student of Dezyne E'cole College ,www.dezyneecole.com

1. WE DON’T BUY
THE PRODUCT
WE BUY
THE PRICE
Presented by
Avinash Singh
Bachelor of Business Administration
Dezyne E’cole College
www.dezyneecole.com

2. ACKNOWLEDGEMENT
I, Avinash Singh, student of Bachelor of Business Administration, from Dezyne
E’cole College, would like to express my gratitude towards each and every
individual who has contributed in the completion of my project work through
constant encouragement and suggestions.
I also thank Dezyne E’cole College, who provided me with insight and expertise
that greatly assisted the project work. A special thanks to my teachers, parents
and colleagues who supported me at every single step. I would especially thank
Mrs. Vinita Mathur, Principal, Dezyne E’cole College, who provided me with
such an opportunity. Not to forget, the almighty who blessed me with good
health because of which I worked with such efficiency.

3. CONTENT

4. SYNOPSIS
In this project, I have tried to cover up the important aspects regarding how
the companies in the current market are selling their products and what their
strategy has been. I have discussed about what a product consists of and the
factors that involve in product decision. With suitable examples to every topic
so covered, I have tried to explain how the market scenario has shifted and the
powers have come in the hands of the consumer. The following project talks
about the pricing methods of the companies and how each and every step
involves a focus on price. The main focus of the project is about the current
generation of buyers and how they look at the prices of the products to judge
their quality and how the products with higher prices are running the show,
exactly opposite of what conventional wisdom says. I have tried to explain how
we buy the product and not the price.

5. Mukesh is a foodie who eats lots of
fast food from the market. He says that
“Taste comes before anything else” and
doesn’t miss a single chance of eating
something spicy and delicious. He was
appointed in a tech company with a
salary of around 6 lacks per annum. He
soon got a promotion and was
transferred to another capital city of the
country. Being a foodie, one of the main
issues for him was to find out outlets that
can provide the taste he desires. Now
there are so many restaurants and food
points that are providing similar kind of
eatables. Two of them are located very
close to his residence, both of them
selling Pizza. Although both provide the
same product, there is a big difference
between their prices. Mukesh is like a
common educated customer of the
current generation and doesn’t hesitate
in spending money. One of the pizza
point charges rupees 300 for a medium size pizza but the other one charges 500 for the
same size. Who do you think Mukesh would buy the pizza from? If you are thinking of the
shop giving Rs.300 pizza then you are of very price sensitive nature. However, today’s
consumer is well educated and with his brain filled with knowledge, his pockets are well
filled with money to spend on luxuries. Mukesh represents that educated consumer of
today’s generation. Hence, he will pay 200 more and buy the expensive pizza even though
both of them taste almost similar. Want to know how it works? The following project will
answer you why Mukesh chose the expensive shop.
1. INTRODUCTION
(A CASE STUDY)

6. Anything that can be sold for a price is called a product. Anything that offers some benefit,
fulfils some need or want, or provides any service can be considered as a product.
Philip Kotler has stated, “A product is anything that can be offered to a market for attention,
acquisition, use or consumption and that might satisfy a want or need”
A product is not just limited to tangible goods. There is a famous quote “If you are good at
something then don’t do it for free”. The quote implies that even an idea can be a product.
Many people are hired for their specialized assistance and guidance in a particular field of
work. Even the words being spoken from the mouth are considered as a product.
Thus, a product can be a physical good, service, persons, place, organizations, luxuries,
names, ideas and/or mixes of these all entities.
While creating a product or service for utility, it involves defining the benefits that it will
offer to the person buying it, what utility will the consumer get in return for paying for the
product. A product offers three benefits which are:
A. Core benefits
B. Actual benefits
C. Augmented benefits
A. Core benefits
These are the basic benefits that a product offers. Take, for example a two-wheeler
motor bike offers the benefit of human transportation from one place to the other.
B. Actual Benefits
This is the benefit that the particular product specially provides. It is this benefit that
a brand focuses while promoting its product. Hero splendor provides a reasonable
mileage with powerful structure which can be used even on the roads that are not
well maintained. Actual benefits include the style, quality, fashion, branding, etc.
Actual benefits are the benefits that define for what demographic segment the
product is being made.
2. PRODUCT AND ITS
CONSTITUTION

