Product Classification, Development, Branding, and Pricing Strategies

Posted on Jan 27, 2025 in Economy

Product Classification at United Nations

The International Standard Industrial Classification of All Economic Activities (ISIC) is the international reference classification of productive activities. Its main purpose is to provide a set of activity categories that can be used for the collection and reporting of statistics according to such activities.

The Central Product Classification (CPC) constitutes a complete product classification covering all goods and services. It serves as an international standard for assembling and tabulating all kinds of data.

Standards

A standard is an agreed-upon way of doing something. It could be about making a product, delivering a service, etc. Standards can cover a huge range of activities undertaken by organizations and used by their customers. Also, they can be very specific, such as to a particular type of product, or general, such as management practices. Standards provide a reliable basis for people to share the same expectations about the product. This helps to:

• Facilitate trade
• Enhance consumer protection and confidence
• Provide a framework for achieving economies and efficiencies

Standard International Trade Classification (SITC)

Classification of goods used to classify the exports and imports of a country to enable comparing different countries and years.

Harmonized Commodity Description and Coding System (HS)

HS is an exhaustive nomenclature of internationally traded commodities (goods) classified according to:

• Raw materials
• Degree of processing
• Function
• Economic activities

TARIC

TARIC, the integrated Tariff of the European Union, is a multilingual database in which are integrated all measures relating to EU customs tariff, commercial, and agricultural legislation.

Design the Product

“Design is the totality of features that affect how a product looks, feels, and functions to a consumer.” Design offers functional and aesthetic benefits and appeals to both our rational and emotional sides.

Process

1. Project briefing: What I need and for when.
2. Initial concepts: Research, brainstorming.
3. Design feedback: Feedback and review.
4. Design finalized: Refine the design until complete.
5. Final output: Designs are finalized.

How to Get Feedback?

• Employees: Asking them about the product and services that customers ask for.
• Comment cards: Provide a card where they can put their opinion.
• Competition: What do they sell?
• Documentation and records: What are customers buying and not buying from you?
• Focus groups or surveys.

UX Design

UX Design is the process of enhancing user satisfaction by improving the usability, accessibility, and pleasure provided in the interaction between the user and the product.

• How you look: When you see yourself in the mirror.
• How you feel: About being dressed like that (outfit).

Product Development

The stages involved in bringing a product from concept or idea through market release and beyond:

1. Identify a market need
2. Conceptualize and design the product
3. Build the product roadmap
4. Develop an MVP (Minimum Viable Product)
5. Release the MVP to users
6. Iterate based on user feedback

Agile Project Management

Agile project management is a way to manage projects. It can be used for virtually anything, but it was founded in software development. Agile project management is an iterative and incremental approach to delivering requirements throughout the project life cycle. At the core, agile projects should exhibit central values and behaviors of trust, flexibility, empowerment, and collaboration.

Branding

A brand is a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers. It is a reason to choose.

Branding refers to the company’s statements, objectives, and corporate soul as expressed through the corporate voice and aesthetic.

Vision Statement

Represents the organization’s values, aspirations, and goals. It can serve as a tool for strategic decision-making across the company.

Mission Statement

It encompasses both the purpose of the company and the basis of competition and competitive advantage. Being a description of the firm’s activity, it may vary in length and specificity. A good mission statement must communicate why an organization is special.

Value of an Organization

Core values are the basis upon which the members of a company make decisions, plan strategies, and interact with each other and their stakeholders.

Why Branding?

Objectives:

• Clearly delivers the message
• Confirms your credibility
• Motivates the buyer to buy
• Creates emotional connections
• Builds user loyalty

It is important to understand the needs and wants of your customers and prospects.

Strong Company Brand

1. Purpose:
   • Functional: Evaluations of the success (make money).
   • Intentional: The ability to make money and do good in the world.
2. Consistency: The key is to avoid talking about things that do not relate to or enhance your brand. It contributes to brand recognition that leads to customer loyalty.
3. Emotion: Sometimes customers follow their emotions.
4. Flexibility: Enables you to make adjustments that build interest and distinguish your approach from that of your competition.
5. Employee involvement: Your employees have to know how to communicate with customers and represent the brand.
6. Loyalty: Word of mouth – good comments will bring back customers and increase profits. Loyalty is a critical part of every strategy.
7. Competitive awareness: The competition could be a challenge to improve your own strategy and create greater value in your brand.

