Chapter 3 Defining and Delivering the Product(Tourism and Hospitality Marketing)

1. DEFINING AND DELIVERING THE PRODUCT

2. PROFESSIONAL EXPERIENCES
Lecturer- THM, Daffodil Institute of IT
Assessor - Bangladesh Technical Education Board(Ticketing &
Reservation)
Coordinator and Guest Faculty, DBA, IBAISU
Guest Lecturer – BTHM, IBAIS University
Guest Trainer - ATAB Tourism Training Institute
Guest Faculty- Bangladesh Hotel Management Tourism Training
Institute
Guest Trainer- Sheikh Hasina National Institute of Youth
Development
Guest Trainer -ATAB Tourism Training Institute
Former Manager Sales- Mamun Air Service
Former Sales & Marketing Executive- City Air International
EDUCATIONAL QUALIFICATIONS
MBA & BBA-Major in Tourism & Hospitality
Management, University of Dhaka.
Certified NTVQF Level -4/Assessor Part(Ticketing &
Reservation)
Completed Diploma Course in Travel Agency & Tour
Operation Management
Certified NTVQF Level 2 Course entitled Ticketing &
Reservation
Certified NTVQF Level 1 Course entitled Tour
Guiding
Presenter:
Md. Shaifullar Rabbi
Email: rabbi_nu@diit.info

3. PRODUCT
In marketing, a product is an object or system made available for consumer use; it is anything that can be
offered to a market to satisfy the desire or need of a customer. In retailing, products are often referred to
as merchandise, and in manufacturing, products are bought as raw materials and then sold as finished
goods. A service is also regarded to as a type of product. A product can be physical or virtual. Physical
products include durable goods (such as cars, furniture, and computers) and nondurable goods (such as
food and beverages). Virtual products are offerings of services or experiences (such as education and
software). A product may be a hybrid and include both physical and virtual elements. Hybrid products are
becoming more common, as traditionally analog products are incorporating digital technology as a way to
better reach and serve customers.
Key Points
• Products can be goods, services, or ideas, such as intellectual property.
• Products can be tangible or intangible.
• Products can also be classified by use, by brand, or by other classifications as well.
Key Terms
• product: Any tangible or intangible good or service that is a result of a process and that is intended for
delivery to a customer or end user.

4. GOODS, SERVICES, OR IDEAS
• Goods are a physical product capable of being delivered to a purchaser and
involve the transfer of ownership from seller to customer.
• A service is a non-material action resulting in a measurable change of state for
the purchaser caused by the provider.
• Ideas (intellectual property) are any creation of the intellect that has
commercial value, but is sold or traded only as an idea, and not as a resulting
service or good. This includes copyrighted property such as literary or artistic
works, and ideational property, such as patents, appellations of origin, business
methods, and industrial processes.
• Commodities are usually raw materials such as metals and agricultural
products, but a commodity can also be anything widely available in the open
market. In project management, products are the formal definition of
the project deliverables that make up or contribute to delivering the objectives
of the project.

5. PRODUCT CLASSIFICATION:TANGIBLE OR INTANGIBLE
A product can be classified as tangible or intangible.
• A tangible product is a physical object that can be perceived by touch such as a
building, vehicle, or gadget. Most goods are tangible products. For example, a soccer
ball is a tangible product.
• An intangible product is a product that can only be perceived indirectly such as an
insurance policy. Intangible data products can further be classified into virtual digital
goods (“VDG”), which are virtually located on a computer OS and accessible to users
as conventional file types, such as JPG and MP3 files. Virtual digital goods require
further application processing or transformational work by programmers, so their use
may be subject to license and or rights of digital transfer. On the other hand, real
digital goods (“RDG”) may exist within the presentational elements of a data program
independent of a conventional file type. Real digital goods are commonly viewed as
3-D objects or presentational items subject to user control or virtual transfer within
the same visual media program platform. Services or ideas are intangible.

6. PRODUCT CLASSIFICATIONS
There are many additional ways to classify products. In this guide, we are going to focus
on a few areas, including customer type, purchasing behavior, business products, and
industry.
• Customer types: You can start by splitting products among two major customer types
— consumer and business. Products are commonly categorized as business-to-
business (B2B) or business-to-consumer (B2C) based on which type of customer they
serve. There is a third category called B2B2C. This is where a company targets the
consumer market via another business. Openable is an example of a B2B2C product.
The company sells its online reservation booking software directly to restaurants, but
it is used by consumers looking for available dining options.
• Purchasing behavior: Consumer products are commonly further categorized by
purchasing behavior. Each type of product has a distinct set of characteristics that
influences the way customers buy them. The table below explains the four major
product classifications and the impact of technology on consumer behavior.

