Product, Branding, and Pricing Strategies in Marketing

Posted on Sep 1, 2024 in Economy

PRODUCT

A product is a set of benefits and services offered by a trader in a market. A favorable product encompasses everything a person receives in exchange, including tangible and intangible attributes such as packaging, color, price, and the manufacturer’s reputation. Consumers accept a product as something that satisfies their desires or needs.

CLASSIFICATION OF PRODUCTS

CONSUMER PRODUCTS

Consumer products are intended for personal use and purchased by consumers based on their wishes and needs. These products can be used without additional manufacturing and are ultimately consumed or used at home. Consumer products are further divided into subgroups:

• Durable and Non-Durable: Durable goods are tangible items used daily, such as TVs, stereos, refrigerators, and blenders. Non-durable goods have a shorter lifespan, like food.
• Convenience and Routine: Consumers purchase these products regularly without much planning, for example, cigarettes, toothpaste, and candy.
• Choice or Purchase: Consumers compare attributes like clothing, perfumes, and watches during the selection and purchasing process.
• Special or Specialty: Consumers are willing to make financial sacrifices or exert extra effort to acquire these items, such as cars, computers, and life insurance.
• Unsought: Consumers do not actively seek out these items; the need for them arises unexpectedly, for example, coffins, funeral services, and health insurance.

INDUSTRIAL PRODUCTS

Industrial products are goods or services used in producing other articles and are not sold directly to final consumers. These products include supplies, accessories, services, and even factories or equipment. Industrial goods are classified as:

• Facilities (industrial plants, land)
• Equipment (tools)
• Operating materials (oil, stationery, light bulbs)
• Services (tax and accounting firms, advertising agencies, banks)

POSITIONING OF A PRODUCT

Positioning refers to the overall marketing program that influences consumers’ mental perception (feelings, opinions, impressions, and associations) of a brand, product, product group, or company in relation to the competition. It is crucial for companies to carefully develop marketing programs that create and reinforce desired positions. Otherwise, consumers will define the position themselves.

Marketers employ various strategies to achieve and strengthen the desired positioning for their company, brand, product, or product group. Some available strategies include:

• Positioning Based on Attributes: The Volkswagen sedan car is a prime example. For over 35 years, it held the position of a small car in consumers’ minds. While it may not be the best-selling small car today, it still holds a leading position for small cars in many people’s minds.
• Positioning Based on Benefits: Consumers purchase these products for their specific benefits. An example is toothpaste: Crest toothpaste”fights tooth decay” while Sensodyne targets”sensitive teeth”
• Positioning Based on Occasions of Use: These products are purchased for specific periods or dates. Turkeys are consumed more regularly during Christmas, and some brands, like Old Orchard brandy, suggest marketing their product for nighttime consumption.
• Positioning Based on Users: These products depend on the promoters featured in marketing campaigns. For example, Zucaritas cereal made the promise of being the”Breakfast of Champions” promoting the product with elite athletes to reach their target market.

PRODUCT LINE AND MIX

Product Line: A group of closely related products that satisfy a particular need or are used together. It is a broad group of products with similar characteristics or uses, such as:

• White goods (refrigerators, stoves, cabinets)
• Online electronics (TVs, irons, radios, consoles, stereos, toasters)
• Cosmetics line (pencils, lipsticks, blushes, enamels, stains)

Product Mix: A comprehensive list of all products a company offers to consumers. The structure of product mixes has two dimensions: amplitude and depth.

• Amplitude is measured by the number of product lines offered by the company, also known as variety.
• Depth refers to the range of sizes, colors, models, prices, and qualities offered within a product line.

FACTORS AFFECTING CHANGES IN PRODUCT MIX

• Population of Consumers and Industrial Users: Changes in a population sector’s tastes and needs can influence a company to change its product mix.
• Purchasing Power: When purchasing power changes, adjusting the product mix and targeting market segments that have expanded or contracted becomes necessary.
• Consumer Behavior: Understanding consumer motivation, attitudes, preferences, and buying habits is crucial.

PRODUCT PORTFOLIO

A product portfolio encompasses all products grouped into lines that an organization offers to its market. For example, Hickok sells products grouped into four major product lines: perfumes, jewelry, belts, and leather goods.

A merchandising product portfolio has four fundamental characteristics: amplitude, extension, depth, and consistency:

• Amplitude: The number of product lines offered by a company (belts, jewelry, perfumes, leather goods).
• Depth: Relates to the number of variants or versions of products a company offers within each product line (perfume 500ml, 250ml, etc.).
• Extension: The total number of products that make up a portfolio.
• Consistency: The degree to which product lines are related in terms of end-use, product demand, distribution systems, procurement, and so on.