7. C. Augmented benefits
These benefits depend upon the company’s quality of service. Many low and middle
sized organizations eliminate it and don’t consider it important enough but the
companies with higher brand values understand its importance very well. In fact
there are companies who mostly rely on this benefit for their brand image and
goodwill. Apple’s services are well-known around the world and the standard it has
set is one dreamt by many to achieve. Augmented services involve warranties,
delivery, after sale, finance, customer helplines, installation, and other related
services which comfort the customer and bring in the goodwill for the company. It is
especially this benefit for which the consumers are ready to pay more. Today, one
thing every company knows very well is that every product has a substitute in the
market and the utilities provided are almost similar. Still why is so that Apple’s I-
phones are priced so high and still people who buy them become hardcore loyals
even though studies proved android phones better than them? The reason is the
service provided by Apple. Today, many companies are trying to provide the best
customer experience.
A product doesn’t just consist of the material being sold, or the service being rendered. A
product consists of all the promises, utilities, expectations that are relatable to the
particular object being offered. A thing, even as small as a needle, has something more than
just sewing to offer. When you buy a needle, you have some expectations regarding its
strength, purpose, etc. And the needle promises to offer its objective with proper comfort
of the person using it. A product involves the following in it:

8. 1. Product Quality
2. Product Features
3. Product Design
4. Branding
5. Packaging
6. Labeling
7. Customer Support
1. Product Quality
Quality, in simple terms means the ability of a product to perform its functions as it
is expected to. The factors that account for quality are durability, reliability and ease
of operation, maintenance and efficiency. When a marketer, while defining what
quality to offer, must know what his target market is and what his target market
presumes about quality. Then the quality of the product should be in accordance to
their presumption. He must keep a check on the quality of the product from the start
till the product is consumed, and in some cases, till when the product is terminated
(In case of hazardous products like
polymer batteries who need to be taken
care of when thrown away after use).
Every business aims at providing better
quality product but when you talk about
better quality, it would simply mean
more investment and thus increased
prices of the product. But the value of
quality as compared to the investment
made is very profitable.
Apple is known for its quality product.
That is why, even though the customers
have to pay more for an I-phone, they
choose them over any other mobile
phone.
2. Product Features
Features are a competitive tool for differentiating a product from the competitors’
products. The more advancement of technology will mean production of higher level
models with more advanced features in them. Take for example the mobile phone
cameras starting from 2MP then, 5MP, 8MP, 13MP and so on. The feature
advancement is so rapid that there are smartphones with dual rear cameras to
capture much better quality of phones.
But having too many features in one product is not a wise decision. It looks messy
and wouldn’t look any more attractive plus, it would add more unnecessary cost to
the product. Thus the producer of the product has to be very specific as to what
features to include and what to exclude in a product.

9. This, he will come to know when he has done his study on his target market
thoroughly and has analyzed well what they want. The best way to decide is to
choose the feature combinations that are largely accepted by the target market.
Today, the market is so competitive that a new invention happens almost every day.
But all those inventions are not liked by all. But the business has to make sure that it
is using up to date features so that it is not obsolete. The consumer mind is not rigid
and tastes and trends change. So you can’t be rigid with your features.
Take for example, Nokia phones. Nokia mobile phones were built on Symbian
operating system. They were in a dominant position during the first decade of the
21st
century but then android was introduced and Nokia didn’t shift itself to the new
platform. Today, we all know what happened to it. Their position terribly went down
and today, they are out of the front row competition.
3. Product Design
Design doesn’t mean just the exterior look. It comprises of the interior functioning
support. Design can be one of the most powerful competitive tools in the marketing
strategy. A good design goes deep in the heart of the product. It can gain attention,
reduces production costs and improve product performance. Look at the designs of
the sporty bikes or cars. They have
such a design so that they can split
the air coming from the front thus
providing more speed. Look at other
examples, fighter planes, and bullet
trains. There are so many. Product
design can give a strong competitive
advantage over the competitors.
Orient fans promote themselves by
saying that their product design is
such that it consumes less electricity
and provides more cooling.