7. Type Description
Convenience Convenience products are purchased frequently and with little planning or effort. This type of product is widely
available, easy to obtain, and typically has a low price. Digital technology has changed the meaning of
“convenience” by making many types of products and services available on demand through software
applications.
Shopping Shopping products are purchased less frequently than convenience products and have a higher price. Buyers
compare attributes such as quality, style, and price before making a purchasing decision. Widespread access
to the internet makes it easier for customers to learn about a product, compare alternatives, and determine if it
is the right product to meet their needs and wants.
Specialty A specialty or niche product has features that appeal to a specific group of customers. In technology, this
category includes vertical market software such as real-estate or banking applications. This type of product
requires more targeted promotion to reach the right people. Digital marketing approaches provide new ways
for companies to successfully reach and engage specific target audiences.
Unsought Products that have little or no proactive customer demand are called unsought products. This category includes
new products and products where the direct benefit to the customer is low. Because customers do not perceive
a need for these products, the offer and its benefits must be directly promoted to potential customers to
generate interest. New technology products focus on innovators and early adopters to gain momentum and
influence others.

8. • Business products: Business products on the other hand help companies
create their own products or operate their business. Examples of business
products include raw materials, equipment, component parts, supplies, and
business services. Business software is used by companies to support key
business functions. Examples of business applications include accounting,
customer relationship management (CRM), human resource management, and
strategic planning software. Business applications are further categorized by
the size of the company — small and medium businesses or enterprises.
• Industry: Products are also described by the industry they serve. Industries
are broad categories such as energy, healthcare, financial services, or
information technology. Products that are tailored to meet the needs of a
specific industry are called vertical market products. An example of a vertical
market product is a healthcare application for managing patient data. When a
product is present in multiple industries, it is described as a horizontal market
product and can support a wide range of customer needs. For example, a
general accounting platform can be used by all business types.

9. PRODUCT LEVELS
Customers will choose a product
based on their perceived value of it.
Satisfaction is the degree to which
the actual use of a product matches
the perceived value at the time of
the purchase. A customer is
satisfied only if the actual value is
the same or exceeds the perceived
value. Kotler attributed five levels to
products:

10. THE FIVE PRODUCT LEVELS ARE:
Core benefit: The fundamental need or want that consumers satisfy by consuming the product or service.
For example, the need to process digital images.
• 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.
• 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 color screen.
• 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.
• 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.

11. BRANDING
Branding often takes the form of a
recognizable symbol to which
consumers easily identify, such as a
logo. Branding is a way of identifying
your business. It is how your
customers recognize and experience
your business. A strong brand is
more than just a logo — it's reflected
in everything from your customer
service style, staff
uniforms, business cards and
premises to your marketing
materials and advertising.

12. TYPES OF BRANDS
Many kinds of things can become brands. Different types of brands include individual
products, product ranges, services, organizations, individual persons, groups, events,
geographic places, private label brands, media, and e-brands.
• Individual Brands
• Service Brands
• Organization Brands
• Personal Brands
• Group Brands
• Event Brands
• Geographic Place Brands
• Private-Label Brands
• Media brands
• E-Brands

13. Individual Brands: The most common type of brand is a tangible, individual
product, such as a car or drink. This can be very specific, such as the Kleenex
brand of tissues, or it can encompass a wide range of products. Product brands
can also be associated with a range of offerings, such as the Mercedes S-class
cars or all varieties of Colgate toothpaste.
Service Brands: A service brand develops as companies move from
manufacturing products to delivering complete solutions and intangible
services. Service brands are characterized by the need to maintain a
consistently high level of service delivery.This category includes the following:
• Classic service brands (such as airlines, hotels, car rentals, and banks)
• Pure service providers (such as member associations)
• Professional service brands (such as advisers of all kinds—accountancy,
management consultancy)
• Agents (such as travel agents and estate agents)
• Retail brands (such as supermarkets, fashion stores, and restaurants)

14. Organization Brands: Organization brands are companies and other entities that deliver products and
services. Mercedes and the U.S. Senate each possess strong organization brands, and each has
associated qualities that make up their brand. Organizations can also be linked closely with the brand of
an individual. For example, the U.S. Democratic party is closely linked with Bill and Hillary Clinton and
Barack Obama.
Personal Brands: A person can be considered a brand. It can be comprised of one individual, as in the
cases of Oprah Winfrey or Mick Jagger. Or it may be composed of a few individuals, where the branding
is associated with different personalities. With the advent of the Internet and social media, the
phenomenon of personal branding offers tools and techniques for virtually anyone to create a brand
around themselves.
Group Brands: Group branding happens when there is a small group of branded entities that have
overlapping, interconnected brand equity. For example, the OWN group brand of the Oprah Winfrey
Network and the brand of its known members (Oprah and her team) are strongly connected. Similarly,
the Rolling Stones represents a group brand that is strongly associated with the personal brands of its
members (most enduringly, Mick Jagger, Keith Richards, Ronnie Wood, and Charlie Watts).
Event Brands: Events can become brands when they strive to deliver a consistent experience that
attracts consumer loyalty. Examples include conferences the TED series; music festivals like Coachella
or SXSW; sporting events like the Olympics or NASCAR; and touring Broadway musicals like Wicked. The
strength of these brands depends on the experience of people attending the event.