MODEL PORTFOLIO ANALYSIS

BCG MATRIX

The Boston Consulting Group (BCG) developed and popularized the market share-market growth matrix, known as the BCG matrix. It divides products into four categories: question marks, stars, cash cows, and dogs.

• Question Marks or Problem Children: Products with low market share that require significant resources to finance growth (machinery, manufacturing processes, personnel). These products are a”question mar” in the market.
• Stars: Successful question marks become stars. They have high market share and growth, are generally profitable, and later become”cash cows”
• Cash Cows: These products generate substantial cash flow for businesses and do not require financing for plant expansions to meet demand and maintain market share. As products mature, cash cows become”dogs”
• Dogs: Products with stagnant or declining markets. They consume more resources than they generate and should be removed from the product portfolio before becoming a drain on resources.

STAGES OF THE PRODUCT LIFE CYCLE

Stage of Market Introduction

The introduction phase (also called presentation) occurs immediately after a new product is introduced to the market. Sales are low due to limited market acceptance, and product availability is limited. Competition is limited or nonexistent.

Growth Stage

If the market accepts the product, sales increase rapidly. Physical distribution planning becomes challenging during this growth stage (also called acceptance). However, product availability expands rapidly to capitalize on growing consumer interest. Profits increase as customers become familiar with the product.

Maturity Stage

The growth stage can be short-lived, followed by a longer period called maturity. Sales growth slows or stabilizes at a maximum level. At this point, profitability is high, and different marketing techniques can extend the product’s lifespan.

Decline Stage

Eventually, sales decline (decline or decadence) for most products due to technological advancements, competition, or loss of customer interest. Prices often fall, and profits shrink.

BRAND

A brand is a name, term, symbol, or design used to identify and differentiate a seller’s products or services from competitors.

PURPOSE OF A BRAND

• Differentiation from competition
• Sign of warranty and product quality
• Convey prestige and trustworthiness
• Facilitate product sales through promotion
• Establish a place in the consumer’s mind

FEATURES OF A BRAND

• Short and memorable name
• Visually appealing
• Adaptable to any advertising medium
• Meets legal requirements for registration and protection

CLASSIFICATION OF BRANDS

• Family Brand: Used for all items produced by a company. For example, Nestle uses its brand name on all its products.
• Individual Brand: Refers to the specific name a manufacturer gives to a product, regardless of other items they produce. For example, Nestle Milk.

ADVANTAGES OF A BRAND

• Easy identification, which encourages purchases
• Consumer protection through consistent quality
• Enables quality comparison among products
• Tendency for product improvement over time

IMPORTANCE OF A BRAND

• To the Consumer: A brand helps buyers identify the product or service and its quality.
• To the Seller: A brand allows for product promotion, expansion, market share control, and participation.

CONTAINER AND/OR PACKAGING

Philip Kotler defines packaging as follows:

• Primary Package: The immediate packaging of the product. For example, a lotion bottle.
• Secondary Packaging: Material that protects the primary package and is discarded after use. For example, the cardboard box containing the lotion bottle.
• Shipping Packaging: Packaging used for storage, identification, and transportation. For example, a corrugated box containing multiple lotion bottles.

Packaging is any material that contains an item, with or without packaging, to preserve and facilitate its delivery to the consumer.

Objective of Packaging

• Product protection
• Promotion within the distribution channel

Classification of Packaging

In the Mexican market, packaging is classified as”untouchable” and”ephemeral”

• Untouchables: Packages that remain virtually unchanged for years due to their physical presentation and psychological connotations for consumers. Examples include beer bottles and non-returnable toothpaste tubes.
• Ephemeral: Packaging for newer products that changes frequently, sometimes every few years, to complement or replace advertising. Examples include detergent bags and cardboard drink boxes.

Packaging Rules

Containers or packages must adhere to specific rules, including:

• Company name
• Place of origin
• Company address
• Content information
• Compliance with health codes
• Date of manufacture and expiry

PACKAGING TABLE

PACKAGING

Packaging involves grouping objects or packages to facilitate handling. This grouping can be done using boxes, bags, or containers to protect small, fragile objects, heavy machinery, or specialized equipment.

In short, packaging is the housing that protects goods during transportation and storage.

Features of Packaging

• Efficiently transports goods from origin to point of use.
• Used in various industries to prepare and transport goods for final sale.
• Ensures product delivery to the final consumer in good condition at minimal cost.

