Product, Branding, and Pricing Strategies in Marketing

Posted on Sep 6, 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 an exchange.

A product includes 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 purchase and use by consumers. These products align with consumer wishes and needs and can be used without additional manufacturing. Ultimately, consumers purchase these products for consumption or use at home. Consumer products can be 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 short lifespan, like food.
• Convenience and Routine: Consumers purchase these products regularly without extensive planning. Examples include cigarettes, toothpaste, and candy.
• Choice or Purchase: Consumers compare attributes like quality, features, and price when selecting and purchasing these products. Examples include clothing, perfumes, and watches.
• Special or Specialty: Consumers are willing to make significant financial sacrifices or efforts to acquire these items. They have a strong preference for these products over others. Examples include cars, computers, and life insurance.
• Unsought: Consumers do not actively seek out these products; the need for them arises unexpectedly. Examples include coffins, funeral services, and health insurance.

INDUSTRIAL PRODUCTS

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

• Facilities: Industrial plants and land.
• Equipment: Tools and machinery.
• Operating Materials: Oil, stationery, light bulbs, etc.
• Services: Tax and accounting firms, advertising agencies, banks, etc.

POSITIONING OF A PRODUCT

Positioning refers to the overall marketing program that influences consumers’ mental perception of a brand, product, product group, or company in relation to the competition. This perception includes feelings, opinions, impressions, and associations.

Companies must carefully develop marketing programs to create and reinforce desired positions. Otherwise, consumers will define the product’s position independently.

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

• Positioning Based on Attributes: For over 35 years, the Volkswagen Beetle exemplified positioning based on attributes by holding the”small ca” position in consumers’ minds. While it may not be the best-selling small car today, it still holds a leading position for small cars in public perception.
• Positioning Based on Benefits: Consumers purchase these products for their specific benefits. An example is toothpaste: Crest”fights tooth decay” while Sensodyne targets”sensitive teeth”
• Positioning Based on Occasions of Use: These products are purchased for specific periods or occasions. Turkeys are consumed more regularly during Christmas, and certain brands, like Old Orchard brandy, might be marketed for evening consumption.
• Positioning Based on Users: This strategy depends on the promoters featured in marketing campaigns. For example, Sugar Crisp cereal used the slogan”Breakfast of Champion” and featured elite athletes in its advertising to target a specific market segment.

PRODUCT LINE AND MIX

A product line is 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, etc.)
• Consumer electronics (TVs, irons, radios, consoles, stereos, toasters, etc.)
• Cosmetics (pencils, lipsticks, blushes, nail polish, etc.)

A product mix is a list of all products a company offers to consumers. The structure of a product mix has two dimensions: amplitude and depth.

• Amplitude is measured by the number of product lines a company offers. This is 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

• Consumer and Industrial User Population: Changes in the population or a specific population sector’s tastes and needs can induce a company to change its product mix.
• Purchasing Power: When purchasing power changes, companies may need to adjust their product mix and target market segments that have expanded or contracted.
• Consumer Behavior: Companies must consider consumer motivation, attitudes, preferences, and buying habits when making product mix decisions.

PRODUCT PORTFOLIO

A product portfolio is the set of all products, grouped into lines, that an organization offers to its market. For example, the company Hickok might sell products grouped into four major product lines: perfumes, jewelry, belts, and leather goods.

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

• Amplitude: The number of product lines offered by a company (e.g., belts, jewelry, perfumes, leather goods).
• Depth: The number of variants or versions of products a company offers within each product line (e.g., 500ml perfume, 250ml perfume, etc.).
• Extension: The total number of products that make up a portfolio.
• Consistency: How closely related the product lines are in terms of end-use, 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, also known as the BCG matrix. The BCG matrix is divided into four cells, each representing a different type of product:

• Question Marks or Problem Children: Products with low market share that require significant resources to finance growth (machinery, manufacturing processes, personnel, etc.). These products are still in question as to whether they will be successful.
• Stars: Successful question marks become stars. They have high market share and high growth. These products are generally profitable and may later become”cash cows”
• Cash Cows: These products generate large cash flows for their businesses and do not require significant investment to maintain market share and meet demand. As products mature, cash cows may become”dogs”
• Dogs: Products with low market share and low growth. These products consume more resources than they generate and should be removed from the product portfolio. They may eventually become obsolete.

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 because there is no widespread market acceptance. Product availability is limited, and 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 relatively short, followed by a longer period called maturity. Sales growth slows or stabilizes at a maximum level. At this point, profitability is typically at its highest, and companies can extend the product’s life cycle with various marketing techniques.

Decline Stage

Eventually, sales decline (decline or decadence) for most products due to technological advancements, competition, or loss of consumer 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 or group of sellers’ 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 memorable product image 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 the firm that produces or manufactures other items. For example, Nestle Milk.