15. Geographic Place Brands Many places or areas of the world seek to brand
themselves to build awareness of the essential qualities they offer. Branded places can
range from countries and states to cities, streets, and even buildings. Those who govern
or represent these geographies work hard to develop the brand. Geographic branding
is used frequently to attract commerce and economic investment, tourism, new
residents, and so on.
Private-Label Brands: Private-label brands, also called own brands, or store brands,
exist among retailers that possess a particularly strong identity (such as Save-A-Lot).
Private labels may denote superior,“select” quality, or lower cost for a quality product.
Media brands : Media brands include newspapers, magazines, and television channels
such as CNN.
E-Brands: E-brands exist only in the virtual world. Many e-brands, such as
Amazon.com, have a central focus on providing an online front end for delivering
physical products or services. Others provide information and intangible services to
benefit consumers. Typically a common denominator among e-brands is the focus on
delivering a valued service or experience in the virtual environment.

16. BRANDING STRATEGY
By definition, a BRANDING STRATEGY is a long-term plan
for the development of a successful brand in order to achieve
specific goals. A well-defined and executed brand strategy
affects all aspects of a business and is directly connected to
consumer needs, emotions, and competitive environments.
One important element of a comprehensive branding
strategy targeted to consumers is television advertising.
Although it may not be right for every business, TV is the
most powerful media available to advertisers and it has the
potential to dramatically impact a communications
campaign’s success.

17. BUILDING STRONG BRAND
• IdentifyYour Key Audiences.The first step is to identify your target audiences.
• Determine Critical Business Goals. You have to know where you are going
before you can get there.
• DefineYour Brand Persona.
• Develop Key Messaging.

18. Brand Equity: Brand equity refers to the value added to the same product under a
particular brand. This makes one product preferable over others. This is brand
equity which makes a brand superior or inferior to that of others. Apple: Apple is the
best example of brand equity.
Brand Positioning: Brand positioning is the way you differentiate yourself from your
competitors and how consumers identify and connect with your brand. It's comprised of
the key qualities and values that are synonymous with your company. Our competitors
might be able to offer similar services to us, but they can't replicate our brand.
Brand Portfolios: A brand portfolio is a collection of distinct brands operating under one
larger corporate umbrella. While each of these brands maintains its own operational
structure, they benefit from shared resources and cross-promotional opportunities with
other brands in the portfolio.
Managing Brand: Brand management is a function of marketing that uses techniques to
increase the perceived value of a product line or brand over time. Effective brand
management enables the price of products to go up and builds loyal customers through
positive brand associations and images or a strong awareness of the brand.

19. NEW PRODUCT DEVELOPMENT
New product development covers the complete process of
bringing a new product to market. A central aspect of NPD
is product design, along with various business considerations.
New product development is described broadly as the
transformation of a market opportunity into a product available for
sale.The product can be tangible (something physical which one
can touch) or intangible (like a service, experience, or belief),
though sometimes services and other processes are distinguished
from "products." NPD requires an understanding of customer
needs and wants, the competitive environment, and the nature of
the market.

20. NEW PRODUCT DEVELOPMENT PROCESS
• Idea generation
• Idea Screening
• Concept development and Testing
• Marketing strategy development
• Business analysis
• Product development
• Test marketing
• Commercialization

21. IDEA GENERATION
The new product development process starts with idea
generation. Idea generation refers to the systematic search for
new-product ideas. Typically, a company generates hundreds of
ideas, maybe even thousands, to find a handful of good ones in
the end.Two sources of new ideas can be identified:
• Internal idea sources: the company finds new ideas internally.
That means R&D, but also contributions from employees.
• External idea sources: the company finds new ideas
externally. This refers to all kinds of external sources, e.g.
distributors and suppliers, but also competitors.

22. IDEA SCREENING
The next step in the new product development process
is idea screening. Idea screening means nothing else
than filtering the ideas to pick out good ones. In other
words, all ideas generated are screened to spot good
ones and drop poor ones as soon as possible. While the
purpose of idea generation was to create a large
number of ideas, the purpose of the succeeding stages
is to reduce that number. The reason is that product
development costs rise greatly in later stages.

