Unit 5 - Marketing Mix & Pricing Methods

Unit 5 - Marketing Mix & Pricing Methods
a. Marketing mix
b. Product classification
c. Product lifecycle
d. New product development lifecycle
e. Pricing strategy & steps
f. Pricing methods

1. KAUSHIK JAISWAL
7276888855 [email protected]

2. MARKETING MIX
The marketing mix refers to the set of actions, or
tactics, that a company uses to promote its
brand or product in the market.
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4. PRODUCT
❑Generalmarketingconceptdescribeshowtosellmoreofaproductwith
anaimtomeettheneedsofourtargetmarket.
❑Ininternationalmarketsthisincludesconsideringvariousfactorslike
customer'sculturalbackgrounds,religion,buyinghabitsandlevelsof
personaldisposableincome.
❑Insomecircumstancesafirmadaptstheirproductandmarketingmix
strategytosatisfythelocalrequirementsanddemandsthatcannotbe
changed.
❑Forexample,
❑McDonaldsisaglobalplayeranyways,theirburgersareaccustomedto
localneeds.InIndia,theirburgersincludechickenorfishbutnotbeef.In
Mexico,McDonaldsburgersisservedwithchilisauce.
❑Insomepartsoftheworld,Coca-Colatastessweeterthaninotherplaces.
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5. PRICE
❑Pricingonaninternationallevelisaverydifficulttask.Ittakesintoaccount
thetraditionalpricei.e.thecostoftheproductinthelocalmarket
includingfixedandvariablerates.
❑Italsodeterminesthecompetitionprevailinginthemarketbetweena
particularcompany’sproductsandsimilarproductsofothercompanies.
❑Apartfromthesefactors,oneshouldconsideradditionalfactorslike−
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The cost of
transport
Tariffs or import
duties
Exchange rate
fluctuations
Personal disposal
incomes of the
target market
The currency they want
to be paid in; and
The general economic
situation of the country

6. PLACE
❑Thiscomponentofmarketingmixiscompletelyaboutproductorservice
distributiontotheconsumer,attherightplaceandattherighttime.
DistributionofgoodsinadevelopedmarketlikeUnitedStatesprobably
includesgoodsbeingshippedinachainfromtheproducerto
wholesalersandontoretailersforconsumerstobuyfrom.
❑Inaninternationalmarket,numberofcountriesofferingsameproducts
withdifferentvarietiesismoreascomparedtonationalmarket.
❑Forexample,inJapanthereareprobablyfivedifferenttypesof
wholesalersengagedinthedistributionchain.
❑Businesseswillberequiredtoexaminethedistributionchainsforeach
nationtheywouldliketoworkwith.Theywillalsoneedtoanalyzeand
verifywhotheywouldliketoselltheirproductsandservicesto-
businesses,retailers,wholesalerordirectlytocustomers.
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7. PROMOTION
❑Unlikeinternationalproductdecisions,anenterprisecaneither
accustomorstandardizetheirpromotionalstrategyandmessage.
❑Promotionalmessagesincountriesshouldbeaccustomeddueto
differencesinlanguage,politicalclimate,culturalattitudesandreligious
practicesindifferentregion.
❑Apromotionalstrategyusedinonecountrycouldbeoffensivewhen
usedinanother.Everysideofpromotionalbriefneedstobeanalyzed
followedbyplanning.
❑Forexample,
❑PeopleinChinabelieveredtobealuckycolorandthiscolorisalsoworn
byIndianbrides.
❑Similarly,whiteiswornbymournersinIndiawhereas,bridesinChinaand
UnitedKingdomwearwhite.
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10. PEOPLE
❑Thecompany’semployeesareimportantinmarketingbecausethey
aretheoneswhodelivertheservice.
❑Itisimportanttohireandtraintherightpeopletodeliversuperiorservice
totheclients,whethertheyrunasupportdesk,customerservice,
copywriters,programmers…etc.
❑Whenabusinessfindspeoplewhogenuinelybelieveintheproductsor
servicesthattheparticularbusinesscreates,it'sishighlylikelythatthe
employeeswillperformthebesttheycan.
❑Additionally,they'llbemoreopentohonestfeedbackaboutthe
businessandinputtheirownthoughtsandpassionswhichcanscale
andgrowthebusiness.
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11. PROCESS
❑Thesystemsandprocessesoftheorganizationaffecttheexecutionof
theservice.
❑So,youhavetomakesurethatyouhaveawell-tailoredprocessin
placetominimizecosts.
❑Itcouldbeyourentiresalesfunnel,apaysystem,distributionsystemand
othersystematicproceduresandstepstoensureaworkingbusinessthat
isrunningeffectively.
❑Tweakingandenhancementscancomelaterto“tightenup”abusiness
tominimizecostsandmaximizeprofits.
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12. PHYSICAL EVIDENCE
❑Intheserviceindustries,thereshouldbephysicalevidencethatthe
servicewasdelivered.
❑Additionally,physicalevidencepertainsalsotohowabusinessandit's
productsareperceivedinthemarketplace.
❑Itisthephysicalevidenceofabusiness'presenceandestablishment.A
conceptofthisisbranding.
❑Forexample,
❑Whenyouthinkof“fastfood”,youthinkofMcDonalds.
❑Whenyouthinkofsports,thenamesNikeandAdidascometomind.
❑Youimmediatelyknowexactlywhattheirpresenceisinthe
marketplace,astheyaregenerallymarketleadersandhave
establishedaphysicalevidenceaswellaspsychologicalevidencein
theirmarketing.
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13. PRODUCT CLASSIFICATION
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14. Introduction Growth Maturity Saturation Decline
PRODUCT LIFECYCLE