ADVANTAGES OF A BRAND

• Easy product identification, which encourages purchases
• Consumer protection through consistent quality assurance
• Enables consumers to compare product quality
• Encourages product improvement over time

IMPORTANCE OF A BRAND

• To the Consumer: A brand helps buyers identify the product or service and assess its quality.
• To the Seller: A brand allows sellers to promote their products, expand their offerings, control their market presence, and gain market share.

CONTAINER AND/OR PACKAGING

As defined by Kotler, packaging encompasses the activities of designing and producing a product’s container or wrapper. It may include up to three levels of material:

• Primary Package: The product’s immediate container. For example, a lotion bottle.
• Secondary Packaging: Material that protects the primary package and is discarded when the item is used. For example, the cardboard box containing the lotion bottle.
• Shipping Packaging: Packaging used for storage, identification, and transportation. For example, a corrugated box containing six dozen lotion bottles.

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

Objective of Packaging

• Product protection
• Containment
• Promotion within the distribution channel

Classification of Packaging

In the Mexican market, packaging is classified as”untouchabl” or”ephemeral”

• Untouchable: These packages remain virtually unchanged for years due to their physical presentation and psychological connotations for consumers. Examples include non-returnable beer bottles and cardboard toothpaste boxes.
• Ephemeral: These packages change frequently, sometimes every two or three years, to supplement or replace advertising. Examples include plastic detergent bags and cardboard drink boxes.

Packaging Regulations

Containers and packaging must adhere to specific regulations, including:

• Displaying the company name
• Indicating the place of origin
• Providing the company address
• Stating the product content
• Complying with relevant health codes
• Displaying the manufacturing and/or expiry date

The following table describes some key packaging standards in Mexico:

PACKAGING

Packaging involves grouping a set of identical or different objects or packages to facilitate handling. This grouping can be done using boxes, bags, or containers that protect small and fragile objects or heavy machinery and specialized equipment.

In essence, 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 products during transportation from the factory to consumer centers.

Functions of Packaging

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

Classification of Packaging

• Export Packaging: Considers product characteristics, target market, and transportation methods. Includes engineering aspects (material, size, weather protection), design (labels, instructions, colors), legal compliance, and shipping considerations.
• Product Line Packaging: Uses identical packaging for all products in a line or incorporates a consistent design element. Common in consumer goods like food products.
• Reusable Packaging: Designed for reuse after the product is consumed. This type of packaging is less common.
• Multiple Packaging: Groups multiple units into 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.
• Perishability: Services are momentary and cannot be stored for later use.
• Heterogeneity: Services are dependent on human actions and are not standardized.
• Inseparability: Services are produced and consumed simultaneously, involving the customer 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 utility. This value is subjective.
• Exchange Value: The value of a thing based on what others are willing to trade for it. This value is determined by the market.

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, often concerning 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. Production decisions depend on consumer reactions to product prices.
• Consumption Regulation: Prices act as a rationing agent, adjusting production to societal needs based on the law of demand.
• Distribution of Production: Prices influence the distribution of wealth among society members through wages, profits, interest, and income generated during production.
• Research and Development: Profits earned from product sales allow companies to invest in research and development.

IMPORTANCE OF PRICE FOR COMPANIES

Profits are the difference between revenue and costs. Revenue depends on the prices set by the company and the quantity of products sold. Product pricing significantly impacts a company’s revenue, profits, and overall financial performance.

A product’s price influences market demand, affecting the company’s competitive position and market share. When setting prices, marketers must consider long-term effects and balance profit desires with sustainable pricing strategies.

OBJECTIVES OF PRICING

Pricing objectives represent the goals of a company’s pricing strategy. These objectives guide the organization’s overall direction and should align with its mission and vision.

• Maintain or Enhance Market Share: Companies may adjust prices to maintain or increase their market share based on their goals and market conditions.
• Price Stabilization: In industries with fluctuating demand, companies may prioritize price stability to avoid drastic price changes.
• Achieve Target Return on Investment (ROI): Companies may set prices to achieve a specific ROI by ensuring prices cover operating costs and generate the desired profit margin.
• Maximize Profits: Many companies aim to maximize profits through their pricing strategies. However, long-term profit maximization requires balancing profitability with customer satisfaction and market sustainability.
• Compete or Avoid Competition: Companies may strategically set prices to confront or avoid competitors, depending on their market position and competitive landscape.
• Market Penetration: Companies may use low prices to penetrate new markets, stimulate growth, and capture a significant market share.
• Product Line Promotion: Companies may adjust prices across a product line to promote specific products or increase overall sales, even if it means lower profit margins on certain items.
• Survival: In challenging market conditions, companies may prioritize survival by adjusting prices to maintain sales and cover essential costs.

FACTORS INVOLVED IN PRICE SETTING

COST

Cost is a crucial element in pricing. It helps determine a product’s profitability and allows for comparisons between products and product hierarchies. Cost analysis guides businesses in determining the most profitable product mix and identifying cost-saving opportunities without compromising profitability.