23. CONCEPT DEVELOPMENT AND TESTING
To go on in the new product development process, attractive ideas must be developed into a product concept. A product concept is a
detailed version of the new-product idea stated in meaningful consumer terms.You should distinguish
• A product idea à an idea for a possible product
• A product concept à a detailed version of the idea stated in meaningful consumer terms
• A product image à the way consumers perceive an actual or potential product.
Concept development: Imagine a car manufacturer that has developed an all-electric car. The idea has passed the idea screening and
must now be developed into a concept. The marketer’s task is to develop this new product into alternative product concepts. Then, the
company can find out how attractive each concept is to customers and choose the best one. Possible product concepts for this electric
car could be:
• Concept 1: an affordably priced mid-size car designed as a second family car to be used around town for visiting friends and doing
shopping.
• Concept 2: a mid-priced sporty compact car appealing to young singles and couples.
• Concept 3: a high-end midsize utility vehicle appealing to those who like the space SUVs provide but also want an economical car.
• As you can see, these concepts need to be quite precise in order to be meaningful. In the next sub-stage,each concept is tested.
Concept testing: New product concepts, such as those given above, need to be tested with groups of target consumers. The concepts
can be presented to consumers either symbolically or physically. The question is always: does the particular concept have strong
consumer appeal? For some concept tests, a word or picture description might be sufficient. However, to increase the reliability of the
test, a more concrete and physical presentation of the product concept may be needed. After exposing the concept to the group of
target consumers, they will be asked to answer questions in order to find out the consumer appeal and customer value of each
concept.

24. MARKETING STRATEGY DEVELOPMENT
The next step in the new product development process is the marketing
strategy development. When a promising concept has been developed and
tested, it is time to design an initial marketing strategy for the new product
based on the product concept for introducing this new product to the market.
The marketing strategy statement consists of three parts and should be
formulated carefully:
• A description of the target market, the planned value proposition, and the
sales, market share and profit goals for the first few years
• An outline of the product’s planned price, distribution and marketing budget
for the first year
• The planned long-term sales, profit goals and the marketing mix strategy.

25. Business analysis : Once decided upon a product concept and marketing strategy, management can evaluate the
business attractiveness of the proposed new product. The fifth step in the new product development process involves
a review of the sales, costs and profit projections for the new product to find out whether these factors satisfy the
company’s objectives. If they do, the product can be moved on to the product development stage.
Product development : The new product development process goes on with the actual product development. Up to
this point, for many new product concepts, there may exist only a word description, a drawing or perhaps a rough
prototype. But if the product concept passes the business test, it must be developed into a physical product to
ensure that the product idea can be turned into a workable market offering. The problem is, though, that at this
stage, R&D and engineering costs cause a huge jump in investment.
Test marketing : The last stage before commercialization in the new product development process is test marketing.
In this stage of the new product development process, the product and its proposed marketing programmed are
tested in realistic market settings. Therefore, test marketing gives the marketer experience with marketing the
product before going to the great expense of full introduction. In fact, it allows the company to test the product
and its entire marketing programmed, including targeting and positioning strategy, advertising, distributions,
packaging etc. before the full investment is made.
Commercialization: Test marketing has given management the information needed to make the final decision:
launch or do not launch the new product. The final stage in the new product development process is
commercialization. Commercialization means nothing else than introducing a new product into the market. At this
point, the highest costs are incurred: the company may need to build or rent a manufacturing facility. Large
amounts may be spent on advertising, sales promotion and other marketing efforts in the first year.

26. INTERNAL MARKETING
Internal marketing is the promotion of a
company’s objectives, products and
services to employees within the
organization. The purpose is to
increase employee engagement with the
company’s goals and fostering brand
advocacy. Employees who are enthusiastic
about their company and its offerings are
likely to share that enthusiasm with their
social networks. As a result, internal
marketing can be an effective part of
external branding and marketing efforts.

27. COMMON INTERNAL MARKETING EFFORTS INCLUDE
• Ensuring that all employees know that their contributions are essential to the company’s success.
• Educating all employees about the company’s products and services.
• Reinforcing the concept that customers are, when all is said and done, the source of employees’ salaries.
• Providing adequate salaries and benefits, plus a pleasant work environment.
• Encouraging employee input on corporate policies, management and operation – including criticism.
• Acting on employee suggestions that have merit and publicly acknowledging the value of the input.
• Confirming that the corporate mandate and objectives are clearly described and disseminated
throughout the organization.
• Providing opportunities for advancement, professional development and promotion.
• Ensuring that the corporate culture is consistent with work-life balance.
• Fostering communication and collaboration among employees through various methods from formalized
settings and to casual areas for gathering, such as lounges.

