❑ If the product falls short of expectation, the consumer is disappointed; if it meets
expectations, the consumer is satisfied; if it exceeds expectation, the consumer is
delighted.

❑ This is the last stage and most often ignored by marketers.
❑ After buying the product, customers compare products with their expectations. There

can be two outcomes: Either satisfied or dissatisfied. Consumers will be happy after
buying the product if it has satisfied their needs. But in case the product was not up to
his expectations, the consumer will be dissatisfied. A consumer can be lost even at this
stage.
❑ A dissatisfied customer might feel as though he took an incorrect decision. This will
result in returns! Offering an exchange will be a straightforward action. However, even
when a customer is satisfied, there is no guarantee that the customer might be a
repeat customer.

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❑ Customers, either satisfied or dissatisfied, can take actions to distribute their
experience in the form of customer reviews. This may be done through reviews on
customer forums, website, social media conversations or word of mouth.

❑ A marketer must make sure that the consumer will be satisfied with the product so that
his experience will lead to repeat customers. Brands need to careful to create positive
post-purchase experience. (Clootrack, 2021)

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CHAPTER 5 : MARKET SEGMENTATION, TARGETING AND POSITIONING

LEARNING OBJECTIVES:
1. Define the three steps of target marketing: market segmentation, target marketing and

market positioning.
2. Discuss the major bases for segmenting consumer market.
3. Explain how companies identify attractive market segments and choose a target

marketing strategy.
4. Discuss how companies position their products for maximum competitive advantage in

the marketplace.

STEPS OF TARGET MARKETING

Three main activities of target marketing are segmenting, targeting and positioning.
These three steps make up what is commonly referred to as the S-T-P marketing process.

Source from : Google image

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STEP 1 : MARKET SEGMENTATION
Dividing a market into distinct groups with distinct needs, characteristics, or behavior who
might require separate products or marketing mixes.

STEP 2 : TARGET MARKETING
The process of evaluating each market segment’s attractiveness and selecting one or more
segments to enter.

STEP 3 : MARKET POSITIONING
Arranging for a product to occupy a clear, distinctive, and desirable place relative to
competing products in the minds of target consumers.

MARKET SEGMENTATION

 “The act of dividing the markets into
specific groups of consumers/buyers who
share common needs and who might
require separate products/and or
marketing mixes” (Kotler, 2016).

 Through market
segmentation,
companies divide
large,
heterogeneous
markets into smaller segments that
can be reached more efficiently and
effectively with products and services
that match their unique needs.

 There are major variables (bases of
segmentation) that might be used in segmenting consumer market: Geographic,
demographic, psychographic and behavioral variables.

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Bases for Segmentation

1) Demographic segmentation
 Demographic segmentation divides the markets into groups based on variables
such as age, gender, family size, income, occupation, education, religion, race
and nationality.
 Demographic factors are the most popular bases for segmenting the consumer
group.
 One reason is that consumer needs, wants, and usage rates often vary closely
with the demographic variables. Moreover, demographic factors are easier to
measure than most other type of variables.
a) Age:
 It is one of the most common demographic variables used to segment markets.
 Some com-panies offer different products, or use different marketing
approaches for different age groups.
 For example, McDonald’s targets children, teens, adults and seniors with
different ads and media. Markets that are commonly segmented by age
includes clothing, toys, music, automobiles, soaps, shampoos and foods

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b) Gender:
 Dividing a market into different groups based on gender: male or female
 Gender segmentation is used in clothing, cosmetics and magazines.

c) Income:

 Markets are also segmented on the basis of income.
 Income is used to divide the markets because it influences the people’s

product purchase. alcoholic,
 It affects a consumer’s buying power and style of living.
 Income includes housing, furniture, automobile, clothing,

beverages, food, sporting goods, luxury goods, financial services and travel.

d) Family lifecycle:
 Product needs vary according to age, number of persons in the household,
marital status, and number and age of children.
 These variables can be combined into a single variable called family life cycle.
 Housing, home appliances, furniture, food and automobile are few of the
numerous product markets segmented by the family cycle stages.

e) Religion
 Businesses may divide markets by religion or religious groups such as Muslim,
Jewish, Hindu, Buddhist, etc.
 Example : Al-Quran is selling for Muslims.

f) Occupation
 Divide markets by occupations.
 Example : professional and technical managers, officials and proprietors,
clerical, sales, students, unemployed.

g) Education
 Businesses may divide markets by education system
 Example : Selling Textbook for Primary and Secondary School Education.

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h) Race
 Businesses may divide markets by races such as Asian, Hispanic, Black, White.
 Example : Maybelline focus on Asian skin tone in selling their cosmetics
products.

i) Generation
 Businesses may divide markets by generation such as Baby boomer,
generation X, Generation Y, Millennial. Example : Medical equipment for old
folks.

j) Nationality
 Businesses may divide markets by nationality or country of origin such as
Malaysia, British, France, China, etc,
 Example: Made in China products.

2) Geographic segmentation

 Geographic segmentation refers to dividing a market into different
geographical units such as nations, states, regions, cities, or neighbourhoods.

 For example, national newspapers are published and distrib-uted to different
cities in different languages to cater to the needs of the consumers

 Geographic variables such as climate, terrain, natural resources, and population
density also influence consumer product needs.

 Companies may divide markets into regions because the differences in
geographic variables can cause consumer needs and wants to differ from one
region to another. E.g. rural,semi-rural, urban or suburban.

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3) Psychographic segmentation

 Psychographic segmentation is dividing groups based on social class, lifestyle and
personality traits @ characteristics.

 In the case of certain products, buying behaviour predominantly depends on
social class, lifestyle and personality characteristics.

a) Social Class
 Social class can be divided into upper class, middle class and lower class.
 Many companies deal in clothing, home furnishing, leisure activities, design
products and services for specific social classes.

b) Personality characteristics:
 It refers to a person’s individual character traits, attitudes and hab­its. Here
markets are segmented according to competitiveness, introvert, extrovert,
ambitious, aggressiveness, etc.
 This type of segmentation is used when a product is similar to many compet-ing
products, and consumer needs for products are not affected by other
segmentation variables.

c) Lifestyle:
 It is the manner in which people live and spend their time and money.
 Lifestyle analysis provides marketers with a broad view of consumers because
it segments the markets into groups on the basis of activities, interests, beliefs
and opinions.
 Companies making cosmetics, alcoholic beverages and furniture’s segment
market according to the lifestyle.