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 directly involved in production.
2. Indirect Costs:
   • Overhead Costs: Expenses not directly attributable to a specific product, such as rent, utilities, and administrative salaries.
3. Costs Based on Benefit Duration:
   • Investment Costs: Costs of long-term assets like equipment, buildings, and systems.
   • Operating Costs: Costs associated with running the business daily, such as salaries, rent, and utilities.
   • Distribution Costs: Costs of physically distributing the product to customers.
4. Costs Based on Operation Volume:
   • Fixed Costs: Costs that remain constant regardless of production volume, such as rent and insurance.
   • Variable Costs: Costs that fluctuate with production volume, such as raw materials and direct labor.
5. Costs From an Economic Viewpoint:
   • Total Average Costs: Total cost of production divided by the number of units produced.
   • Marginal Costs: Additional cost incurred by producing one more unit.
   • Opportunity Costs: The potential benefits missed by choosing one option over another.
6. Costs From an Accounting Viewpoint:
   • Historical Costs: Costs already incurred.
   • Estimated Costs: Projected future costs.
   • Standard Costs: Predetermined costs based on product specifications and efficient production methods.

BREAK-EVEN POINT

The break-even point is the sales volume at which total revenue equals total costs. It is a crucial tool for profit planning, decision-making, and problem-solving. Break-even analysis helps businesses understand the relationship between sales volume, costs, and profits.

DEMAND AND SUPPLY

Market forces of demand and supply significantly influence product prices.

Demand refers to the quantity of a product consumers are willing to buy at various prices. A decrease in demand can lead to lower prices. Conversely, an increase in demand can drive prices upward.

The Law of Demand states that as the price of a good increases, the quantity demanded decreases, and vice versa. Several factors influence consumer demand:

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

Demand fluctuations occur when the demand curve shifts due to changes in factors influencing demand.

Demand elasticity measures how sensitive demand is to price changes. If a price change leads to a proportionally larger change in demand, demand is considered elastic. Conversely, if a price change results in a proportionally smaller change in demand, demand is considered inelastic.

Cross-elasticity of demand refers to how the demand for one good is affected by changes in the price of related goods, such as substitutes or complements.

Supply refers to the quantity of a product that producers are willing to offer at various prices.

The Law of Supply states that as the price of a good increases, the quantity supplied increases, and vice versa. Factors influencing supply include:

• Number of producers in the market.
• Production capacity of existing firms.
• Cost of production factors (labor, raw materials, etc.).
• Production technology and efficiency.

Supply fluctuations occur when the supply curve shifts due to changes in factors influencing supply.

Supply elasticity measures how sensitive supply is to price changes. If a price change leads to a proportionally larger change in supply, supply is considered elastic. Conversely, if a price change results in a proportionally smaller change in supply, supply is considered inelastic.

COMPETITION

Businesses must consider their competitive landscape when setting prices. Four key considerations related to competition and pricing are:

• Develop clear pricing policies aligned with business objectives.
• Consider the interplay between pricing and other marketing mix elements.
• Align pricing strategies with the product life cycle.
• Consider the strategic classification of products and their respective roles in generating cash flow and profits.

Price differentiation is a strategy where businesses use price as a competitive advantage, offering products at different price points to appeal to various customer segments. This strategy relies on factors like brand loyalty, product features, and perceived value.

Monopoly exists when a single firm controls the market for a particular product or service. Monopolies have significant pricing power due to the lack of competition.

Oligopoly exists when a small number of firms dominate a market. In oligopolies, pricing decisions are interdependent, as one firm’s price changes can trigger reactions from competitors.

Perfect competition exists when many firms offer similar products, and no single firm has significant control over prices. In perfectly competitive markets, prices are primarily driven by supply and demand.

PRICE WARS

Price wars occur when businesses engage in aggressive price cuts to undercut competitors and gain market share. Reasons for price wars include:

• Belief that market prices are too high.
• Desire to gain market share at the expense of profit margins.
• Lack of trust and communication between competitors.
• Excess capacity or inventory.

Strategies for dealing with price wars:

1. Diagnose the Situation: Assess consumer price sensitivity, analyze the company’s cost structure, and evaluate the potential impact of different pricing scenarios.
2. Consider Alternatives to Price Cuts: Focus on non-price competition factors like product quality, customer service, and brand differentiation.
3. Communicate Transparently: Publicly communicate pricing strategies and rationale to competitors and customers.
4. Seek Collaboration: Explore opportunities for collaboration with competitors to stabilize prices and avoid destructive price wars.
5. Prepare for Price War: If a price war is unavoidable, ensure the company has a solid cost structure, sufficient resources, and a well-defined strategy to mitigate potential losses.

OTHER PRICE DETERMINING FACTORS

PRODUCT LIFE CYCLE

• Introduction: Prices may be set high to recoup development costs or low to penetrate the market quickly.
• Growth: Prices stabilize as competition increases.
• Maturity: Companies may adjust prices to maintain market share and defend against competitors.
• Decline: Prices are often reduced to clear inventory and maximize remaining profits.