29. THE INTERNAL MARKETING PROCESS
1. Establish of Service culture : Upon reflection, most all of my interactions with displeased
customers were not the result of a poor product, but rather a disappointing customer
experience. Why is that? Because, a product is not personal, customer service is. Briefly, I
would like to share with you eight critical steps to establish a customer service culture.
oCustomers are the reason for work, not an interruption of work: Employees often lose
sight of the importance of the customer and get consumed in lesser day to day tasks. Sure,
there are tasks that need to be accomplished, but you cannot afford to sacrifice service to
get them done. Good customer service must be a priority for you and your team. Without
your customers, you have no company!
oTrain, train, and continue to train: Cross train your entire staff to be able to assist a
customer regardless of their department. When a customer becomes upset they want their
problem solved not to be shuffled between employees that are not empowered or enable
to assist them.

30. Empower your staff to serve: Establish a system of resources for your staff to serve the customer. Allow them latitude to
take the necessary action to provide exceptional service and resolve any issues should a customer become disgruntled.
Create a structured system to allow your staff to serve customers.
Make service personal: Greet repeat customers by name, if possible. Offer a handshake and introduce yourself. Creating
service that is personal will not only retain customers but help diffuse difficult situations should they arise. Thank your
customers for their patronage. It really does make a difference.
It is ok to say "Yes", even when you should say "No“: Support your staff when they make customer service decisions. In
my business, it is my policy that an employee can act without concern for repercussion, as long as they are meeting a
customer’s need. I have found this creates a greater willingness to serve the customer. Often times you could say "no" to a
customer, however, "no" can have huge implications on your business.
Offer a solution: Shift from the problem to the process for resolution. Offer a choice between several options. Put yourself in
their place. Involve the customer in determining the solution. Clearly explain any limitations that exist.
Recognize your staff members for outstanding service: Implement a customer service awards program that recognizes
employees for exceptional customer service. Maybe you have tried these without success and do not believe that they work.
I would tend to agree if the program were like most I have seen.
Ask your customers what they think of your service: The best way to find out if you are satisfying customers is to ask
them. Formal efforts could include customer surveys, questionnaires, interviews or comment/suggestion cards. Informally,
get out and talk with your customers and your staff. Ask them how they feel about the service you are providing. Ideally, use
a combination of both methods.

31. 2. DEVELOPMENT OF MARKETING APPROACH TO
HUMAN RESOURCE MANAGEMENT
•Creating jobs that attract good people
•The hiring process
•Teamwork
•The importance of initial training
•Continuous Training
•Managing emotional labor
•Implementation of a reward and recognition System

32. 3. DISSEMINATION OF MARKETING
INFORMATION TO EMPLOYEES
Without communicating workplace policies, processes and the
company's mission and principles, employers cannot
reasonably expect employees to perform their job functions,
much less enjoy working for the company. Many employers
provide employees with a job description and then expect that
they'll require little more to do their jobs. However, timely and
regular workplace information conveys an important message
from the organization's leadership: The company cares enough
about its employees to keep them well-informed about the
organization and its direction.

33. MANAGING CAPACITY AND DEMAND
Originally two strategies were suggested for managing demand and capacity: the first would
involve adjusting capacity to match demand (defined as Chasing demand) and the second,
altering demand to match available capacity (known as Level capacity).
1. Adjusting capacity to match demand: A number of options are available for consideration:
• Extend the opening hours this is not an option open to all service organizations. Where it is
possible it is likely to occur only when demand levels are regarded as particularly
excessive.
• Encourage employees to work harder the requirement here is usually that of processing
more customers per hour or per day. Although a mark of efficiency (more output from
existing staff), service quality for customers may deteriorate.
• Cross-train employees enable organizations to operate with fewer staff. Instead of being
confined to handling few responsibilities staff are equipped to manage a variety of tasks
and activities. It amounts to a move in the direction of job enlargement and some might say
job enrichment, increasing employee motivation, satisfaction and morale.

34. • Recruiting part-time employees this is an option low in cost and potentially one
that can be achieved quickly. Organizations should, of course, ensure that 160
Services Marketing Management Level of demand (a) Regular (b) Random.
• Add facilities usually in the form of table, chairs or other equipment. Just how
much scope there is for this will depend on the initial configuration and layout
designed to communicate a specific atmosphere and/or level of service. Adding
facilities may change both.
• Hire or share facilities or equipment may be in the form of additional physical
space or vehicles required either on a temporary or recurring basis.
• Using customers as productive resources up to this point all attempts at adjusting
capacity have involved manipulating internal resources and assets.
• Outsourcing for small to medium-sized organizations, in particular, calling on
outside assistance is a valuable option in trying to meet market demand.