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4) Behavioral segmentation

 In behavioural segmentation, buyers are divided into groups on the basis of their
knowledge of, attitude towards, use of, or response to a product.

 Behavioural segmentation includes segmentation on the basis of occasions, user
status, usage rate loyalty status, buyer-readiness stage and attitude.

a) Occasion
 Buyers can be distinguished according to the occasions when they purchase a
product, use a product, or develop a need to use a product. It helps the firm expand
the product usage.
 For example, Cadbury’s advertising to promote the product during wedding season
is an example of occasion segmentation.

b) User status:
 Sometimes the markets are segmented on the basis of user status, that is, on the basis
of non-user, ex-user, potential user, first-time user and regular user of the product.
 Large compa-nies usually target potential users, whereas smaller firms focus on
current users.

c) Usage rate:
 Markets can be distinguished on the basis of usage rate, that is, on the basis of light,
medium and heavy users.
 Heavy users are often a small percentage of the market, but account for a high
percentage of the total consumption.
 Marketers usually prefer to attract a heavy user rather than several light users, and
vary their promotional efforts accordingly.

d) Loyalty status:
 Buyers can be divided on the basis of their loyalty status—hardcore loyal (con-sumer
who buy one brand all the time), split loyal (consumers who are loyal to two or three
brands), shifting loyal (consumers who shift from one brand to another), and
switchers (consum-ers who show no loyalty to any brand).

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e) Buyer readiness stage:
 The six psychological stages through which a person passes when deciding to
purchase a product.
 The six stages are awareness of the product, knowledge of what it does, interest in
the product, preference over competing products, conviction of the product’s
suitability, and purchase.
 Marketing campaigns exist in large part to move the target audience through the
buyer readiness stages.

f) Benefits Sought:
 Dividing the market into groups according to the different benefits that consumers
seek from the product.

MARKET TARGETING

 The firm now has to evaluate the various segments and decide how many and which
ones to target.

a) Evaluating market segments

 The firm must look into 3 factors: 1) segment size and growth. 2) segment structural
attractiveness and 3) company objectives and resources:

1) Segment size and growth:
 the company must collect and analyze data on current segment sales, growth rates
and expected profitability for various segments
 such companies may select segments that are smaller and less attractive but that
are potentially more profitable for them

2) Segments structural attractiveness
 Need to examine major structural factors that affect long run segment
attractiveness
 A segment is less attractive if it already contains many strong and aggressive
competitors
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 The existence of many actual or potential substitute products may limit prices and
profits that can be earned in a segment

 The relative power of buyers also affects segments attractiveness
 Buyers with strong bargaining power try to force prices down, demand more

services and set competitors against one another
 A segment may be less attractive if it contains powerful suppliers who can control

prices or reduce the quality or quantity of ordered goods and services
3) Company objectives and resources

 Some attractive segment could be dismissed quickly because the strength
needed to compete successfully in a segment and cannot readily obtain them, it
should not enter the segments

 The company should enter only segments in which it can offer superior value and
gain advantages over competitors

b) Selecting target market segments

 Then the company must decide which and how many segments it will target
 A target market consists of a set of buyers who share common needs or characteristics

that the company decides to serve.
 Because buyers have unique needs and wants, a seller could potentially view each

buyer as a separate target market.
 Then, the seller might design a separate marketing program for each buyer.
 They can target in many ways as below:

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1) Undifferentiated (mass) marketing

 A market coverage strategy in which a firm decides to ignore market segments
differences and go after the whole market with one offer

 It focuses on what is common in the needs of consumers rather than on what is
different

 Designs product to the largest number of buyers.
 It aims is to give the product a superior image in people’s minds.

2) Differentiated (segmented) marketing

 A market coverage strategy in which a firm decides to target several market segments
and designs separate offers for each

 By offering product and marketing variations to segments, companies hope for higher
sales and a stronger position within each market segments

 But differentiated marketing also increases the costs of doing business.
 It is more expensive to develop and produce products
 Developing separate marketing plans for separate segments requires extra marketing

research, forecasting, sales analysis, promotion planning and channel management

Source : Google Image

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3) Concentrated marketing

 A market coverage
strategy in which a firm
goes after a large share of
one or few segments or
niches

 The company have a
limited resource

 The firm goes after a large
share of one or few segments or niches

 It is smaller and may attract only one or few competitors.

4) Micro marketing

 The practice of tailoring products and marketing programs to the needs and wants of
specific individuals and local customer groups –includes local marketing and
individual marketing

 Local marketing: tailoring brands and promotions to the needs and wants of local
customer groups –cities, neighborhood and even specific stores

 Individual marketing – tailoring products and marketing programs to the needs and
preferences of individual customers-also labeled “market-of one marketing”,
customized marketing” and one to one marketing

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Summary of market targeting strategies as follows:

Factors to be considered when choosing a target marketing strategy
Companies need to consider several factors when choosing a target marketing:

1. Company resources – if resources limited, concentrated marketing makes the most
sense

2. Degree of Product variability – undifferentiated marketing is suited for uniform
products, products that can vary in design are more suited to differentiated or
concentration marketing

3. Product’s life cycle stage – when a firm introduce a new product, it may be practical
to launch only one version and undifferentiated marketing or concentrated marketing
may make the most sense
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4. Market variability – if most buyers have the same taste, buy the same amounts and
react the same way to marketing efforts, undifferentiated marketing is appropriate

5. Competitor’s marketing strategies – when competitors use differentiated or
concentrated marketing, a firm can gain an advantage by using differentiated or
concentrated marketing.

