By- GULFESHAN ZIA GUEST FACULTY

DEPARTMENT OF COMMERCE KHWAJA MOINUDDIN CHISHTI URDU,ARABI FARSI UNIVERSITY,LUCKNOW

Definition of 'Product'

American Marketing Association defines product as: “A bundle of attributes (features, function, benefits, and uses) capable of exchange or use; usually a mix of tangible and intangible forms. Thus, a product may be an idea, a physical entity (a good), or a service, or any combination of the three. It exists for the purpose of exchange in the satisfaction of individual and organisational objectives.”

Product classification that is also known as different types of products. These types of products or product classification are as below in two different forms.

1)Consumer Products

2)Industrial Products

1)Consumer Products

Those products that are purchased by final consumers for personal consumption are called consumer products. The way of purchasing these products provides the basis for the marketer to further classify these products. The following is an important classification of these consumer products on the basis of the manner of purchase & manner of marketing.

Convenience Products Those consumer products that are purchased immediately & frequently with little efforts and comparison are called convenience products. Examples of convenience products include the following. Candy Newspapers Soap Fast Food etc. The convenience products are placed at the

front locations of the stores in abundance quantity so that they are easily available to the customers. The price of these products is kept lower.

Shopping Products:

This type of product is purchased less frequently & careful comparison is made by the customer on the price, quality, sustainability & style. In case of purchase of shopping products, increased time & effort is made by the customers in collection of information & comparison making. Following are some of examples of shopping products.

Clothing

Furniture

Major Appliances

Used Cars

Hotel & Motel Services

These products are distributed in fewer outlets by the marketer along with the strong sales support services that assist customers in their comparison making.

Specialty Products: Specialty products are those consumer products that have brand identification or unique characteristics and an important group of customers are happy to purchase these products. Following are some of examples of specialty products. Specific brand & kinds of cars Photographic equipment with high price Designer clothes The services of legal or medical specialist The customers of such products can make

enough effort with them for reaching relevant dealers. However, they do not compare the specialty products normally.

Unsought Products:

Those consumer products that are either not known to the customers or they are known, but customers do not usually consider them to purchase. The important innovations are usually included in the category of unsought products because the customers get the awareness through advertisement. Following are the examples of unsought products.

Life Insurance

Blood donation to Red Cross

A lot of personal selling, advertising & marketing efforts are required for unsought products.

2)Industrial Products:

Those products that are purchased that are buying for further processing or for use in operating a business are called industrial products. So the main difference between industrial and consumer product is based on the purpose of purchase of the product. For example, if a lawn mower product is purchased for use around the house, then this lawn mower is categorized in the consumer product. But if the same lawn mower is purchased for use in landscaping business, then this is categorized as an industrial product. Following are some of the three product classification of industrial products.

Material & Parts: Raw materials, natural products & manufactured materials are included in the category of material & parts. Farm products & natural products are included in raw material part like cotton, wheat, vegetables, fruits, fish, crude petroleum, iron etc. Component materials & component parts are included in the manufactured area like yarn, wires, cement, iron, tires, small motors etc. Manufactured material & parts are mostly sold to the industrial users directly. Major marketing factors employed in this category are price & service. The advertising & branding is not so much important. Also the demand of the industrial products is derived demand, which is derived from the consumer demand.

Capital Items:

Those industrial products that assist the production & operation of customer are called capital items like accessory equipment’s & installations. Building & fixed equipment’s are included in the installations. Office equipment & portable factory equipment are included in the accessory equipment. Accessory equipment’s have much shorter lifetimes & they are only helpful in the process of production.

Supplies & Services:

Supplies contain repair & maintenance items and operating supplies like nails, paint, lubricants, pencil, paper, coal etc. The supplies are regarded as the industrial convenience products because they are purchased with little effort & time. Business advisory services and repair & maintenance services are included in business services category. These services are given under some contract.

-The five product levels are:

1)Core benefit: The fundamental need or want that consumers satisfy by consuming the product or service. For example, the need to process digital images.

2)Generic product: A version of the product containing only those attributes or characteristics absolutely necessary for it to function. For example, the need to process digital images could be satisfied by a generic, low-end, personal computer using free image processing software or a processing laboratory.

3)Expected product: The set of attributes or characteristics that buyers normally expect and agree to when they purchase a product. For example, the computer is specified to deliver fast image processing and has a high-resolution, accurate colour screen. 4)Augmented product: The inclusion of additional features, benefits, attributes or related services that serve to differentiate the product from its competitors. For example, the computer comes pre-loaded with a high-end image processing software for no extra cost or at a deeply discounted, incremental cost. 5)Potential product: This includes all the augmentations and transformations a product might undergo in the future. To ensure future customer loyalty, a business must aim to surprise and delight customers in the future by continuing to augment products. For example, the customer receives ongoing image processing software upgrades with new and useful features.

Product mix, also known as product assortment, is the total number of product lines that a company offers to its customers. The product lines may range from one to many and the company may have many products under the same product line as well. All of these product lines when grouped together form the product mix of the company.