35. 2. Altering demand to match available capacity
• Whereas capacity management is a response to demand, demand management is an attempt to shift demand. Given
the relative inflexibility of capacity organizations may seek to smooth demand by reducing the variability and
fluctuation of existing patterns. Organizations can turn to the marketing mix for stimulating demand during periods
of spare capacity or shifting demand during periods where capacity is operating at or near maximum of the 4 Ps
price and, to a lesser extent, place, offer the most potential in this area.
• Manipulate price this will be discussed in more detail in the following section on Revenue Management. The central
role of price is to discourage too many customers from using the service during peak demand periods and
encourage more customers to select off-peak periods. On price alone this strategy will only work if enough
customers can be attracted by the lower prices available during low demand periods. Leisure, hospitality and
transportation services would appear suited to this approach.
• Offer a mobile service for a number of reasons consumers have welcomed the emergence of mobile services where
the provider takes the service to the customer rather than or in addition to the customer having to visit the provider in
some fixed location.
• Communicating with customers the provision of information as to when demand is, or is likely to be, high appears to
be a strategy not well adopted by service organizations. In particular, for customers in our call Centre society it can
be especially frustrating. Waiting is a feature of modern day society and will be addressed later in the chapter.
• Changing the service offer for most organizations this is not an option. What they offer remains fixed. Where services
with a sizeable facility like hotels experience significant seasonal fluctuations however, action may be taken to
encourage varied usage of the facility when capacity is under-utilized.

36. PRICE
A price is the (usually not negative) quantity of payment or compensation given by
one party to another in return for one unit of goods or services. A price is influenced
by production costs, supply of the desired item, and demand for the product. A price
may be determined by a monopolist or may be imposed on the firm by market
conditions.
In modern economies, prices are generally expressed in units of some form
of currency. (For commodities, they are expressed as currency per unit weight of the
commodity, e.g. euros per kilogram or Rends per KG.) Although prices could
be quoted as quantities of other goods or services, this sort of barter exchange is
rarely seen. Prices are sometimes quoted in terms of vouchers such as trading stamps
and air miles. In some circumstances, cigarettes have been used as currency, for
example in prisons, in times of hyperinflation, and in some places during World War II.
In a black market economy, barter is also relatively common.

37. FACTORS TO CONSIDERWHEN SETTING PRICE
Pricing is often one of the most difficult things to get right in business. There are several factors a business needs to consider in
setting a price:
• Competitors – a huge impact on pricing decisions. The relative market shares (or market strength) of competitors
influences whether a business can set prices independently, or whether it has to follow the lead shown by competitors
• Costs – a business cannot ignore the cost of production or buying a product when it comes to setting a selling price. In the
long-term, a business will fail if it sells for less than cost, or if its gross profit margin is too low to cover the fixed costs of the
business.
• The state of the market for the product – if there is a high demand for the product, but a shortage of supply, then the
business can put prices up.
• The state of the economy – some products are more sensitive to changes in unemployment and workers’ wages than others.
Makers of luxury products will need to drop prices especially when the economy is in a downturn.
• The bargaining power of customers in the target market –An individual consumer has little bargaining power over a
supermarket (though they can take their custom elsewhere). However, an industrial customer that buys substantial quantities
of a product from a business may be able to negotiate lower or special prices.
• Other elements of the marketing mix – it is important to understand that prices cannot be set without reference to other
parts of the marketing mix.

38. Factors to ConsiderWhen Pricing a Product/Service

39. 1. Identify your Business Goals: A company without a business goal can’t succeed. The first step is to be clear about what
you want to achieve with your pricing strategy — is it maximizing profits or maximizing market share with your products
and so on. For example, one of your goals can be to maximize market share with your product — that might result in costs
decrease or in what economists call “network effects”, i.e. the value of your product increases as more people use it.
2. Know your Costs: Before setting a price for your products or services you need to know the costs of running your
business. The first thing that you need to think of when developing a pricing strategy is the following — you must cover
your costs and then consider a profit. Basically, the fact is that the cost of a product is more than the exact cost of the item, it
also includes other additional costs.
To be more precise; let’s split costs under two headings:
• Fixed costs: Regardless of how much you sell, it is a cost that you always need to factor in. For instance: rent, labor costs
(salaries), materials and so on.
• Variable costs: This type of cost mainly cover extra things such as additional materials, labor or transport, and therefore
they can fluctuate over time. Once you calculate the cost of producing your product and service, you must set your prices
higher than the variable costs — to be able to make a profit.
3.Know your Customers: Another important aspect to consider when setting the pricing strategy is the customers. It is
vital to investigate what do the customers want from your product or service. Are they driven by the cheapest version
available on the market, or they consider that expensive is equal to quality? What role does the price play in their
purchasing decision? Answering these questions will give you a better insight into who your audience is and which are the
points that affect their purchasing decision.