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15SATURATION

16. Stage one (Introduction)
A new product
is launched in a
target market
where the
intended
consumers are
not well aware
of its presence.
Stage two (Growth)
An effectively
marketed
product meets
requirements in
its target
market.
The sales
starting
increasing
rapidly and
profits are high.
Stage three (Maturity)
The level of product
demand and sales
volumes increase
slowly.
In order to maintain
market share and
accompany sales,
the original exporter
reduces prices.
There is a decrease
in profit margins, but
the business remains
tempting as sales
volumes soar high.
Stage four (Saturation)
The sales of the
product reach
the peak and
there is no
further possibility
for further
increase.
Stage five (Decline)
In this stage
sales volumes
decrease and
many such
products are
removed or their
usage is
discontinued.
PRODUCT LIFECYCLE

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17See : New Product Development Stages

18. THE NEW PRODUCT DEVELOPMENT PROCESS
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1. Idea generation –
Thenewproductdevelopmentprocessstartswithideageneration.
Ideagenerationreferstothesystematicsearchfornew-productideas.
Typically,acompanygenerateshundredsofideas,maybeeventhousands,
tofindahandfulofgoodonesintheend.
Twosourcesofnewideascanbeidentified:
Internalideasources:thecompanyfindsnewideasinternally.Thatmeans
R&D,butalsocontributionsfromemployees.
Externalideasources:thecompanyfindsnewideasexternally.Thisrefersto
allkindsofexternalsources,e.g.distributorsandsuppliers,butalso
competitors.Themostimportantexternalsourcearecustomers,becausethe
newproductdevelopmentprocessshouldfocusoncreatingcustomer
value.

19. THE NEW PRODUCT DEVELOPMENT PROCESS
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2. Idea screening–
Thenextstepinthenewproductdevelopmentprocessisideascreening.
Ideascreeningmeansnothingelsethanfilteringtheideastopickout
goodones.Inotherwords,allideasgeneratedarescreenedtospot
goodonesanddroppooronesassoonaspossible.
Whilethepurposeofideagenerationwastocreatealargenumberof
ideas,thepurposeofthesucceedingstagesistoreducethatnumber.
Thereasonisthatproductdevelopmentcostsrisegreatlyinlaterstages.
Therefore,thecompanywouldliketogoaheadonlywiththoseproduct
ideasthatwillturnintoprofitableproducts.
Droppingthepoorideasassoonaspossibleis,consequently,ofcrucial
importance.

20. THE NEW PRODUCT DEVELOPMENT PROCESS
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3. Concept development and Testing–
Togooninthenewproductdevelopmentprocess,attractive
ideasmustbedevelopedintoaproductconcept.
Aproductconceptisadetailedversionofthenew-product
ideastatedinmeaningfulconsumerterms.
Youshoulddistinguish:
•Aproductidea:anideaforapossibleproduct
•Aproductconcept:adetailedversionoftheideastatedin
meaningfulconsumerterms
•Aproductimage:thewayconsumersperceiveanactualor
potentialproduct.

21. THE NEW PRODUCT DEVELOPMENT PROCESS
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4. Marketing strategy development–
Whenapromisingconcepthasbeendevelopedandtested,itistimeto
designaninitialmarketingstrategyforthenewproductbasedonthe
productconceptforintroducingthisnewproducttothemarket.
The marketing strategy statement consists of three partsand should be
formulated carefully:
•Adescriptionofthetargetmarket,theplannedvalueproposition,and
thesales,marketshareandprofitgoalsforthefirstfewyears
•Anoutlineoftheproduct’splannedprice,distributionandmarketing
budgetforthefirstyear
•Theplannedlong-termsales,profitgoalsandthemarketingmix
strategy.