MARKET POSITIONING FOR COMPETITIVE

 Then the company must decide what position it wants to occupy in those segments
 Product position – the way the product is defined by consumers on important attributes-

the place the product occupies in consumer’s minds relative to competing products
 Positioning involves implanting the brand’s unique benefits and differentiation in

consumers’ mind
 Example, Mercedez on luxury , and Porsche and BMW on performance
 After the organisation has selected its target market, the next stage is to decide how it

wants to position itself within that chosen segment.
 Positioning refers to ‘how organisations want their consumers to see their product’.
 They must plan position that will give their products the greatest advantage in selected

target markets, and they must design marketing mixes to create these planned positions.
 It refers to what message about the product or service is the company trying to put

across?
 For instance, Car manufacturer Daewoo in the UK, has successfully positioned themselves

as the family value model. The UK car Skoda brand which has been taken over by
Volkswagen has been re-positioned as a vehicle which had negative brand associations,
to one which regularly wins car of the year awards. The positive comments from the
industry and attributes of this vehicle is has changed the perception of consumers about
the Skoda brand.

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Choosing A Positioning Strategy
 Some firms find it easy to choose their positioning strategy.
 For example, a firm well known for quality in certain segments will go for this position in
a new segment if there are enough buyers seeking quality.
 The positioning task consists of three steps:
1) identifying a set of possible competitive advantage upon which to build a position.
2) choosing the right competitive advantaged
3) selecting an overall positioning strategy.

1) Identifying a set of possible competitive advantage upon which to build a position.

 Competitive advantage : an advantage over competitors gained by offering
consumers greater value, either through lower prices or by providing more benefits that
justify higher prices.

 A company or market offer can be differentiated along the lines of products, services,
people and image.

Positioning Strategies:
1) Product Differentiation :
 Products that can be differentiated its physical products on features,
performance, or style and design.
 The company can differentiate their products on such attributes as
consistency, durability, reliability, or repairability.
 Example, Volvo provides new and better safety features.

2) Service Differentiation
 Companies gain services differentiation through speedy, convenient or
careful delivery.
 For example, delivery is a major marketing tactic to differentiate your services.
Just look at the popularity of Pizza Hut or Dominos and the only reason these 2
brands are popular because of their claim of “30 minutes delivery or free”.

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3) People Differentiation
 hiring and training better people than their competitors do.
 People differentiation requires that a company select its customer-contact
people carefully and train them well.
 Disney people are known to be friendly and upbeat.
 For example, IBM offers people who make sure that the solution customers
want is the solution they get.

4) Image Differentiation
 A company or brand image should convey product’s distinctive benefits and
positioning. Example, Intel inside logo can provide strong company or brand
recognition and image differentiation.

2. Choosing the right competitive advantages

 It now must choose the ones on which it will build its positioning strategy.
 It must decide how many differences to promote and which ones.

How many differences to promote?
 Many marketers think that companies should aggressively promote only one benefit

to the target market
 Example : Unilever introduced the first three in one bar soap –Lever 2000- Offering

cleansing, deodorizing and moisturizing benefits
 A company needs to avoid three major positioning errors :

1. Underpositioning : failing ever to really position the company at all
they do not really know anthing special about it.

2. Overpositioning : giving buyers too narrow a picture of the company
3. Confused positioning : leaving buyers with a confused image of a company.

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Which Differences to promote?
 The company must follow the following criteria:-

1) Important : the difference delivers a highly valued benefit to target buyers
2) Distinctive : Competitors do not offer the difference,or the company can offer it

in more distinctive way
3) Superior : The difference is superior to other ways that customers might obtain

the same benfit
4) Communicable : The difference is communicable and visible to buyers
5) Preemptive : Competitors cannot easily copy the difference
6) Affordable : Buyers can afford to pay for the difference
7) Profitable: The Company can introduce the difference profitably.

3) Selecting an overall positioning strategy

 Consumers typically choose products and services that give them the greatest value
 Thus, marketer want to position their brands on the key benefits that they offer relative

to competing brands
 The full positioning of a brand is called the brand’s value proposition – the full mix of

benefits upon which the brand is positioned
 Below is the figure that shows possible value proposition:

Price

More the Same Less

More More for More for More for
The Same more the same less

Less The same
for less

Less for
much less

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 More for more :
- providing the most upscale product or service and charging a higher price to cover

the higher costs
- Example: Mercedes Benz automobiles offer superior quality, performance, style and

change a price to match prestige to buyer
- Seller offer “only the best” can be found in every product category.

 More for the same:
- companies can attack a competitor’s more for more positioning by introducing a

brand offering comparable quality but at a lower price.
- Example : Toyota introduced its Lexus line with a “more for the same” value

proposition

 The same for less:
- Offering “the same for less” can be a powerful value proposition-everyone likes a

good deal.
- Example: Dell Computer offers equivalent quality computers at a lower price for

performance. They offer many brands as department stores but deep discounts

 Less for much less :
- a market almost always exists for products that offer less and therefore cost less
- Meeting consumer’s lower performance @ quality requirement at a much lower price.

 More for less:
- The Company will offer better products and lower prices for a given level of

performance.

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Developing a Positioning Statement
 Positioning statement is a statement that summarizes company or brand positioning
 It takes this form: To (target segment and need) our ( brand ) is (concept) that ( point-
of difference)
 For example ; “To busy
professionals who need to
stay organized, Palm Pilot is
ab electronic organizer that
allows you to back up files on
your PC more easily and
reliably than competitive
products”.

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CHAPTER 6 : PRODUCTS AND SERVICES

LEARNING OBJECTIVES:
1. Defining Products and Services
2. Explain the characteristics that distinguish between products and services
3. Describe the levels of product and services
4. Explain the products and services classifications
5. Discuss the products and service decisions

DEFINITION OF PRODUCTS AND SERVICES

❑ Product is anything that can be offered to a market for attention, acquisition, use, or
consumptions that might satisfy a want or need. Products include more than just
tangible goods such as soap, toothpaste, etc.

❑ Service is any activity or benefit that one party can offer to another that is essentially
intangible and does not result in the ownership of anything. For example, banking,
airlines, retail and home repair services.