10. 4. Branding
Branding is not a tool; it is a lethal weapon
in the war of products.
Let’s take an example. There are two
mobile phones, one of a Samsung and
other of a brand you have never heard of.
Which one would you choose? Without a
second thought, you would choose
Samsung over the other product.
That is why branding is considered a lethal
weapon and not just a tool.
A brand may be a name, term, sign, symbol, design or a combination of any of these,
intended to identify the goods or services of one seller and to differentiate them
from those of the competitors.
Today, hardly anything is sold without branding. Consumers feel a brand as an
important part of a product. Branding adds up the value to the product’s
marketability. Branding has certain benefits which are described below
a) It helps the buyers to know about the brand quality. You will instantly buy a soap
of Unilever or ITC but would hesitate to buy and unbranded product.
b) For the regular buyers of the same brand, it provides assurance that they will get
the same feature, benefits and quality every time they buy. This is important in
case of building brand loyalty among the customers. If you are constant with
your product’s quality then it will create a feeling of trust and would generate
brand loyalty.
c) For the sellers, the brand itself can be the basis around which a whole story can
be formed describing the special
qualities of the product.
Take for example, “Vim”. It has
formed a story around itself.
Indian families eat spicy and oily
food. This makes it difficult for the
housewives to clean them quickly
as a layer of oil and grease gets
stuck around the utensils. Vim
liquid marketed itself to tackle this
problem. It created this whole
story about its features and
qualities of quick stain and oil
removing.
d) One of the most essential jobs of branding is that it helps the seller to segment
the market. The brand itself gives the idea of which demographic, geographic
and social segment is the target market.

11. But branding takes time. A brand can’t be created overnight. It takes time for the
customer to trust the brand and before that, he would have to use it first. It creates
years to generate a powerful brand. Also, it requires constant direct and indirect
involvement. We will discuss about brand in the head “Brand Equity”.
5. Packaging
A product doesn’t include material inside. It involves the package that covers that
material. If we talk about earlier times, the time when the market was product
centric, the only purpose that a package had was to keep the product inside it safe.
But as the market started evolving around the customer and as soon as the customer
started to be in the center of the business, packaging evolved too.
Today, packaging is considered the silent seller
of a product. It is so important today that the
sale of many products solely depends on how
they are packaged. The package attracts the
customer.
Who cannot remember the yellow packaging
with the name written on it with dark red,
“MAGGI”? Yellow and red generate hunger
inside us. This teaches us the importance of
colour combination in packaging.
There are many products in the market whose
packaging attract us so much that we are
instantly willing to touch and feel the product
in our hands.
Packaging is not a rule of thumb. It is a
psychological and behavioral science of the
human nature. Why Maggi did use the combination of yellow and red? Why not any
other color combination? Science says that yellow and red are the two colors that
generate the feeling of hunger inside us. So as soon as you see a maggi noodles
packet, you will instantly start having the feel that you are hungry.
Businesses use packaging in their decisions regarding positioning and marketing of
the product. Packaging also involves costs and the more you try to make your
packaging attractive, the more cost it would involve. Many companies market
themselves healthy in the eyes of the customer by using eco-friendly packaging
material. This creates a brand image and the customers choose such products
because they think that by buying these products, they are helping in saving the
nature.
Now, various tetra packs and paper bags have taken the place of polybags as many
nations are looking forward t ban their use. New creative ideas are being evolved so
as to reduce the efforts of the human force while selling the product and making the
packaging so efficient that without using a single word, more and more products can
be sold.