Packaging

The main purpose of packaging:

• To keep products in good condition before sales.
• To make it look attractive.
• To keep it protected and prevent damage or destruction.
• To increase the shelf-life of products.
• To encourage customers to buy.

Packaging involves all the activities of designing and producing the container for a product.

Packaging as a Marketing Tool

• Self-service
• Consumer affluence: Rising affluence means consumers are willing to pay a little more.
• Company and brand image: Recognition of the brand.
• Innovation opportunity: Unique packaging can generate more profits.

Materials

• Wood: Used frequently, susceptible to environmental impact.
• Metals: Highly popular and used for drinks, food, etc.
• Why use aluminum? Recyclable, lightweight, resistant, neutral, adapted, abundant, opportunities for innovation.
• Glass: Glass is the trusted and proven packaging for health, taste, and the environment. It is recyclable, impermeable, with a zero rate of chemical interactions.
• Plastic:
  • HDPE: Strong plastic.
  • PET: It is shatterproof, lightweight, and 90% recyclable.
  • PVC: Used for containers that are not pressurized.
• Brick carton: It provides stability, strength, and smoothness to the printing surface.
• Cardboard: Industrially prefabricated boxes (goods and materials).

Labeling Aspects

The label can be a simple attached tag or an elaborately designed graphic that is part of the package. It could include a lot of information or just the brand name.

Functions:

• Identify the product or brand
• Describe the product
• Promote the product

Types of Labels

• Brand label: If only the brand is used on the package of a product.
• Grade label: It shows the quality of products by words, letters, or figures.
• Descriptive label: It gives information about the features, using instructions, security, etc.
• Informative label: It gives information about the product.

Safety Certification of Products

Safety certifications are the labels and documents verifying all necessary regulatory compliance requirements have been met in order for a product to be sold legally.

Warranty

A warranty is a written guarantee promising to repair or replace an article if necessary within a specified period. They are especially helpful when the company or product is not well known or when the product’s quality is superior to that of competitors.

Warranty Types

• Full warranty:
  • You do not limit the duration of implied warranties.
  • You provide warranty service to anyone who owns the product during the warranty period; that is, you do not limit coverage to first purchasers.
  • You provide warranty service free of charge, including such costs as returning the product or removing and reinstalling the product when necessary.
  • You provide, at the consumer’s choice, either a replacement or a full refund if, after a reasonable number of tries, you are unable to repair the product.
  • You do not require consumers to perform any duty as a precondition for receiving service, except notifying you that service is needed unless you can demonstrate that the duty is reasonable.
• Limited warranty: If the statements of “full warranty” are not true, then your warranty is “limited”.
• Multiple warranty: You are not required to make your entire warranty full or limited. If the statements of full warranty are true about the coverage on only some parts of your product, or if the statements are true about the coverage during only one part of the warranty period, then your warranty is a multiple warranty that is part full and part limited.

Guarantee

Guarantees reduce the buyer’s perceived risk. They suggest that the product is of high quality and the company and its service performance are dependable.

1. For your customers, because with every purchase comes risk, for example, that the product doesn’t work for them as promised. Big waste of time. Even worse, the risk that they just made a wrong decision that cost them a bunch of money.
2. When you remove the risk, you remove that pain. And when you remove the pain, you increase the number of people that are ready to buy what you sell.

“Warranty has more weight than a guarantee. A warranty is a written agreement while a guarantee is making a promise to do something.”

Liability

Product liability is the area of law in which manufacturers, distributors, suppliers, retailers, and others who make products available to the public are held responsible for the injuries those products cause. If you have been injured or suffered other damages because of a product you used, you may have a defective product liability claim. Though the range of defective product cases is broad, the claims typically fall into three categories of product liability:

• Defective manufacture
• Defective design
• Failure to provide adequate warnings or instructions concerning the proper use of the product

Steps in Setting Price

Step 1: Select Price Objective

It is the goal that guides a business in setting the cost of a product or service to potential consumers.