THE CHARACTERISTICS THAT DISTINGUISH BETWEEN PRODUCTS AND SERVICES

▪ People require different services and products to satisfy various needs and wants.
▪ In this regard, it can be observed that the marketers play a pivotal role in marketing

different products and services to various targeted customers.
▪ The major difference between the two concepts is that a product is tangible while a

service is intangible.
▪ More details about the differences between a product and service are clearly outlined

below.

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What is a Product?
A product is an item for sale. Most importantly, it is a physical item that is tangible. We can
sell, buy, store, and transport products. When the sale is complete, we can move the product,
return it, or even replace it for another product. If you look around you, you’ll see many
products around you. Some examples of products include mobile phones, laptops, vehicles,
furniture, and food items.

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In manufacturing, the manufactures procure products as raw materials and sell their products
as finished goods. They make each product at a cost and sell it at a price. Moreover, the
price of a product can vary depending on the quality, the marketing, and the market.

Source : Google image
What is a Service?
We can define a service as a transaction that does not involve transfer of physical goods
from the seller to the buyer. It is basically a work that a person/persons do for another
individual. These are activities other people, companies, the government do for you.
Education, health care, banking, insurance, and transportation are some examples of
services. Services are intangible and non-physical, unlike goods, which have a physical
existence. For example, when you a book a holiday, the booking agent is providing you with
a service; the booking itself is abstract – you cannot touch it, store it or transport it. The
government of a country also provides various public services for its citizens. For example, it
ensures citizens’ security via security services (army, police, paramedics, fire brigade, etc.)
Healthcare, urban planning, waste management, and public broadcasting are some other
government services.

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Difference Between Product and Service
Definition
Products are objects or systems made available for consumer use while services are
transactions where no physical goods are transferred from the seller to the buyer
Tangibility
While products are tangible, services are intangible.
Production
Products are manufactured, stored, and transported while services cannot be
manufactured, stored, or transported.
Examples
Electronic devices, furniture, food items, and vehicles are some examples of products while
cleaning, car repair, medical check-ups, haircuts, etc. are some examples of services.
Return
Moreover, we can return or replace the products, but not so with services.
Inconsistency
Products sold can be identical, but each delivery of a particular service is never exactly the
same as the previous services or future services.

(Source from https://economictimes.indiatimes.com/)

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LEVELS OF PRODUCT

Consumers often think that a product is simply
the physical item that he or she buys. There are
three different products level– the CORE
product, the ACTUAL product, and finally the
AUGMENTED product. This concept is known as
the Three Levels of a Product.

The CORE product
❑ is NOT the tangible physical product.
You can’t touch it.
❑ That’s because the core product is the
BENEFIT of the product that makes it
valuable to you.
❑ So with the car example, the benefit is convenience i.e. the ease at which you can
go where you like, when you want to. Another core benefit is speed since you can
travel around relatively quickly.

The ACTUAL product
❑ is the tangible, physical product. You can get some use out of it.
❑ Again with the car, it is the vehicle that you test drive, buy and then collect. You can
touch it.
❑ The actual product is what the average person would think of under the generic
banner of product.

The AUGMENTED product
❑ is the non-physical part of the product. It usually consists of lots of added value, for
which you may or may not pay a premium.
❑ So when you buy a car, part of the augmented product would be the warranty, the
customer service support offered by the car’s manufacturer and any after-sales
service.

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❑ The augmented product is an important way to tailor the core or actual product to
the needs of an individual customer. The features of augmented products can be
converted in to benefits for individuals.

THE PRODUCTS AND SERVICES CLASSIFICATIONS

❑ Products and services fall into two broad classes based on the types of consumers that use
them: consumer products and industrial products.

❑ Broadly defined, products also include other marketable entities such as experiences,
organizations, persons, places, and ideas

A) CONSUMER PRODUCT

❑ Consumer products are products and services bought by final consumers for personal
consumption.

❑ Marketers usually classify these products and services further based on how consumers go
about buying them.

❑ Consumer products include convenience products, shopping products, specialty
products, and unsought products.

❑ These products differ in the ways consumers buy them and, therefore, in how they are
marketed.

1) Convenience Products
❑ Convenience products are frequently purchased by customers. There are required
very little buying efforts when drawing a comparison to buying these products. These
consumer products are low priced. Due to widespread distribution, these are
available in different convenience locations according to consumer wants and
needs. Producers adopt mass promotion strategies.
❑ Convenience Products Examples. Newspapers, matchbox, Soups, Toothpastes etc.

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2) Shopping Products
❑ Shopping Products are those consumer products that are less frequently purchase.
Consumers need shopping efforts and planning to decide and compare this type of
consumer products.
❑ In the selecting and purchasing process, customers keep in mind the attributes like
product quality price and design. Consumers spend more of their time and efforts to
gather information and compare available alternatives.
❑ Examples of consumer products include television, clothing, furniture, airline services.
❑ These shopping products have higher prices and distribute through fewer outlets.
Marketers promote these products through personal selling and different
advertisement campaigns.

3) Specialty Products
❑ Specialty Products are those consumer goods having distinctive characteristics and
brand identification for which a significant group of buyers is ready to make a specific
purchase effort. This type of consumer products, consumers make efforts in the
decision-making process.
❑ Specialty products need serious efforts to make a purchase. Specific consumers are
involved in purchasing efforts.
❑ Specialty products examples include legal and professional services, luxury goods and
cars, designer clothes and many more.
❑ Another good example of specialty products is Mercedes-Benz Maybach Exelero and
Bugatti Veyron these are one of the world most expensive cars. If a certain consumer
wants to buy one, he can even travel from one country to another. These types of
products are less comparable with each other. Those willing to buy these cars invest
their time to reach dealers who carrying their desired product.
❑ These products are highly priced and follow exclusive distribution and available in
fewer outlets. For example, Bugatti is available in 17 countries throughout the world.
Promotional strategies are carefully targeted to reach the targeted consumers.

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4) Unsought Products
❑ Unsought products are types of consumer products that consumers don’t know and
even if they know about it they don’t buy these products under normal circumstances.
Consumers don’t care about these types of product and think about it when they
need it.
❑ Unsought Products Examples include Life Insurance, Smoke detectors, Home alarms
and pre-planned funnel service.
❑ Unsought product pricing and distribution varies, and promotion strategies need
aggressive marketing efforts i.e. more advertising and personal selling than other types
of products.