12. 6. Labeling
Labels can range from simple tags attached to the products to complex graphics that
are part of the package. Labels explain about
Who made it?
Where and when was the product made?
Contents of the product,
How to use it,
Safety, warnings and precautions,
Legal protection, etc.
Labels are supporters to packaging while selling a product. Consider a case where no
label is put on a product. Either you will constantly ask the salesperson about the
details or you would just leave it there. But labels describe the product and assist in
sales.
7. Customer support service
Today’s market is customer centric and customer is considered the boss. There is a
saying that “In business, customer is the only boss. He can fire everyone from the
lowest level to the CEO by investing his money in some other place.” That is why
customer support services are one of the most crucial elements of any product.
These are the augmented benefits which a product provides and range from
warranties, helpline, resolution and overhauling to replacements of defective
products. Every firm, whether it is in the service sector or not, keeps customer
services at its peak priority because everyone knows that if he will not care about his
customer, someone else will and then he will lose his market to some other
competitor.
The best example on can give about customer support services is of Amazon. The
features and customer support services of Amazon are one of the bests in the world.
Providing with return and refund policies, order tracking, leaving the package with
the neighbor, cash on delivery and above all, the Amazon Prime subscription has
made the online purchases platform so customer oriented that it is currently the
highest rated company in terms of customer services.

13. Why is a product developed? How do a company feels the need that it should introduce a
new product in the market? The market is no more product centric so you can’t just
produce any kind of product and try to sell in the hope that the customers will buy it. There
are many new innovations done every day but not all of them can be sold. To decide
whether or not to introduce a new product in the market, the company has to make sure
that is there a need for such product. Following are the reasons on behalf of which the
company decides to develop a new product.
1. For meeting the changes in demand: The people will always seek and run for better
products, more convenience, more fashion and more value for their money. This will
lead to changes in demand. To fulfill those demands, new products are then
produced.
2. For making new profits: When a business already has a product that has reached its
maturity stage and after that, the only going that would happen is decline in its
demand, a new product is introduced so that the declining profits can be met.
3. To get the untapped market: Doesn’t matter how good a product is, it can’t be
accepted by all the customers. Thus, the companies introduce new products in order
to penetrate the market which was yet untapped.
4. To meet threats arising from the environment: The products of competitors or the
competitors of complementary goods make the product vulnerable. Then, the firms
produce new products to counter this vulnerability.
3. NEW PRODUCT
DEVELOPMENT

14. Let’s understand the new product development process through an example of a new
idea. Let’s assume that we own a company which deals in air conditioners and various
other electronics. The company’s name, assumed to be “AA Electronics” Following are
the processes of development of a new product.
1. Generating new product ideas: In the very first stage, the idea for the product
development is generated. It can be by analyzing the environment or by generating
something unique of your own. The idea that is generated by analyzing the need of the
market has more chances of acceptance.
In our case, the research and development department has analyzed that the number of
asthma patients has increased drastically. Especially in the urban areas and in the
metropolitan cities, there are cases of increased smoke and pollution. This is leading to
respiratory problem among people, even those who are of very young age. So the R&D
department has come up with the idea of manufacturing air conditioners with air
cleaning features added to them. The credit of the idea goes on to the analysis of
sufferings of people from various respiratory problems. One recently, being the case of
New Delhi, where everyone was drastically affected.
2. Idea Screening: The idea is then tested if there is a need of such kind of product in the
market or is there any such kind of product already in the market. If there is any
competitor already in the market then we have to look if our product is a better
alternative to it or not. Also, we have to see if the new product is in line with our current
line products or we need extra expertise and have to create an extra line on production
and marketing front.
In our case, there are air cleaners available in the market but there is no such air
conditioner with air cleaner combination. The blend of the two functions in one product
would reduce the overall costs as compared to the purchasing of machines for both the
functions individually. Also, our company already has production lines for air
conditioners but we would need to outsource expertise knowledge about the air
freshening technology.
3. Concept Testing: The concept of the product is then tested in the real situation
whether it will work or not. The customer is the best judge at such situation. When the
majority of customers of the target market understand and accept the concept then only
the concept is approved.
Our product combination is new to the market so it is important to make the consumers
understand the idea. Our target market is the middle and upper class urban families, and
service providing industries like restaurants, hospitals, etc. We have to make our
prospective buyers understand the need of such a cost effective device which can save
them, their families and their clients from any respiratory hazard. We would introduce
an air conditioner with air cleaning feature and not the other way around because we
have to focus on the air cleaning feature of our product as well as we have to stick as
close as possible to our current line production.