The product mix is a subset of the marketing mix and is an important part of the business model of a company. The product mix has the following dimensions

Width

The width of the mix refers to the number of product lines the company has to offer.

For e.g., If a company produce only soft drinks and juices, this means its mix is two products wide. Coca-Cola deals in juices, soft drinks, and mineral water and hence the product mix of Coca-Cola is three products wide.

Length

Length of the product mix refers to the total number of products in the mix. That is if a company has 5 product lines and 10 products each under those product lines, the length of the mix will be 50 [5 x 10].

Depth

The depth of the product mix refers to the total number of products within a product line. There can be variations in the products of the same product line. For example – Colgate has different variants under the same product line like Colgate advanced, Colgate active salt, etc.

Consistency

Product mix consistency refers to how closely products are linked to each other. Less the variation among products more is the consistency. For example, a company dealing in just dairy products has more consistency than a company dealing in all types of electronics.

Packaging is the science, art, and technology of enclosing or protecting products for distribution, storage, sale, and use. Packaging also refers to the process of design, evaluation, and production of packages. Package labeling (in American English; or labeling in British English) is any written, electronic, or graphic communications on the packaging or on a separate but associated label.

The objectives of packaging and package labeling:

-Physical Protection

-Barrier Protection

-Containment or Agglomeration

-Information transmission

-Marketing -Security -Convenience -Portion Control Packaging types: Packaging consists of several different types. For example, a transport package or distribution package is the package form used to ship, store, and handle the product or inner packages. Some identify a consumer package as one that is directed toward a consumer or household. Primary packaging is the material that first envelops

the product and holds it. This usually is the smallest unit of distribution or use and is the package that is in direct contact with the contents.

Secondary packaging is outside the primary packaging—perhaps used to group primary packages together.

Tertiary packaging is used for bulk handling and shipping.

-Primary packaging Aerosol spray can Bags-In-Boxes Beverage can Wine box Bottle Blister pack Carton Cushioning Envelope Plastic bag Plastic bottle Skin pack Tin can Wrapper

-Secondary packaging

Box

Carton

Shrink wrap

-Tertiary packaging

Bale

Barrel

Crate

Container

Edge protector

Flexible intermediate bulk container, Big bag, "Bulk Bag," or "Super Sack"

Intermediate bulk container

Pallet

Slip sheet

Stretch wrap

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

Product life cycle can be defined as the life cycle of the product. It means the various stages a product sees in its complete life span.

Product life cycle comprises of the following four stages −

Introduction or innovation

Growth

Maturity

Decline

1)Introduction Stage:

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

Sales of the product are low in this stage because there may not be a need of the product in the market.

The product may undergo brand trouble.

In this stage, there is very little or no profit.

The demand for the product is created and developed in this stage.

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

2)Growth Stage:- In this stage, the demands and market share

increases as well as competition emerges in the market.

Generally, the price remains constant in this stage.

Marketing and promotional expenses increase.

There is rapid increase in sales. The manufacturing cost decreases so there is

increase in profit margin. It penetrates other market segment. In the growth stage, there is a boom in the demand of the product and the profit increases substantially.

3)Maturity Stage:- The price of the product is comparatively low,

but the advertisement and promotion cost increases in this stage.

This stage remains for a comparatively longer duration.

In this stage, there is high competition. Profit is decreased. Sales growth can be divided into the following

three categories in the maturity stage − ◦ Growth ◦ Stability ◦ Decay In growth, there is an increase in the demand of the product. In stability, the demand of the product remains constant. In decay, there is a slight decrease in the demand.

4)Decline Stage:-

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

There is decrease in the price of the product.

Margins are lowered.

There is introduction of new product in market.

New strategies are implemented.

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

Definition: Pricing is the method of determining the value a producer will get in the exchange of goods and services. Simply, pricing method is used to set the price of producer’s offerings relevant to both the producer and the customer.

While setting the price of a product or service the following points have to be kept in mind:

Nature of the product/service.

The price of similar product/service in the market.

Target audience i.e. for whom the product is manufactured (high, medium or lower class)

The cost of production viz. Labor cost, raw material cost, machinery cost, inventory cost, transit cost, etc.

External factors such as Economy, Government policies, Legal issues, etc.

Price sensitivity is the degree to which the price of a product affects consumers' purchasing behaviors. Summed up, it's how demand changes with the change in the cost of products.

In economics, price sensitivity is commonly measured using the price elasticity of demand, or the measure of the change in demand based on its price change. For example, some consumers are not willing to pay a few extra cents per gallon for gasoline, especially if a lower-priced station is nearby.

A company has to keep in mind various factors while determining the price of a product. Some such important factors are given here.