22. THE NEW PRODUCT DEVELOPMENT PROCESS
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5. Business analysis–
Thefifthstepinthenewproductdevelopmentprocessinvolvesareview
ofthesales,costsandprofitprojectionsforthenewproducttofindout
whetherthesefactorssatisfythecompany’sobjectives.
Iftheydo,theproductcanbemovedontotheproductdevelopment
stage.
Inordertoestimatesales,thecompanycouldlookatthesaleshistoryof
similarproductsandconductmarketsurveys.Then,itshouldbeableto
estimateminimumandmaximumsalestoassesstherangeofrisk.
Whenthesalesforecastisprepared,thefirmcanestimatetheexpected
costsandprofitsforaproduct,includingmarketing,R&D,operationsetc.
Allthesalesandcostsfigurestogethercaneventuallybeusedtoanalyse
thenewproduct’sfinancialattractiveness.

23. THE NEW PRODUCT DEVELOPMENT PROCESS
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6. Product development–
Thenewproductdevelopmentprocessgoesonwiththeactualproduct
development.
Uptothispoint,formanynewproductconcepts,theremayexistonlyaword
description,adrawingorperhapsaroughprototype.Butiftheproductconcept
passesthebusinesstest,itmustbedevelopedintoaphysicalproducttoensure
thattheproductideacanbeturnedintoaworkablemarketoffering.
TheR&Ddepartmentwilldevelopandtestoneormorephysicalversionsofthe
productconcept.Developingasuccessfulprototype,however,cantakedays,
weeks,monthsorevenyears,dependingontheproductandprototype
methods.
Also,productsoftenundergoteststomakesuretheyperformsafelyand
effectively.Thiscanbedonebythefirmitselforoutsourced.

24. THE NEW PRODUCT DEVELOPMENT PROCESS
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7. Test marketing–
Inthisstageofthenewproductdevelopmentprocess,theproductand
itsproposedmarketingprogramaretestedinrealisticmarketsettings.
Therefore,testmarketinggivesthemarketerexperiencewithmarketing
theproductbeforegoingtothegreatexpenseoffullintroduction.
Infact,itallowsthecompanytotesttheproductanditsentiremarketing
programme,includingtargetingandpositioningstrategy,advertising,
distributions,packagingetc.beforethefullinvestmentismade.
Theamountoftestmarketingnecessaryvarieswitheachnewproduct.
Especiallywhenintroducinganewproductrequiringalargeinvestment,
whentherisksarehigh,orwhenthefirmisnotsureoftheproductorits
marketingprogramme,alotoftestmarketingmaybecarriedout.

25. THE NEW PRODUCT DEVELOPMENT PROCESS
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8. Commercialisation–
Commercialisationmeansnothingelsethanintroducinganewproductintothe
market.
Atthispoint,thehighestcostsareincurred:thecompanymayneedtobuildor
rentamanufacturingfacility.Largeamountsmaybespentonadvertising,sales
promotionandothermarketingeffortsinthefirstyear.
Some factors should be considered before the product is commercialized:
Introduction timing:For instance, if the economy is down, it might be wise to wait
until the following year to launch the product. However, if competitors are ready
to introduce their own products, the company should push to introduce the new
product sooner.
Introduction place:Where to launch the new product? Should it be launched in
a single location, a region, the national market, or the international market?

27. PRICING STEPS
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1.
•Selecting the pricing objective
2.
•Determining demand
3.
•Estimating costs
4.
•Analysing competitors’ cost, prices and offers
5.
•Selecting a price method
6.
•Selecting the final price

28. PRICING STRATEGY
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Keepthepricesaslowaspossibletomakeentry
intoanewmarket.
Penetration
Pricing
Onceyouhavegainedafairshareinthe
market,keepthepricessothatitgivesyouprofit
andatthesametimedoesnotpushawaythe
customers.
Economy
Pricing
Sinceyouhaveadvantagesoverotherbrands,
youcanevenchargethecustomerhigher!
Price
Skimming

29. PRICING METHODS
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See : Pricing Methods

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Acompanyaddsamarkuppercentagetotheoverallproductioncostsandthusformsthe
price.Themarkupistheprofitpercentagecalculatedontotalcost.
Forinstance,ifthecostoftheproductis$10andthecompanyexpectsa20percentprofit,
thenthesellingpricewillbe$12.
Cost-plus pricing
Similartocost-pluspricing,themarkupiscalculatedasapercentageofthesellingpriceand
notthecostprice.
Ifthecostoftheproductis$10andthecompanywantstoearnthemarkupof20percenton
sales,thepriceiscalculatedwiththefollowingequation:
•Price = product cost / 1 –markup
•which in our case is: Price = 10 / 1 –0.20 = 12.5
•Hence, the company will set the price at $12.5 and earn a profit of $2.5 per product.
Mark-up pricing
ThispricingmethodfocusesontherequiredROIratefromthesalesofgoods.
Let’ssaythatabusinessinvesteda$100,000andexpectsa20percentROI($20,000).The
target-returnpriceiscalculatedlikethis:
•Target-return price = product cost + (desired return x capital invested) / unit sales
•Based on the previous example and calculating 10000 unit sales, that would translate to:
•Target-return price = 10 + (0.20 x 100000) / 10000 = 12
Target-return pricing

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•Inthiscase,abusiness,morethananything,setsthepricebasedonthe
customer’sperceptionofitsoffering.
•Thispricingmethodaccountsalltheotherelementsofmarketing
mix(product,place,promotion)toinfluencethecustomers.
•Asanexample,acustomerbuysamoreexpensiveproductsuchas
Apple’siPhonedespitehavinglower-pricedsmartphonesavailableinthe
market.
•ThereasonforsuchdecisionliesinApplealignmentwithperceivedvalue
pricingwherethecustomerhasnoproblempayingextraforbetter
qualityanddurabilityorperhapsforthestatussymbol.
Perceived value pricing
•Thebasicprinciplehereisprovidinglowpricedproductswithhigh-
qualitylevels.
•Eventhoughthepriceislow,itissetaccordinglytominimizethecostof
productionwhilepreservingqualityatthesametime.
•AgoodexamplewouldbeTataMotors,whoseTataNanowasdesigned
withonlythenecessaryfeaturesatalowpricewhileretainingquality.
Value pricing

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Abusinesstakesintoaccountthepricesofitsdirectcompetitionanduses
themasabasisforitsownprices.
Going-ratepricingcanbedividedintothreesubgroups:
•Paritypricing–thepriceisthesamepriceasthatofthebiggest
competitor;
•Premiumpricing–thepriceisalittlehigher,usuallyaccountingthefact
theproducthasadditionalfeaturesunlikecompetitor’sproduct;
•Discountpricing–thepriceisalittleloweriftheproductlacksfeatures
thatcompetitor’sproducthas.
Going-rate pricing
•Differentialpricingisusedincaseswherecompanieschargedifferent
pricestoadifferentgroupofcustomersforthesameproductorservice.
•Thispricingmethoddependsonfactorssuchasplace,timeandproduct
form,thusvaryinginoffering.
•Anexamplewouldbea0.33canofCoca-Colawhichhasdifferent
pricesingrocerystores,publicstations,andespeciallyhotelroomswith
theirsuper-pricyminibars.
Differential pricing

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ThemostpopularmodernexampleofauctiontypepricingiseBay
whoprovidesaplatformforitscustomerstobothbuyandsell.
Usually,therearethreetypesofauctions(interestinglyenough,
country-relatedinname):
•Englishauctions–thereisonlyonesellerwithmanybuyerswho
bidontheitemuntilthebestpriceisreached;
•Dutchauctions–eitheronesellerandmanybuyersoronebuyer
andmanysellers,withtheprocessbackwardstoEnglishauctions
inthefirstcaseasthetoppriceisfirstannouncedandthenslowly
loweringinbiddingorthebuyerannouncingtheproducthe
wishestobuyandthenthesellersbiddingtheirbestofferstohim;
•Sealed-bidauctions–common forlargeordersorcontracts,
particularlyintheindustrialandgovernmentdepartments,where
companiessubmittheirbidsinsealedenvelopesinresponsetoa
tender,notdisclosingthebidtoanyone.
Auction type pricing

34. ALLOWANCE
Allowance is a type of pricing strategy employed for the
promotion a product. Companies typically reward customers
for desirable behavior such as bulk purchase, offseason
purchase etc. by allowing discounts and allowances on list
price.
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35. ALLOWANCE
❑Allowancescantakemanyforms:
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•Pricereductionsgivenforturninginoldproductsin
exchangefornewproducts.
•Thisisprevalentinmanyindustriessuchasautomobile,
electronicsetc.
•Thisallowancemakesthecustomersloyaltoaparticular
product.
1. Trade-in allowances:
•Paymentsorpricereductionsgiventodealersfor
participatinginsalesandsupportprogrammes.
2. Promotional allowances:

36. MOST COMMON TYPES OF DIS COUNTS
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1. Quantity Discounts
2. Trade (or Functional) Discounts
3. Promotional Discounts
4. Seasonal Discounts
5. Cash Discounts
6. Geographical Discounts
See : Types of Discounts

37. THANK YOU..!
KAUSHIK JAISWAL
7276888855 [email protected]
See : New Product Development Stages
See : Pricing Methods
See : Types of Discounts