40. 4.Positioning: Understanding your customers is also important when it comes to deciding what should be your market
position. You need to make a decision do you want to be the most expensive, luxurious, high-end brand in your industry, or
maybe the cheapest one. Of course, you can always choose to be somewhere in the middle. Why it is so important to decide
in which direction you’ll go? The price that you set for your product or service will create a brand perception in the eyes of
your potential customer. For example, you can position yourself as a low-cost leader, where customers will know that low
price is your strongest weapon.
5.Value: What is your product worth to your customers? Does it save them money or time? If that is the case, then you can
base the price more on the value that it has for customers instead of minimally exceeding its production price. As you’ve
probably realized by now, there are many factors that should be taken into consideration when deciding on a pricing strategy.
Therefore, it would be useful to run a few pricing calculations in order to come up with the best solution. There are a few of
them that you can use as a starting point:
• cost-plus pricing: this should be your minimum price. You need to set a price that will cover your production costs
because after all, your aim is to make some profit.
• fair pricing: no matter how good or useful your product/service is, no one will be willing to pay for it if they find the price
unfairly high
• price based on the value: as we have already explained, this should be your maximal price
6. Do your Market Research: Market research is necessary in order to decide how much you are going to charge for your
product or service. On top of that, for products and services already available, market research can tell companies whether
they are meeting success criteria or not.

41. FACTORS AFFECTING PRICING DECISIONS
The factors influencing pricing decisions are divided into
internal and external factors on the basis of whether the
management has control over the factors or not. If the
management has control over the factors, it will come under
internal factors, if not it will come under external factors. So the
internal factors are within the control of the management and
are particularly related to the internal environment of a firm.
oInternal Factors Affecting Pricing Decisions
oExternal Factors Affecting Pricing Decisions

42. INTERNAL FACTORS AFFECTING PRICING DECISIONS
❑Marketing objectives
• Survival
• Current profit maximization
• Market share leadership
• Product quality leadership
❑Other objectives
• Marketing mix strategy
• Cost
• Cost subsidization
• Organizational considerations
• External Factors Affecting Pricing Decisions

43. EXTERNAL FACTORS AFFECTING PRICING DECISIONS
• Market and Demand
• Cross selling and Upselling
• Consumer perception of price and value
• Analyzing the price demand relationship
• Price elasticity of demand
• Factors affecting price sensitivity
✓Unique value effect
✓Substitute awareness effect
✓Business expenditure effect
✓End benefit effect
✓Total expenditure effect
✓Price quality effect
• Competitors’ prices and offers

44. APPROACHES TO PRICING
The right pricing strategy can help you attract more customers,
encourage larger orders on average, and create repeat purchases. Use
this guide to determine which of these 7 common approaches to
pricing is best for your business.
1. KEYSTONE PRICING: Keystone pricing is a simple and
straightforward approach to pricing. However, it doesn’t account for
supply and demand, a critical component of maximizing revenue.
Keystone pricing is the best place to start whenever possible. However,
the likelihood that it remains your only pricing strategy is low. Many of
today’s products simply cannot be set at keystone due to high product
costs versus the general market rate.

45. 2. MULTIPLE UNIT PRICING: The ideal time to use multiple pricing is at
the end of a season for products that have not sold well or when you need to
introduce new products that customers may be hesitant to try. Multiple unit
pricing, multiple pricing, or bundle pricing offers shoppers a lower price
per unit for the purchase of two or more products of the same type. Multiple
pricing is particularly useful for clearing excess inventory or introducing
new products. Use this strategy sparingly or customers may think your
regular items are overpriced and will eventually be discounted.
3. DISCOUNT PRICING: Discount pricing is an easy way to attract new
customers and works best when timed for special events or holidays.
Discount pricing offers price reductions to customers through sales events
or special offers. Discount offers are not a one-size-fits-all. Let your product
influence your strategy — specifically, gauge its relevance to the market and
its sales history.

46. 4. LOSS LEADER
A loss leader is a product is priced below its market cost to stimulate
the sales of more profitable goods or services. Loss leader strategies
are great for traffic generation and product introduction. For example:
✓Magazine publishers can attract more long-term subscribers by
offering the first few editions at little to no cost.
✓Cable service providers can offer lower pricing on a competitive
feature to recruit new annual contract signups.
✓Hardware stores often sell larger tools for cost or below, expecting
customers to buy accessories along with the new tool. Accessory
items tend to have a much higher profit margin, and are often impulse
buys.

47. 5. PSYCHOLOGICAL PRICING
Psychological pricing relies on the nature of human psychology to make prices appear
more attractive to consumers. There are several types of psychological pricing: odd-even
pricing, prestige pricing, anchor pricing, and price lining.
Odd-Even Pricing: The practice of setting prices in odd numbers just below an even
price. For example, marking an item $19.99 rather than the even price of $20.00. This
strategy makes the price appear considerably lower than it is.
Prestige Pricing: On the opposite end, prestige pricing inflates prices in order to create
a sense of greater value. For example, a “limited edition” canvas print might be priced at
$70 rather than $30 to give the impression that it is a better and rare product.
Anchor Pricing: Anchoring refers to the consumer’s tendency to heavily rely on the first
piece of information offered when making decisions. To apply, place premium products
and services near standard options to help create a clearer sense of value for potential
customers.They will perceive the less expensive option as a bargain in comparison.
Price Lining: Better suited for businesses with an extensive product line, this tactic
involves creating a price range for a particular line. For example, Brandless.com has built
an entire business on this strategy with all items priced at $3.

48. 6. BELOW COMPETITION:: This pricing strategy requires retailers to list competing
products at prices lower than the competition’s. Pricing below competition can help
businesses carve out a market niche, appealing to every consumer’s love for low prices.
However, by guaranteeing lower prices and therefore lower profit margins, you will not
make a significant return on this strategy until you can realize a large sales volume.
Additionally, even with low overhead costs secured, you remain subject to your
competitors’ actions, i.e. price wars. One of the worst outcomes of below competition
pricing is a "price war,” where competing businesses race to cut costs and ultimately hurt
their bottom line and their brand perception. Some companies have resolved price wars
while still maintaining below competition prices by redesigning their products for fast and
easy manufacturing.
7. ABOVE COMPETITION: Retailers price above the competition when they have a clear
advantage on non-priced elements of their products, services, and reputation. In order to
charge an amount above the competition, you must differentiate your brand and products.
For example, Apple can consistently charge consumers more because they’ve established
a reputation as makers of high-quality products, ensuring the market sees its offerings as
unique or innovative.

49. ALTERNATIVE APPROACHES TO DETERMINING PRICE
Price determination decisions can be based on a number of
factors, including cost, demand, competition, value, or some
combination of factors. However, while many marketers are
aware that they should consider these factors, pricing remains
somewhat of an art. For purposes of discussion, we categorize
the alternative approaches to determining price as follows:
(a) cost-oriented pricing
(b) demand-oriented pricing
(c) value-based approaches

50. •Cost-oriented pricing: cost-plus and mark-ups: The cost-
plus method, sometimes called gross margin pricing, is
perhaps most widely used by marketers to set price. The
manager selects as a goal a particular gross margin that will
produce a desirable profit level. Gross margin is the
difference between how much the goods cost and the actual
price for which it sells. This gross margin is designated by a
per cent of net sales. The per cent selected varies among
types of merchandise. That means that one product may
have a goal of 48 per cent gross margin while another has a
target of 33.5 per cent or 2 per cent.

51. Demand-oriented pricing: Demand-oriented pricing focuses on the nature of the
demand curve for the product or service being priced. The nature of the demand curve is
influenced largely by the structure of the industry in which a firm competes. That is, if a
firm operates in an industry that is extremely competitive, price may be used to some
strategic advantage in acquiring and maintaining market share. On the other hand, if the
firm operates in an environment with a few dominant players, the range in which price
can vary may be minimal.
Value-based pricing: If we consider the three approaches to setting price, cost-based is
focused entirely on the perspective of the company with very little concern for the
customer; demand-based is focused on the customer, but only as a predictor of sales; and
value-based pricing focuses entirely on the customer as a determinant of the total
price/value package. Marketers who employ value-based pricing might use the
following definition: “It is what you think your product is worth to that customer at that
time.” Moreover, it acknowledges several marketing/price truths:
• To the customer, price is the only unpleasant part of buying.
• Price is the easiest marketing tool to copy.
• Price represents everything about the product

52. PRICING STRATEGIES
A business can use a variety of pricing strategies when selling a product or service.
The price can be set to maximize profitability for each unit sold or from the market
overall. It can be used to defend an existing market from new entrants, to increase
market share within a market or to enter a new market.
• New Product Pricing Strategies
• Existing Product Pricing Strategies
❑New Product Pricing Strategies
• Prestige pricing
• Market skimming pricing
• Market penetration pricing
❑Existing Product Pricing Strategies
• Product bundle pricing
• Price adjustment strategies

53. 5 COMMON PRICING STRATEGIES
• Pricing a product is one of the most important aspects of your marketing
strategy. Generally, pricing strategies include the following five
strategies.
• Cost-plus pricing—simply calculating your costs and adding a mark-up
• Competitive pricing—setting a price based on what the competition
charges
• Value-based pricing—setting a price based on how much the customer
believes what you’re selling is worth
• Price skimming—setting a high price and lowering it as the market
evolves
• Penetration pricing—setting a low price to enter a competitive market
and raising it later