1] Cost of the Product

Fixed Cost

Variable Cost

Semi-Variable Costs

2] The Demand for the Product

3] Price of Competitors

4] Government Regulation

The two methods of pricing are as follows: A. Cost-oriented Method B. Market-oriented Methods. A. Cost-oriented Method: Because cost provides the base for a possible price range, some firms may consider cost-oriented meth­ods to fix the price. Cost-oriented methods or pricing are as follows: 1. Cost plus pricing: Cost plus pricing involves adding a certain percentage to cost in order to fix the price. For instance, if the cost of a product is Rs. 200 per unit and the marketer expects 10 per cent profit on costs, then the selling price will be Rs. 220. The difference between the selling price and the cost is the profit. This method is simpler as marketers can easily determine the costs and add a certain percentage to arrive at the selling price.

2. Mark-up pricing: Mark-up pricing is a variation of cost pricing. In this case, mark-ups are calcu­lated as a percentage of the selling price and not as a percentage of the cost price. Firms that use cost-oriented methods use mark-up pricing. Average unit cost/Selling price 3. Break-even pricing: In this case, the firm determines the level of sales needed to cover all the relevant fixed and variable costs. The break-even price is the price at which the sales revenue is equal to the cost of goods sold. In other words, there is neither profit nor loss. Contribution = Selling price – Variable cost per unit

4. Target return pricing:

In this case, the firm sets prices in order to achieve a particular level of return on investment (ROI).

Target return price = Total costs + (Desired % ROI investment)/ Total sales in units

5. Early cash recovery pricing:

Some firms may fix a price to realize early recovery of investment involved, when market forecasts suggest that the life of the market is likely to be short, such as in the case of fashion-related products or technology-sensitive products.

Such pricing can also be used when a firm anticipates that a large firm may enter the market in the near future with its lower prices, forcing existing firms to exit. In such situations, firms may fix a price level, which would maximize short-term revenues and reduce the firm’s medium-term risk.

B. Market-oriented Methods: 1. Perceived value pricing: A good number of firms fix the price of their goods and services on the basis of customers’ perceived value. They consider customers’ perceived value as the primary factor for fixing prices, and the firm’s costs as the secondary. 2. Going-rate pricing: In this case, the benchmark for setting prices is the price set by major com­petitors. If a major competitor changes its price, then the smaller firms may also change their price, irrespective of their costs or demand. The going-rate pricing can be further divided into three sub-methods: a. Competitors ‘parity method b. Premium pricing c. Discount pricing

3. Sealed-bid pricing:

This pricing is adopted in the case of large orders or contracts, especially those of industrial buyers or government departments. The firms submit sealed bids for jobs in response to an advertisement.

4. Differentiated pricing:

Firms may charge different prices for the same product or service.

The following are some the types of differentiated pricing:

a. Customer segment pricing

b. Time pricing

c. Area pricing d. Product form pricing

Pricing a product is one of the most important aspects of your marketing strategy. Generally, pricing strategies include the following five strategies.

1) Cost-plus pricing—simply calculating your costs and adding a mark-up

2) Competitive pricing—setting a price based on what the competition charges

3) Value-based pricing—setting a price based on how much the customer believes what you’re selling is worth

4) Price skimming—setting a high price and lowering it as the market evolves

5) Penetration pricing—setting a low price to enter a competitive market and raising it later

1. Price fixing: Collusion at its worse

Price fixing involves an agreement between a group of people on the same side of a market to buy or sell a good or service at a fixed price. Typically, competition between these participants for consumers drives down prices for goods and services. Yet, imagine a world where every ice cream shop in America vowed that all single scoops were now $15. Consumers would lose out, because we’d find alternatives or shell out an exorbitant amount of cash, as we couldn’t go to another neighborhood joint to battle the high prices/low quality offering of another.

2. Bid rigging: Favoritism This one’s more for the proposal crows, but bid rigging involves promising a commercial contract to one group, even though you make it look like multiple parties had the opportunity to submit a bid. Not only is this a moral no no, but it’s also one of the few the government follows up on, especially within their own ranks, because of the number of bids and contracts the government deals with on a yearly bases. This practice hurts consumers considerably, because the best producer doesn’t receive the work necessarily. 3. Price discrimination: Anti-favoritism Price discrimination is the strategy of selling the same product at different prices to different groups of consumers, usually based on the maximum they are willing to pay. The practice also surfaces in hiding lower priced items from customers who have a higher willingness to pay. This one is a little tricky, because it is socially accepted in some cases, yet rejected in others. For example, very few people would complain that the 80 year old man and his 2 year old great-granddaughter pay $10 less to enter the carnival.

4. Price skimming: Discriminating through time

Once again, another shady area. Price skimming is when the price for a product is first sold at a very high price and then gradually lowered. The goal here is pretty obvious, producers want to capture each step on the demand curve; consumers who are willing to pay more buy the product first, and then a new groups’ purchases are triggered with each decrease in price.

5. Supra competitive pricing: Monopoly gouging

Sometimes the value that consumers place on a good is much greater than the cost of producing that good. In such cases, there is controversy about whether the corporation is justified in charging a much higher price and matches the perceived value. This situation can take place during a shortage, such as the price of food or fresh water after a hurricane, or when a certain product is the only one of its kind available. Pharmaceuticals and the patents that surround them are a great example.