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B) INDUSTRIAL PRODUCTS
▪ Industrial products are those purchased for further processing or for use in conducting a

business.
▪ Thus, the distinction between a consumer product and an industrial product is based on

the purpose for which the product is purchased. If a consumer buys a lawn mower for
use around home, the lawn mower is a consumer product. If the same consumer buys
the same lawn mower for use in a landscaping business, the lawn mower is an industrial
product.
▪ The three groups of industrial products and services include materials and parts, capital
items, and supplies and services.

1) Materials and parts
▪ It includes raw materials and manufactured materials and parts.
▪ Raw materials consist of farm products (wheat, cotton, livestock, fruits, vegetables) and

natural products (fish, lumber, crude petroleum, iron ore).
▪ Manufactured materials and parts consist of component materials (iron, yarn, cement,

wires) and component parts (small motors, tires, castings).
▪ Most manufactured materials and parts are sold directly to industrial users.
▪ Price and service are the major marketing factors; branding and advertising tend to be

less important

2) Capital items
▪ Capital items are industrial products that aid in the buyer’s production or operations,

including installations and accessory equipment.
▪ Installations consist of major purchases such as buildings (factories, offices) and fixed

equipment (generators, drill presses, large computer systems, elevators).
▪ Accessory equipment includes portable factory equipment and tools (hand tools, lift

trucks) and office equipment (computers, fax machines, desks).
▪ They have a shorter life than installations and simply aid in the production process

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3) Supplies and services.
▪ Supplies include operating supplies (lubricants, coal, paper, pencils) and repair and

maintenance items (paint, nails, brooms).
▪ Supplies are the convenience products of the industrial field because they are usually

purchased with a minimum of effort or comparison.
▪ Business services include maintenance and repair services (window cleaning, computer

repair) and business advisory services (legal, management consulting, advertising).
▪ Such services are usually supplied under contract.

C) ORGANIZATIONS, PERSONS, PLACES, AND IDEAS

▪ In addition to tangible products and services, marketers have broadened the concept
of a product to include other market offerings: organizations, persons, places, and ideas.

1) Organizations
▪ Organizations often carry out activities to “sell” the organization itself.
▪ Organization marketing consists of activities undertaken to create, maintain, or change

the attitudes and behavior of target consumers toward an organization.
▪ Both profit and not-for-profit organizations practice organization marketing.
▪ Business firms sponsor public relations or corporate image advertising campaigns to

market themselves and polish their images.
▪ For example, food, agriculture, and industrial products giant Cargill markets itself to the

public as a company that works closely with its business customers—from farmers and
fisherman to fast-food restaurants and furniture manufacturers to help bring the world
everything from heart-healthy milk and trans fat–free french fries to furniture and bedding
foam created from renewable resources. It says in its ads, “This is how Cargill works with
customers: “collaborate create succeed.” Similarly, not-for-profit organizations, such as
churches, colleges, charities, museums, and performing arts groups, market their
organizations to raise funds and attract members or patrons.

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2) Persons
▪ People can also be thought of as products.
▪ Person marketing consists of activities undertaken to create, maintain, or change

attitudes or behavior toward particular people.
▪ People ranging from presidents, entertainers, and sports figures to professionals such as

doctors, lawyers, and architects use person marketing to build their reputations.
▪ And businesses, charities, and other organizations use well-known personalities to help sell

their products or causes.
▪ For example, Nike is represented by well-known athletes such as Kobe Bryant, Serena

Williams, and hundreds of others around the globe in sports ranging from tennis and
basketball to ice hockey and cricket.
▪ At the other extreme, Taylor Guitar markets a Baby Taylor model named after country
pop superstar Taylor Swift, and Fender offers a John Mayer Stratocaster.
3) Places
▪ Pace marketing involves activities undertaken to create, maintain, or change attitudes
or behaviour toward particular places.
▪ Cities, states, regions and even entire nations compete to attract tourists, new residents,
conventions and company offices and factories.
▪ Tourism Malaysia advertises that “Visit Truly Asia Malaysia” and provides a website with
videos, holiday ideas, destination and about anything
else travelers might need to plan a Malaysian vacation.
▪ With the chosen theme ‘Visit Truly Asia Malaysia’, a
myriad of exciting and lively events has been lined-up
to bring to light all of Malaysia’s bountiful offerings in
terms of art, culture, cuisine, history, natural beauty and
others.

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4) Ideas
▪ Ideas can also be marketed.
▪ All marketing is the marketing of an idea, whether it is the general idea of brushing your

teeth or specific idea that Crest toothpastes create “healthy beautiful smiles for life”.
▪ Here, however, we narrow our focus to the marketing of social ideas.
▪ This idea has been called social marketing and consists of using traditional business

marketing concepts and tools to encourage behaviours that will create individual and
societal well-being.

THE PRODUCTS AND SERVICE DECISIONS

Marketers make product and service decisions at three levels:
1. Individual product decisions
2. Product line decisions
3. Product mix decisions

1) Individual Product Decisions

❑ Individual product decisions required can be sorted into five categories or stages.
❑ Firstly, we look at product attributes. Branding and packaging follow. The individual

product decisions are completed by labelling and product support services.

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Product Attributes
❑ Individual product decisions start by deciding on product attributes.
❑ This means that the development of a product starts by defining the benefits it will
offer to consumers.
❑ These benefits are communicated as well as delivered by the product attributes.
❑ Thus, in stage one of the individual product decisions, we define the product
attributes, such as quality, features, style and design.