Objective of Packaging

• Protect product contents during transportation from factory to consumer.

Functions of Packaging

• Protect products from damage, moisture, dust, insects, rodents, and theft.
• Provide labeling to indicate the product, manufacturer, and destination.

Classification of Packaging

• Export Packaging: Considers product characteristics, market requirements, and transportation methods used for export. Includes engineering aspects, design, legal regulations, and shipping considerations.
• Product Line Packaging: Uses identical packaging for all products in a line or incorporates a consistent feature across all packaging, common for consumer products like food.
• Packaging for Later Use: Designed and promoted for reuse after the product is consumed. This type of packaging is uncommon.
• Multiple Packaging: Placing multiple units in one box to increase sales, introduce special offers, and reduce handling costs for retailers. Examples include motor oil, beer, soap, candy, towels, and sheets.

SERVICE

A service is a set of activities, benefits, or satisfactions offered for sale or provided in connection with a sale.

Features of Services

• Effectiveness
• Functionality
• Speed
• Timeliness
• Customer service
• Honesty
• Reliability

Four characteristics distinguish services from goods:

• Intangibility: Services are not perceptible by the senses.
• Perishable Nature: Services are momentary, fulfilling consumer needs without the need for storage.
• Standardization: Services depend on actions to create benefits and are not standardized or produced on an assembly line.
• Involvement: Services occur within a timeframe where the purchaser is involved in the process.

PRICE STRATEGY

PRICE

In ancient times, people acquired goods through bartering, exchanging goods for other goods. Money emerged later to facilitate trade transactions.

Money is a social measure of value. There are two types of value:

• Use Value: The value an individual assigns to a thing based on its subjective worth.
• Exchange Value: The value of a thing based on its perceived importance to others and its ability to meet their needs.

Price is the amount of money required to acquire a product and its accompanying services. Understanding the value consumers receive from a product is key to determining its price.

Common pricing conflicts arise within distribution channels between buyers and sellers regarding resale price maintenance.

IMPORTANCE OF PRICE TO THE ECONOMY

Balanced pricing is crucial for a healthy economy.

ROLE OF PRICES

• Production Regulation: Prices indicate what to produce and in what quantity, as production decisions depend on consumer reactions to product prices.
• Consumption Regulation: Prices act as a rationing agent, adjusting production to societal consumption needs, following the law of demand.
• Distribution of Production: Prices influence the distribution of production among society’s members based on wages, profits, interest, and income generated during the production process.
• Research and Development: Profits allow companies to invest in research and development.

IMPORTANCE OF PRICE FOR COMPANIES

Profits are determined by the difference between revenue and costs. Revenue depends on both the prices set by the company and the quantity of products sold. The price assigned to a product impacts company revenue, profits, and overall utility.

Product or service prices significantly influence market demand, affecting a company’s competitive position and market share. When setting prices, marketers must consider long-term effects and profit desires.

OBJECTIVES OF PRICING

Pricing objectives represent the purpose of planning and the desired end state for an organization. These objectives are fundamental to the company’s overall plan.

• Maintain or Enhance Market Share: Companies may aim to maintain or increase their market share through pricing strategies.
• Price Stabilization: In industries with fluctuating demand, companies may prioritize price stability.
• Achieve Return on Investment: Setting prices to cover projected operating costs and achieve a desired profit margin.
• Maximize Profits: Many companies aim to maximize profits through pricing. However, long-term profit maximization benefits both the company and consumers.
• Compete or Avoid Competition: Companies may set prices to confront or avoid competitors.
• Market Penetration: Using relatively low prices to stimulate market growth and capture a significant market share.
• Product Line Promotion: Setting prices to increase overall product line sales, with less emphasis on individual product profits.
• Survival: In challenging market conditions, companies may prioritize survival through pricing strategies.

FACTORS INVOLVED IN PRICE FIXING

COST

Cost is a crucial element in pricing, as it helps measure profit contribution and compare products. It guides employers in determining the most profitable product mix and identifying costs that can be incurred without affecting profits. Cost encompasses all expenses related to a particular operation.

CLASSIFICATION OF COSTS FOR PRICE DETERMINATION

1. Direct Costs:
   • Direct Material Costs: Costs of materials used in production.
   • Direct Labor Costs: Labor costs of employees involved in production.
2. Indirect Costs:
   • Overhead Costs: Expenses not directly associated with a specific product.
3. Duration of Benefit Costs:
   • Investment Costs: Costs of equipment, buildings, and systems.
   • Operating Costs: Costs associated with running the company.
   • Distribution Costs: Costs of physically distributing the product.
4. Volume-Related Costs:
   • Fixed Costs: Costs required to begin operations.
   • Variable Costs: Costs that fluctuate with production volume.
5. Economic Costs:
   • Total Average Costs: Costs per unit of product manufactured.
   • Marginal Costs: Additional costs incurred for producing one more unit.
   • Opportunity Costs: Costs of choosing one option over another.
6. Accounting Costs:
   • Incurred or Historical Costs: Costs already incurred at the time of recording.
   • Estimated Costs: Projected future costs.
   • Standard Costs: Sum of prices based on product specifications.

BREAK-EVEN POINT

The break-even point is the point at which total costs equal total revenue. It is a crucial tool for profit planning, decision-making, and problem-solving. This method provides employers with an overview of the relationship between revenue, costs, profits, and production/sales volumes.

DEMAND AND SUPPLY

Product prices are determined by market forces, primarily the laws of supply and demand.

Demand: The quantity of a product consumers are willing to buy at various market prices. Reduced demand typically leads to lower prices. If the reduction is permanent and large-scale, price adjustments may be necessary.

Law of Demand: As prices rise, demand falls, and vice versa. Factors influencing consumer demand include:

• Consumer preferences, influenced by customs, habits, and culture.
• Number of consumers.
• Price of substitute products.
• Consumer income.
• General price levels.

Demand Fluctuations: Shifts in the demand curve caused by changes in demand determinants.

Elasticity of Demand: Measures the sensitivity of sales revenue to changes in various factors.

Types of Elasticity:

• Zero Elasticity: A price change does not affect the quantity purchased.
• Infinite Elasticity: A small price reduction leads to a significant increase in purchases.

Cross Elasticity of Demand: The demand for a good is influenced by the availability of substitute and complementary products.

Supply: The quantity of a product producers are willing to produce at various market prices.

Law of Supply: The quantity of goods producers offer is directly related to price movements. As prices rise, supply increases, and vice versa. Factors influencing supply include:

• Number of firms in the industry.
• Productive capacity of existing firms.
• Cost of production factors.
• Production techniques.

Long-Term Supply Fluctuations: Significant changes in supply determinants that cause noticeable shifts in the supply curve over extended periods.

Increase and Reduction of Supply: An increase in supply shifts the supply curve to the right, while a reduction shifts it to the left.

Elasticity of Supply: Measures the responsiveness of the quantity supplied to changes in price.

• Elastic Supply: A price change leads to a proportionally larger change in quantity supplied.
• Inelastic Supply: A price change leads to a proportionally smaller change in quantity supplied.
• Unit Elastic Supply: A price change leads to a proportionally equal change in quantity supplied.

COMPETITION

Companies must consider competitors’ prices when setting their own. Price is a competitive weapon, and four key considerations are:

• Establish clear pricing policies.
• Align prices with other marketing mix elements.
• Adjust prices based on the product life cycle.
• Relate prices to the strategic classification of products and their position in the portfolio.

Price differentiation is crucial for attracting consumers who prioritize price over other factors like quality, service, or treatment. Monopolies face fewer pricing constraints than companies in competitive markets.

In oligopolies, price changes by one firm often trigger similar changes by competitors. Competition is less intense in oligopolies with unrestricted access, where a large number of companies leads to impersonal competition.

PRICE WAR

Reasons for Price Wars:

• One competitor believes market prices are too high and decides to lower them.
• One competitor is willing to sacrifice margins to gain market share.
• Lack of trust between competitors, leading to cascading price reductions.
• Excess capacity or inventory, forcing a competitor to lower prices.

Steps to Address a Price War:

1. Diagnose the Situation: Assess consumer price sensitivity, cost structure, and potential price scenarios.
2. Stop the Price War: Communicate pricing intentions, reveal cost advantages, seek diplomatic solutions, or follow the price leader.
3. Implement Non-Price Competitive Actions: Focus on quality, highlight risks of low-quality products, emphasize negative consequences of price wars, or seek assistance from authorities.
4. Engage in the Price War (if necessary): Consider engaging if the competition threatens the business, a price-sensitive market segment exists, a cost advantage is present, or the company has greater resources to withstand the price war.

OTHER PRICE DETERMINANTS

PRODUCT LIFE CYCLE

• Introduction: Prices may be higher or lower depending on the chosen strategy.
• Growth: Prices stabilize as new competitors enter the market.
• Maturity: Strategies are developed to maintain market presence.
• Decline: Significant price reductions may be necessary before modifying or discontinuing the product.