There are five objectives for pricing:

1. Profits-related objectives: Profit has remained a dominant objective of business activities. The company’s pricing policies and strategies are aimed at following profits-related objectives:
   • Maximum Current Profit: One of the objectives of pricing is to maximize current profits.
   • Target Return on Investment: It can be:
     • A fixed percentage of sales
     • A return on investment
     • A fixed rupee amount
2. Sales-related Objectives:
   • Sales Growth: The company’s objective is to increase sales volume.
   • Target Market Share: A company aims its pricing policies at achieving, maintaining, or increasing the target market share.
3. Competition-related Objectives: Every company tries to react to the competitors by appropriate business strategies.
   • To Face Competition: The company sets and modifies its pricing policies so as to respond to the competitors strongly.
   • To Keep Competitors Away: To prevent the entry of competitors can be one of the main objectives of pricing.
   • To Achieve Quality Leadership by Pricing: In order to create a positive image that the company’s product is standard or superior to that offered by the close competitors, the company designs its pricing policies accordingly.
4. Customer-related Objectives:
   • To Win Confidence of Customers: Get the confidence of customers that the price charged for the product is a reasonable one.
   • To Satisfy Customers: The company sets, adjusts, and readjusts its pricing to satisfy its target customers.
5. Other objectives:
   • Market Penetration
   • Promoting a New Product
   • Maintaining Image and Reputation in the Market
   • Price Stability
   • Survival and Growth

Step 2: Determining Demands

• Price sensitivity: The amount by which changes in a product’s cost tend to affect consumer demand for that product.
• Estimating demand curves: The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time. In a typical representation, the price will appear on the left vertical axis, the quantity demanded on the horizontal axis.
• Price Elasticity of Demand: Price elasticity of demand is a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price elasticity of demand is a term in economics often used when discussing price sensitivity.

Step 3: Estimate Costs

Typical effect of costs:

• Fixed costs: Cost that does not change with an increase or decrease in the amount of goods or services produced.
• Variable costs: A corporate expense that varies with production output. Variable costs are those costs that vary depending on a company’s production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, insurance, and office supplies, which tend to remain the same regardless of production output.
• Direct materials: The most purely variable cost of all, these are the raw materials that go into a product.
• Piece rate labor: This is the amount paid to workers for every unit completed (note: direct labor is frequently not a variable cost, since a minimum number of people are needed to staff the production area; this makes it a fixed cost).
• Production supplies: Things like machinery oil are consumed based on the amount of machinery usage, so these costs vary with production volume.
• Commissions
• Average costs: Average costs affect the supply curve and are a fundamental component of supply and demand.

Estimating Costs

• Short Run Average Cost (SRAC): How much are a firm’s costs on average in the period called the short run.
• Long Run Average Cost (LRAC): How much are a firm’s costs on average in the period called the long run.
• Accumulated Production: The result is that average cost falls with accumulated production experience. This decline in the average cost with accumulated production experience is called the experience curve or learning curve.
• Activity-based cost accounting:
  • Direct and indirect costs:
    • Direct costs: It is the cost of producing goods or services.
      • Direct Material: The cost of material that can be allocable to production.
      • Direct Labor: Wages to the laborers that can be identified with a cost object.
      • Direct Expenses: It includes all the other expenses that are directly linked to the production of a product.
    • Indirect costs: It is an overhead that remains about the same whether you make any sales or not.
      • Indirect Material: Material cost which cannot be identified with a particular product or project. Example: Lubricants.
      • Indirect Labor: Salary to the employees that cannot be allocable to a particular cost object. Example: Salary to the management team and employees of the accounts department.
      • Indirect Expenses: All the expenses other than indirect material and labor are included in this category. Example: Interest, Rent, Tax, Duty, etc.
• Target Costing: Breakeven:
  • A company’s breakeven point is the point at which its sales exactly cover its expenses.
  • To compute a company’s breakeven point in sales volume, you need to know the values of three variables:
    • Fixed costs: Costs that are independent of sales volume, such as rent.
    • Variable costs: Costs that are dependent on sales volume, such as the cost of manufacturing the product.
    • Selling price of the product.
    • You calculate the number of units to equal the total cost.
• Analyze competitor price mix:
  • Demand sets a ceiling and COSTS + PROFIT set a floor to pricing.
  • Competitor’s price provides an in-between point to consider in setting the price.
  • Learn the price and quality of each competitor’s product or service by sending out comparison shoppers to price and compare.