1. Product Quality
❑ One element of the product attributes is the quality of the product.
❑ Quality can define it as the characteristics of a product or service that determine its
ability to satisfy the customer needs.
❑ Therefore, the quality is one of the most important individual product decisions. It has
a direct impact on the product’s (or service’s) performance. It is directly linked to
customer value and satisfaction. So, we could say: Quality is when the customer is
satisfied and will come back, while the product does not (come back).
❑ To be more specific, defining the product’s quality involves two levels or dimensions.
These are Quality Level and Quality Consistency.
❑ Firstly, we need to choose a quality level which will support the product’s positioning.
At this level, the quality can be understood as performance quality: the ability of the
product to perform its functions.
❑ To give an example, a Mercedes-Benz car provides a higher performance quality than
a Dacia Logan: it has a smoother ride, offers more luxury, comfort, lasts longer etc. The
quality level should be chosen so as to meet the target market needs and the quality
levels of competing products.
❑ The second level is the Quality Consistency. Here, the product quality means
conformance quality. Thus, we refer to freedom from defects and the consistency in
delivering the targeted quality level (level of performance). At this level, the Dacia
Logan can have as much quality as the Mercedes. Although it does not perform at
the same level as the Mercedes (Quality Level), it can deliver the quality that
customers pay for and expect (Quality Consistency).

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2. Product Features
❑ Another product attribute that is highly important for the individual product decisions
is that of the product features.
❑ By features, we can differentiate our product from competitors’ products.
❑ However, just adding features is not the right way to enhance customer value.
❑ A remote control does not provide additional value to a customer if it has 250 buttons
and vibrates while playing music. The company always has to assess each feature’s
value to customers first.

3. Product Style and Design
❑ Individual product decisions also include the product style and design.
❑ Clearly, we can add customer value by means of a distinctive product style and
design.
❑ While style describes the appearance of the product, design goes deeper. Good
design does not only contribute to the product’s look, but also to its usefulness.
❑ In order to find the right product design, marketers should investigate how customers
will use and benefit from the product.

Branding
❑ Branding is one of the most crucial individual product decisions.
❑ Today, people do not buy a product – they buy a brand.
❑ A brand is a name, term, sign, symbol, design or a combination of these elements that
identifies the products or services of one seller and differentiates them from those of
competitors.
❑ To give an example, look at Coca-Cola. If you buy a bottle of coke, you do not only
buy the pure beverage, you buy the brand. You buy it because you know and value
the worldwide-known brand.
❑ For clothing, brands are even more important. Many people do not buy a sweatshirt
because of its features – they buy it because there is a label on it showing the brand.
They become part of the brand, show that they have this brand, that they can afford

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this brand and so on. Thus, a brand is much more than only the product, it is the whole
identity around the offerings of a seller.

❑ Therefore, branding adds significant value to a product :
i. In short, a brand is so crucial because customers can attach meanings to
brands and develop brand relationships.
ii. Branding also consumers identify products that might benefit them.
iii. The brand says something about the product’s quality and consistency. And
you probably know yourself that buyers who always buy the same brand know
that they will get the same benefits, features and quality each time.

iv. The brand is the basis on which a whole story can be built about the product’s
special qualities. The product gets an identity with which consumers can
identify each time they buy a product of that brand.

Packaging
❑ It refers to activities of designing and producing the wrapper or container for a
product.
❑ Traditionally, the primary function of a package was to hold and protect the product.
❑ However, packaging is nowadays an important marketing tool, too. This is a result of
increased competition and offer of products. Packaging must now perform many
tasks, which include attracting attention, describing the product, and even making
the sale.
❑ To illustrate the importance of packaging, we will look at the highly competitive
environment in supermarkets. A normal shopper passes by some 300 items per minute.
Therefore, the package may be the seller’s best and last chance to influence the
buyer. It has become, in fact, a significant promotional tool.
❑ In addition, poorly designed packages can harm a lot. For instance, hard-to-open
packages such as DVD cases with sticky labels or sealed plastic clamshell containers
do not contribute to the buyer’s satisfaction. Indeed, customer frustration is often the
result.
❑ Finally, in making packaging decisions, companies should also have environmental
considerations. “Green” packaging, meaning the use of environmentally responsible

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packaging materials, becomes more and more important and adds value to many
products.

Labelling
❑ Labels perform several functions and are therefore one of the important individual
product decisions.
❑ The most straight-forward function is to identify the product or brand. But the label can
also describe several things about the product: who made it, where and when was it
made, the contents, how it is to be used etc. Finally, the label can promote a brand.
It supports the brand’s positioning and may help to connect with customers. By a
brand logo, the label can add personality to a brand and contribute to the brand
identity.
❑ However, a label should only show and state what is true and what the customer can
rely upon. Misleading or deceptive labels must be seen as unfair competition. If labels
mislead customers, fail to describe important ingredients or even fail to mention
required safety warnings, legal consequences are likely to follow.
❑ Labelling has also been affected recently by unit pricing (the price per unit of
standard measure must be stated), open dating (the expected shelf life of the
product must be mentioned) and nutritional labelling (the nutritional values in the
product must be shown). These elements are required by law.

Product Support Services
❑ Individual product decisions also include product support services.
❑ Usually, the company’s offer includes some form of customer service, of product
support services.
❑ This can be a minor part of the product or a major part of the total offering.
❑ Product support services contribute to the augmented product, as defined by the
three levels of product. Without doubt, support services do also belong to the
significant individual product decisions because they contribute to the customer’s
overall brand experience.
❑ The key is to keep customers happy after the sale to build lasting relationships.

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2) Product Line Decisions

❑ Product line is a group of products that are closely related because they function in a
similar manner, are sold to the same customer groups, are marketed through the same
types of outlets or fall within given price ranges.

❑ For example, Nike produces several lines of athletic shoes and apparel. Toyota
produces several lines of cars. Colgate Palmolive produces several lines of toiletries.

❑ The major product line decision involves product line length – the number of items in
the product line.

❑ A product line is too short if profits can be increased by adding items; the line is too
long if profits can be increased by dropping items.

❑ A company cane expands its product line in two ways:
1) by line filling
2) by line stretching

1) Line filling
▪ A company may decide to lengthen the existing product line Decisions(s) by adding

more items.
▪ The possible objectives leading to line filling may include realizing incremental profits,

meeting dealers’ demands in response to their complaints that they lose sales because
of missing items in the lines, excess capacity pressures, and trying to fill up vacant item
slots to keep out competitors.
▪ For example, Videocon and some other TV and AC manufacturers have introduced
models at various price-points right through high-end to low-end. Similarly, IBM, HP,
Compaq, Acer, and Sony etc. have introduced laptop PCs at various feature-price
points ranging from high-end to low-end.
▪ Line filling may sometimes lead to cannibalization, apart from confusing customers about
the products’ positioning unless the company succeeds in clearly differentiating each
item meaningfully in customers’ minds.

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2) Line Stretching
▪ Product lines tend to lengthen over the years for different reasons such as excess

manufacturing capacity, new market opportunities, demand from sales force and
resellers for a richer product line to satisfy customers with varied preferences, and
competitive compulsions.
▪ Lengthening of lines raises costs in many areas and decisions are based on a careful
appraisal. However, at some point in time somebody, often the top management
intervenes and stops this.

a) Downward Line Stretch:
▪ Companies sometimes introduce new products with an objective of communicating an

image of technical excellence and high quality and locate at the upper end of the
market. Subsequently, the company might stretch downwards due to competitor’s
attack by introducing a low-end product in response to a competitive attack, or a
company may introduce a low-end product to fill up a vacant slot that may seem
attractive to a new competitor. Another possibility is that market may become more
attractive at low-end due to faster growth rate. For example, P&G introduced its Ariel
Microsystem detergent at the high-end assuring high quality. Customer response was not
encouraging and the company saw more opportunities at a lower end and introduced
cheaper green alternative Ariel Super Soaker. Mercedes have offered its E-Class model
to compete at much lower price point than its high-end S-Class models.
▪ Take a look at Samsung Smartphones. Where Samsung has premium smartphones like
the Edge series, it also has the A series of cheaper smartphones so that it does not lose
the massive consumption which happens in cheap smartphones. Does, Samsung does a
lot of down market product line stretching.
▪ Downward stretch sometimes poses risks: For example, low-end competitors may attack
by moving into high-end, or for a prestige image company introduction of a low-end
model may adversely affect its product-mage. Parker pen stretched downward and
introduced ballpoint pen at low-price. This hurt Parker as a high-class product. Another
risk is that introducing a lower-end item might cannibalize (eat away sales) the
company’s high-end item.

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▪ There are multiple reasons that a company might do down market product line
stretching:
1. It wants to cover both the upper market and the lower market
2. It wants to get rid of lower level competition which can become upper level
competition if allowed to survive
3. The middle or lower market might have been ignored which can be swooped up by
the upper market player.

b) Upward Stretch:
▪ In this situation, companies operating at low-end may opt to enter high-end because of

better opportunities as a result of faster market growth, or the need to create an image
of the full line company.
▪ For example, Videocon entered the market with a twin-tub low-end washing machine.
Subsequently, after the introduction of IFB automatic washing machine and entry of
other players the market expanded. The average household income of middle class also
showed positive trends. To take advantage of a market growing at the higher-end,
Videocon also introduced an automatic washing machine. Maruti Udyog introduced its
medium-priced models such as Maruti Zen, Maruti Esteem, WagonR, Alto, and Swift after
it had entered the market with its low-end Maruti 800 and Maruti Omni. Toyota introduced
its Lexus luxury car as a standalone product (with no outward link to Toyota) for just this
very reason. It did not want it to be in any way affected by Toyota’s no doubt superb,
but mass market image.
▪ There may be certain risks associated with upward line stretching. These may include
prospective customers’ perceptions that the newcomer in the high-end category may
not produce high-quality products, or competitors already well established in the high-
end market may retaliate by introducing items in the low-end of the market. For example,
long established footwear company Bata failed in its attempt when it tried the upward
stretch and finally introduced its Power line of economical sports shoes.
▪ There are similar cases of up market stretch observed in the Automobile market.
Volkswagen has some ultra-premium brands like Bentley & Lamborghini, Toyota has
Lexus, Honda has Acura, these are examples of up market stretches by companies which
otherwise manufacture mass level passenger cars.

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3) Product Mix Decisions

❑ A product Mix or product assortments consists of all the product lines and items that a
particular seller offers for sale.

❑ For example, Avon’s product mix consists of four major product lines: beauty products,
wellness products, jewelry and accessories, and inspirational product.

❑ The product mix, also called product portfolio, is the set of all product lines and items
that a company offers for sale.

❑ For instance, the product mix of Colgate consists of three product lines: oral care,
personal care and pet nutrition.

❑ Each of these product lines, in turn, consists of several sub-lines. A vehicle
manufacturer may have two product lines: motorbikes and cars.

❑ Product mix decisions need to be taken for the whole product mix and affect each
line.

4 Dimensions of the Product Mix Decisions
▪ Four important dimensions of a product mix can be identified.
▪ These are: width, length, depth, and consistency.

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1) The Product Mix Width.
▪ The width is all about the number of different product lines the company carries.
▪ As mentioned in the previous example, Colgate has 3 product lines. Thus, it has a rather

limited width.
2) The Product Mix Length
▪ It refers to the total number of items a company carries within the product lines.
▪ For instance, Colgate carries several different brands within each line. In Colgate’s oral

care product line, several different categories of toothpastes can be identified.
▪ A car manufacturer may have several series in its car product line, such as 3-series, 5-

series, and 7-series.
3) The Product Mix Depth.
▪ It refers to the number of versions offered for each product in the product line.
▪ For instance, Colgate toothpastes come in several tastes and variations.
▪ The vehicle manufacturer’s 3-series in the car product line may be offered in several

versions: convertible, coupé, sedan, and so further.
4) The Consistency of a Product Mix
▪ Consistency refers to how closely related the product lines are in terms of end use,

production requirements, distribution channels or any other way.
▪ In Colgate’s case, we can observe a rather strong consistency, which is based on the fact

that all product lines constitute consumer products and go through the same distribution
channels.
▪ The vehicle manufacturer also has a relatively consistent product mix, since both product
lines contain consumer-vehicles, can be sold in the same way etc.

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CHAPTER 7 : PRICING

LEARNING OBJECTIVES:
1. Define pricing
2. Describe the major pricing strategies
3. Explain New product pricing strategies
4. Explain the product mix pricing strategies
5. Explain the price adjustment strategies

DEFINITION OF PRICING

 Price is the amount of money charged for a product or service or the sum of the values
that consumers exchange for the benefits of having or using the product or service.

 Price has been the major factor affecting buyer choice
 Price is the only element in the marketing mix that produces revenues
 Price is one of the most flexible elements of the marketing mix ( it can be changed

quickly)

MAJOR PRICING STRATEGIES

 Companies must set prices by selecting a general pricing approach that include one
or more of these three sets of factors.

 There are 3 approaches:
1) Cost-Based Pricing (Cost-Plus Pricing and Target Profit Pricing & Break- Even Analysis)
2) Buyer-Based Pricing (Good-Value Pricing and Value-Added Pricing)
3) Competition-Based Pricing (Going-Rate Pricing and Sealed-Bid Pricing)

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1) COST-BASED PRICING
▪ It is the simplest pricing method
▪ adding a standard markup to the cost of the product
▪ For example: Construction companies submit job bids by estimating the total project
cost and adding a standard markup for profit. It similar to Lawyers, accountants and
other professional typically price by adding a standard markup to their costs.

▪ There two types of cost-based pricing:
a. Mark-up Pricing
▪ The manager calculated all the costs involved in manufacturing the product
and then add a certain percentage of mark-up in order to set the price.

Mark-up pricing Calculation:
Price = FC/U + VC/U
1 – mark up

b. Break-even pricing
▪ Break-even quantity is the sales quantity when the company’s total revenue
just covers the costs. Profits are not made at this point.
▪ At break-even point, price is not added with any mark up/profit, so you have
to calculate the breakeven point)

Break-even pricing Calculation:
Price = FC/U + VC/U

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2) VALUE-BASED APPROACH
• setting price based on buyers’ perceptions of value rather than on the seller’s
cost.
• Good pricing begins with a complete understanding of the value that a product or
service creates for customers.
• Value-based pricing uses buyers’ perception of value, not the seller’s cost.
• Price is considered along with the other marketing mix variables before the marketing
program is set.

• There are two types of value-based pricing:
a) Good-value pricing
▪ offering just the right combination of quality and good service at a fair price.
E.g. Smart Car,Armani Exchange
b) Value-added pricing
▪ attach value added features to differentiate their offers and thus support
higher prices.

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3) COMPETITION-BASED PRICING
• setting prices based on the prices that competitors charge for similar products.
• This type of pricing is usually found where a group of organisation is selling the same
product.
• Normally, it is safe for the company to charge the price at the same level or near to
the one being charged by the competitors.
• there are 2 major variations:
(i) in going rate pricing
• the firm set prices based on what competitors are charging.
• Going-rate pricing refers to a pricing strategy wherein a firm prices its products
or services on par with the competitor’s product prices.
• Most new companies, who are clueless about pricing their products when
setting foot for the very first time, adopt the going-rate pricing tactic.

(ii) sealed-bid pricing
• forces the company to set prices based on what they think the competition will
charge.
• Price quotes solicited by governmental and other public agencies to ensure
objective consideration of competitive bid. Interested vendors are formally
notified in advance of the request for a bid and must meet a bidding deadline
as well as stringent bid format requirements. Sealed bids are sometimes
opened publicly in the presence of all bidders. The lowest bid is awarded the
order.
• A type of auction process in which all bidders simultaneously submit sealed bids
to the auctioneer, so that no bidder knows how much the other auction
participants have bid. The highest bidder is usually declared the winner of the
bidding process.

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NEW PRODUCT PRICING STRATEGIES

 This strategy can be used for the introductory of a
new product.

 There are 2 strategies: -
a) Market-skimming pricing
b) Market-penetration pricing

1) MARKET-SKIMMING PRICING
▪ setting a high price for a new product to skim maximum revenues layer by layer from
the segments willing to pay the high price: the company makes fewer but more
profitable sales.
▪ Selling a product at a high price, sacrificing high sales to gain a high profit, therefore
‘skimming’ the market.
▪ Usually employed to reimburse the cost of
investment of the original research into the
product - commonly used in electronic markets
when a new range, such as DVD players, are
firstly dispatched into the market at a high
price.
▪ This strategy is often used to target "early
adopters" of a product/service.
▪ These early adopters are relatively less price sensitive because either their need for
the product is more than others or they understand the value of the product better
than others.
▪ This strategy is employed only for a limited duration to recover most of investment
made to build the product.

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Conditions for Market Skimming :
a) The quality and image must support its higher price
b) Enough buyers must want the product at that price.
c) Competitors should not be able to enter the market easily and undercut the high

price.
d) The new product represents a technological breakthrough and legally protected.

2) MARKET-PENETRATION PRICING
• setting a low price for a new product in order to attract a large number of buyers and
a large market share
• The price is deliberately set at low level to gain customer's interest and establishing a
foot-hold in the market.
• Penetration pricing is a strategy
employed by businesses introducing
new goods or services into the
marketplace.
• With this policy, the initial price of the
good or service is set relatively low in
hopes of "penetrating" into the
marketplace quickly and securing
significant market share.

Conditions for Market Penetration Pricing:
a) The market must be highly price sensitive so that a low price produces more market
growth.
b) Production and distribution costs must fall as sales volumes increase.
c) The low price must help keep out the competition, and the penetration price must
maintain its low price position (otherwise the price advantage may be only
temporary).

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PRODUCT MIX PRICING STRATEGIES

 Setting the price steps between various products in a product line based on cost
differences between the products, customer evaluations of different features, and
competitors’ prices.

 There are five (5) product mix pricing strategies:
a) Product line pricing
b) Optional-product pricing
c) Captive-product pricing
d) By-Product pricing
e) Product-Bundle pricing

1) PRODUCT LINE PRICING
• setting the price steps between various product in a product line based on cost
differences between the products, customer evaluations of different features and
competitor’s prices.
• Let’s look at ASOS’ online store for an example. We can see here that one product line
comprises leather boots, faux leather boots, and canvas boots from the same
collection. They all have price points that are sufficiently differentiated to make the
quality differentials obvious - but there’s still something for all types of customers here.

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