15. 4. Business and market share analysis: Now we have to analyze the current as well as
the future scope of business. Every company wants to earn profit and ours is no
exception. The company has to analyze the future demands, seasonal variations of our
product, competitors, price elasticity of demand, nature of the channel required for
sales, so on.
In our case, the demand will keep rising as most of the population runs towards cities.
Also, due to rise in the temperatures due to global warming as well as increase in
population in the future, the demand will rise for the product. But as soon as the
competitors see a business in the product, the competition will emerge. So we have to
constantly evolve and modify our product.
5. Actual development and test marketing: Working on the thesis is a different thing,
bring out the actual product and make the sales is different. Even when the entire thesis
indicates a positive outcome, all the calculations have failed for many products when
they were launched.
In our case, we have to understand the consumer well. Although the market is highly
promising but our company would still try it out on a smaller scale and from the
feedbacks, more development would be done to make it more convenient and user
friendly. In the end, we would see if the product is worth buying from the consumer
point of view. This will make us understand the sales prospects of my new product.
New product development process
New idea
generation
Idea Screeening Concept Testing
Business Analysis
Actual
Development
and Test
Marketing

16. Sometimes, the market doesn’t understand
the product and take it in the wrong way.
Take the case of “Tata Nano,” a car made
for the ones who can’t afford the expensive
ones. You understand where the problem
was? The marketing was not right and a
brilliant concept was thrown away by the
people. Of course! Nobody wants to be
called poor. The car was of perfect use for
the people living in the metropolitan,
crowded cities full of sharp turns and high
tendency of traffics. But the image of “the
car for the poor” made it a failure. That is why it is important to understand not just the
need but also the wants of the customers. A customer may have the need but he would not
want the product. At the time of launch Tata Motors planned to sell 250,000 units per year.
The maximum sales ever achieved was 74,527 units during the financial year 2011-2012 and
then sales declined rapidly year on year leading to a negligible market share of the car. The
product is likely to be phased out soon as dealers have stopped placing orders. Following is
a report on the sales of Tata Nano.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Sales
Financial Years
Sales of Tata Nano

17. It takes years for a business to create an image of itself in the market. A business doesn’t
become successful overnight. Take, for example Reliance which was established in 1966.
Brand equity refers to the value of a brand, based on the extent to which it has high brand
loyalty, name awareness, perceived quality, strong brand associations and other assets such
as patents, trademarks and channel relationships. You
don’t need and explanation of what the sign on the right
denotes. You see this tick or popularly called the “Swoosh”
the logo of the footwear and sports apparel brand “Nike”
In simple terms, brand equity is a summation of all the intangible assets of the company
that create its own image in the eyes of the customer. It provides the companies various
advantages over its competitors. The major ones as follows:
1. Powerful brand enjoys a high level of consumer brand awareness. As in the above
example of Nike, we all know about what the “Swoosh” means. A brand makes the
customers aware that so and so company with such a product is there in the market.
People are not just aware of its existence but also about the quality the product
would be.
2. The company can easily launch brand or line extensions, as the brand name carries
high credibility. Today, if Apple or Samsung launch a new product, people would look
forward to buying it but a new brand in the market would not influence them as
much. Also, for the new brand, it has to provide the product at a very low price with
lots of offers.
3. A powerful brand offers the company some defense against the acute price
competition. Even when the new product is at a very low price, you would still
hesitate to buy but when a well-established brand introduces a product at a very
high price, you would still look forward to buying it. That’s what the factor of trust is.
When you are there in the market for so long and are well known to the consumers
with a powerful brand image, then the customer would trust you and ultimately buy
your product even if he has to shell more money.
4. BRAND EQUITY

18. It takes lots of efforts and resources in terms of time and price to create a powerful brand.
The four major factors that together make brand equity are
1. Brand loyalty
2. Brand awareness
3. Perceived quality
4. Brand Association
All these factors together work hand in hand to create a powerful brand. Each of these
factors plays a supportive role to one another. Any one of these misses out and the problem
arises
1. Brand Loyalty: Brand loyalty is hard to find in the FMCG. In fact, today, there are no
customers in the market who are loyal to one brand or company. Only two types of
customers are there in the market. First, switchers and second, shifting loyals.
Brand Loyalty
2. Brand Awareness: There is phrase in Hindi “jo dikhta hai wahi to bikta hai”. If the
customer is not aware that you are there in the market the how are you supposed to
create goodwill? In fact, brand awareness is the first stage of generating brand
equity. Companies advertise through many media in order to make the customer
aware of their existence in the market and what type of good they are selling.
3. Perceived Quality: The third major factor that helps in creating brand equity is that
how the customers presume your quality. People are well aware of companies in the
market. There are so many media like television, internet and social media that make
the customers know about the existence of so and so companies but not all of them
create a right impact on their minds. The customers have to know that yes, you are
providing the product of right quality then only a trust will be generated.

19. 4. Brand Association: How does the
brand create the impact of a right
quality product? The answer is through
brand associations. Nike has Christiano
Ronaldo, the most famous athlete
around the globe as its brand
ambassador. Now whenever the
people see a Nike product, they will
probably associate it with him. Many
brands associate with other brands
too.
Brands associate themselves with charity organizations and various other pro social
activities so as to create a goodwill of themselves. Take the example of Reliance.
Reliance does social works like environment protection drives, education & skill
enhancement and community healthcare.
Brand associations also work as advertising tools. When you show that a person with
a goodwill in the eyes of the customer is using your product and promoting it then
you can ultimately sell more. But choosing the right brand association is very
important. You can’t choose Amitabh Bachan for a product especially made for
youngsters. If you are a sports apparel company then you would choose a
sportsperson or a sports team as your brand associate.
All these factors together, with time and money, create the brand equity. We
consistently come across the word “time” because we need to understand that time is
the most crucial element of all. No firm can create a powerful brand overnight. To win
the trust of the customers, you need to consistently implement these factors with time.
Brand equity needs investment and the results can’t measured quickly. Its benefits are
long term and futuristic. Your sales are not increasing today even when you are investing
a lot in brand image? Worry not. Its effects will be seen when even when you are not
offering any promotional benefits, still your sales remain constant. But for that, you have
to be consistent with your quality in terms of your product as well as your services.

20. Price is the amount of money charged by the customer for the product or service being
offered to him. It is the sum totals of all the values that consumers exchange for the benefits
of having or using the product or service. Price of product or service gives us the complete
analysis of what quality of product/service we will receive.
Wise pricing decisions have several benefits. The pricing decisions made out through the
proper analysis of all the factors influencing it and the buying behaviour of the customer has
the following benefits:
1. Be it domestic or international business, pricing affects revenue and thus the profits. So
a right pricing decision ensures profitability of the business.
2. Appropriate pricing means growth of the business as well as the society and the factors
related to the business.
3. Too high prices may mean no business and low prices mean unprofitable business. Thus
it is important to set a proper pricing so that it is neither to high nor too low.
There are several factors that influence the pricing decisions. They can be categorized into
two types:
1. Internal Factors
These are the factors inside of the business that influence the pricing decision. These
factors are as follows:
a) Marketing objectives
b) Marketing Mix Strategy
c) Costs
d) Organizational Considerations
a) Marketing Objectives
The objectives of the businesses according to the market may be the one crucial
factor as to what price the company is charging from the customers for providing a
product or a service. The objective of a firm can be survival for a situation where it is
not in a good situation and is being suppressed by the cut throat competition. Profit
5. PRICE AND PRICING
STRATEGIES

21. maximization can be another objective. Market share and providing the best quality
product are all the examples of marketing objectives of a company.
The price of the product revolves around the main marketing objective of the
business. If the main objective is survival, then the company can’t work upon profit
maximization. To gain more market share, the company has to keep its prices low. If
product quality is the focus then the prices of the product will be high.
b) Marketing mix strategy
The marketing mix includes price, place, product and promotion. Price is just one
part of it. Thus the other factors affect the price of the product. When the promotion
of a product is more, this will ultimately lead to an increase in the prices of the
product as the overall costs will increase. The location of where the product is being
produced and where it is sold also play a defining role in the price of the product.
c) Costs
Costs are of two types, Fixed and variable. The ratio of these two and the cost
structure of the business in comparison to the competitors also affect the pricing
decisions. The industries where variable costs are more than the fixed costs are more
price-sensitive. For example paper industries where the cost of materials needed to
produce paper directly affects the overall price of a book.
d) Organizational Considerations
The persons who take decisions influence the price of the product. In case of small
businesses, the top level management takes the decision but in large firms, the
divisional line managers are the ones who decide the prices. The top level
management does the job of approval and rejection of these decisions. So, in large
organizations, the pricing decisions would have more expertise as compared to the
small level businesses.
2. External Factors
The factors that are outside of the business and the business has no control over them
are called the external factors that influence the pricing decisions. These are as follows:
a) The nature of the market and demand
b) Competition
c) Other environmental factors
a) The nature of the market and demand
Every customer wants a value for his price. The price and demand relationship of the
market is an essential part to analyze and understand. If the businesses do not work
according to the market then they will not stand a chance.

22. b) Competition
Today’s market is tough for survival when you don’t look at the competitor’s point of
view and don’t work to counteract them. Competitor’s prices and the possible
reactions of the competitors to the company’s own pricing policies affect the pricing
decisions and thus the prices of the company’s own product.
c) Other factors
There are so many other actors like legal environment, social environment, and
natural environment that influence the company’s pricing policies. You can’t make a
product hazardous to the nature and sell. It would be illegal, it would create a poor
image of your brand and thirdly, people would not trust you and your product
wouldn’t sell.
These all are the factors that are responsible for the product’s price. These factors directly
or indirectly influence the prices set for the products that we buy. But all these factors
ultimately come up to the strategies formulated by the businesses so that they can earn
profits as well as stay in the market.
Keeping these factors In mind, the companies jhave to decide the procing strategy to follow
so that the prices could be minimum and more profit is obtained.
Pricing strategies are the desired targets and objectives set by the companies in relation to
those of the competitors, and thus setting up the prices of their products in order to achieve
them. Why is it so that two smart phones with almost similar features have different prices?
Why is it so that the same version of phone with a few alternations, charge differently to
different customers? This is due to the different pricing strategies set by the companies.
Pricing strategies can be divided into three parts.
1. Market skimming pricing
Skimming simply means to remove the top most layer from a liquid. Let’s assume that
the market is divided into three groups at a very basic level, namely high income
earning, middle income group and low income earning group. When a product is
launched in the market,
the company skims up
maximum revenues from
the market segments
that are willing to pay
high price.
Take for example, Samsung,
a well known Smartphone
brand. It sells its products
at a high price but when a
similar product is
introduced, it reduces its
prices to reach the lower
income earning segments.

23. Similarly, most other brands that are relatable to the latest innovation and technology can be
associated with market skimming strategy. Through skimming, these products try to maximize
the revenues and profits and then when they see that most of the high income earning segment
of their target group is reached, they sell these products in order to increase sales. The
companies with well-established brand can follow this strategy.
Market skimming strategy
2. Market penetrating pricing
This strategy is just the opposite of market skimming. In this, the prices for a product are
set low to attract a large number of buyers. Also, from the competition point of view,
the companies adopt this strategy in order to penetrate through the market and to get
more market share. Such product can be bought by any income group of the market and
everyone has to pay the same price. Due to low prices, more people buy the product.
The profit margin on the sales is low thus in order to earn more profits, a very large
amount of products have to be sold.
That is why the firms that choose this strategy are either FMCG or such companies who
are trying to earn more market share.
Reliance applies market penetrating strategy in most of its products and that is the
reason why it has the most market share in India.

24. Sometimes, while focusing on market penetration
strategy, companies reduce the prices and in order to
cut off the costs, they use inferior quality material in
their products. Such type of companies don’t stay for
long in the market. Also, it harms the brand image.
Xiaomi has kept the prices of its smartphones low to
penetrate more consumers. However, while focusing
too much on price reduction, it ignored the quality
factor.
3. Product-mix pricing
Product-mix pricing is completely product centric and through variations and
alternations in the product, the company tries to reduce or increase the prices in order
to maximize profits. It can be divided into the following five types:
a) Product line pricing strategy
When a firm produces and markets a large variety of products that can be grouped
into few homogeneous lines, product line pricing strategy can be used.
Take, for example, Unilever.
Hindustan Unilever Limited
markets three detergents
under different brands namely
Wheel, Surf-Excel and Rin. The
aim is to fix the prices of each
product in such a way that
entire product line is priced
optimally, resulting in optimum
sales of all the products in a
line. The changes in the prices
of Rin will indirectly influence
the sale of Wheel and Surf-Excel.
b) Optional product pricing strategy
In this strategy, simple options are given for the additional assessories bought with
the main product so that the prices of the main product may look more competitive
and flexible.
For example, When you buy a car, it would come in various versions of the same
brand. The more accessories are there in it, the more the cost will be. In India, unlike
other countries, airbags are not necessities in cars. They come as options and when
you buy a car, the prices would increase as the number of airbags will.

25. c) Captive product pricing strategy
It is the strategy of setting the prices of the
products that must be used along with the
main product.
Many DSLR companies offer carry bags and
memory drives along with the cameras to
attract the buyer. Thus, the price of the
camera looks more competitive.
d) By product pricing strategy
By products are the products that ae sede together. Like torches and batteries, music
player and headphones, speakers with buffers, etc. Sometimes, the companies sell at main
product at lower prices so because they know that to use the main product, the customer
has to buy the byproduct. Can you believe when someone tells you that the companies
that are selling you the printers are solely in the business of selling printer ink? You
buy the printers for just one time but ultimately, you buy ink for the printer and that
is how businesses set strategies of by-products. They sell by product at a very low
price. In this case, it is the printer. Then they can sell you the ink for the printer at a
rate profitable to them.
e) Product bundle pricing strategy
It is the strategy of combination of several products being offered together at a
reduced price so that the prices are less and the businesses make more sales.
For example telecom service
providers. When recharge your
mobile number with a bundle
offered, you get calls, internet
services and SMS services all in one
at a reduced price. By doing this, it
attracts more customers as they
see benefit in buying all these
services at once.

26. Companies have to work according to the external as well as the internal environment
to decide what product to offer and what price to charge. They can control the internal
factors to a certain extent but on the external factors, they have no control. The
customer’s taste and preference changes and also, the customer’s buying behavior
varies according to price. Where so many substitutes are already available in the market,
still there is a scope for the companies to grow. The competition may have grown to an
international level but the businesses have to understand that the opportunities have
grown too. The new generation of customers is well aware of the market situation and
today, most of them prefer quality first. The price may attract the customer to buy a
product once, that too consumable products. But the quality of the product would
ensure that if the customer buys it once, he will buy it again and again.
In the start of the project, we read about Mukesh who chose the pizza of Rs.500 over
the one of Rs.300. Why did he choose the expensive one? It is our belief as a customer
that whatever is priced high would be of much better quality than the product that is
priced low. We simply attach quality with price. And when we look towards the quality,
we ignore the price we pay. The marketer has to understand what the customer wants
and should work accordingly. Today, the customer is ready to pay more to get
something of better quality. And that is why when Mukesh compared both the prices, he
made up his mind that the shop which is charging more is providing him a better quality
pizza. This is what made him buy the expensive pizza instead of the cheaper one. The
owner of the expensive shop strategized his prices. Although the quality was same, but
he increased his prices and thus created a perception in the mind of his customer that
his product is better. Thus, low prices don’t work in favor of the business all the time.
The customer judges the quality of the product on the basis of the price paid. The
customer doesn’t buy the product, he buys the price.
6. CONCLUSION

27. BIBLIOGRAPHY
https://en.wikipedia.org/wiki/Tata_Nano
http://www.ril.com/OurCompany
www.google.co.in
Functional Management by M.K. Mathew