5. Selecting a Pricing Method:
6. Markup pricing:

• Target-Return Pricing:

• Perceived-Value Pricing: A firm sets the price of a product by considering what product image a customer carries in his mind and how much he is willing to pay for it.

Value-Based Pricing: It is the setting of a product or service’s price based on the benefits it provides to consumers.

• Going-Rate Pricing: The sellers price their offerings on par with competitors. Most new companies who are clueless about product pricing adopt this tactic, especially when it’s not easy to measure or guess market response.

• Auction-Type Pricing:
  • Price as auction-type:
    • The price is set not by the seller, but by the bidders.
    • The seller sets the rules by choosing the type of auction to be used.
    • The auctioneer doesn’t often own the goods but acts rather, as an agent for someone who does.
    • The buyers frequently know more than the seller about the value of the item.
  • Auctioneer aspects:
    • Growing in popularity in recent years, especially with the growth of the Internet.
    • A large number of electronic marketplaces are selling a diverse range of products and services by auctioning them through the bidding process.
  • Three types of auctions:
    • English Auctions: There is one seller and many buyers.
      • The auctioneer begins with the lowest acceptable price–the reserve price– and proceeds to solicit successively higher bids from the customers until no one will increase the bid.
      • The item is ‘knocked down’ (sold) to the highest bidder.
    • Dutch Auction: There may be one seller and many buyers or one buyer and many sellers.
      • Bidding starts at an extremely high price and is progressively lowered until a buyer claims an item.
    • Sealed-Bid Auctions: Tenders are floated in the market, and potential suppliers submit their bids in a closed envelope, not disclosing the bid to anyone. The lower bid is selected.

6. Selecting the Final Price:
7. Company pricing policies: A company determines the wholesale and retail prices for its products or services. Some examples are included below:
   • Flexible-Price Policy offers the same product to customers at different negotiated prices. An example of a Flexible Price Policy is cars because you usually buy cars at negotiated contracts.
   • One Price Policy is one in which all customers are charged the same price for all the goods and services offered for sale. For example, anything you buy at a store that is nonnegotiable or can only be bought at one price, like a 2-liter bottle of Sprite.
   • Prestige Pricing is used to foster a higher image. For example, if you saw a shirt at Nordstrom and you saw the same shirt at Mens Warehouse, you would most likely buy it from Nordstrom because you believe it’s a better quality because of the higher price.
   • Promotional Pricing involves reducing the price of a product or service to attract customers. It is usually a temporary sale that attracts a lot of customers. For example, McDonalds might come out with new popcorn chicken bites and for the first 2 weeks, they are only $2 per box. After they attract all the customers and get people to try and like their new chicken, they raise the price up.
   • Multiple-Unit Pricing is used to set a single price for two or more of the same products. It is used to convince the customer that they are getting a benefit by purchasing more than one product. For example, one two-liter of Pepsi might be $1.80, while you can purchase five two-liter bottles for $5.
   • Bundle Pricing is a form of promotional price adjustment that offers discounted pricing when customers purchase several products at the same time. For example, businesses that sell computer hardware often use bundle pricing to sell software that may not have sold otherwise. The customer thinks they are getting a package deal and will end up paying more money than they intended.
8. Gain-and-risk sharing pricing:
   • The concept is similar to a money-back guarantee for consumer products; they provide a perception of quality and confidence.
   • This type of pricing is used for pricing complex, high-valued products or services. Many times, buyers refrain from accepting the seller’s proposal due to the high risk if the promised value is not delivered.
   • In order to provide some form of risk sharing or price protection as new drugs are adopted into formularies, biopharma companies and payers are entering into agreements.

7. Setting the Price:
8. Factors influencing pricing decisions: