MODULE-3

WEIGHTAGE: 25%
Module-3 Contents
New Product Development:
Process & Challenges
Brand Management:
Brand Equity
Brand Equity Models – CBBE
Devising Branding Strategies
o Branding decisions
o Co-branding and ingredient branding
o Brand extensions
Module-3 Contents
Developing Services
Definition, categories
Distinctive Characteristics
Service Differentiation
Pricing Decisions
Consumer Psychology and Pricing
Setting up the price
Price Adaptation and Strategies
New Product Development:

The goods and services that vary considerably in terms of their attributes or
intended usage in contrast with the goods manufactured previously by the same
firm are termed as ‘new products’. It is a difficult task to define a new product.
It involves novel ideas and offerings which are entirely different and new for the
customers.
New product development is a process of taking a product or service from
conception to market.
The process set out a series of stages that new products typically go through,
beginning with ideation and concept generation and ending with the product’s
introduction to the market.
New Product Development:

New Product Development Process

New product development is an eight step process which involves all the key elements required
for developing a product. These steps are beneficial in getting information input and decision
making while developing a new product.
New Product Development:

1. Idea Generation: The most vital and first step of new product development is
gathering and evaluating new ideas to reach the potential product opinions. Idea
generation is considered as an on-going process for many companies involving the
assistance from internal and external sources of the organisation. Several market
research techniques are applied to boost ideas such as running focus groups with
customers, organisation’s sales force and channel members, encouraging customer
suggestions and complaints via website forms and toll-free telephone numbers.
2. Screening of the Idea: In this step, all the ideas generated in the first step are
analysed and the best possible one is selected for new product development.
Working on non-feasible ideas may be costly and risky for an organisation. Hence,
the ideas generated above are evaluated effectively by the company personnel to
select the most feasible idea. If the ideas are suitable then they are moved to the
next stage of new product development.
New Product Development:

3. Concept Development and Testing: Once the marketer has finalised few ideas, he
initiates towards the attainment of initial feedback from the customers, its employees,
and distributors. These ideas are then represented to the focus groups through
storyboards, board presentations, etc.
For example, the customers may be shown the product concept by drawing the product
idea on the whiteboard or an advertisement introducing the new product.
The most feasible ideas selected by the organisation are put forward to the target
audience.
4. Market Strategy and Development: After concept testing, a primary marketing
strategy plan is developed. A marketing strategy is used to launch the product idea in the
market. For this, a comprehensive plan is laid down including the marketing mix strategy,
segmentation, targeting and positioning strategy, with the expected sales and profits.
New Product Development:

5. Business Analysis: In this stage, the large numbers of ideas are condensed to one or
two ideas, by the marketer. During this stage, market research is used extensively to
analyse the viability of product ideas. (In many situations, a product remains only an
idea, if not found viabe). The main aim of this step is to find out the valuable estimates
of market size (i.e., total market demand), operational costs (i.e., production costs), and
financial predictions (i.e., sales and profits).
6. Product and Marketing Mix Development: A prototype of the product is produced at
this stage. Before launching the prototype in the market, it must clear all the tests and
then finally the product is offered to the target audience. While doing business analysis,
the suggestions and ideas are given due consideration.
The initial design or prototype of that idea is then developed by the research and
development team. The marketer also designs a marketing plan for the idea, and once
the prototype is ready, it is introduced to the customers.
New Product Development:

7. Test Marketing: The word ‘test’ refers to examination or trial. Test marketing is
defined as the process of testing a product before it is commercialised in the
market at large scale. Here, test marketing is also known as field-testing. This
provides a better understanding of the market and marketing considerations like
nature of demand, competition level and consumer’s needs and wants.
8. Commercialisation – Launching the Product/Service: Once the product passes
the test marketing stage, then the product goes for national launch. However,
few factors are considered before finally launching the product in the market
such as time and place of launching, whether it will be launched nationally or
regionally, how it will be launched, etc. Some of the organisations prefer
introducing the new products region by region.
Challenges in New Product Development
Challenges in New Product Development
1. Over-estimate of Market Size: A product will not be able to perform in the market, if
the market size is over-estimated.
This may lead to less revenue generation than the desired level, even if the quality of the
product is good.
2. Under-estimation of Market Competition: When a marketer fails to estimate the
actual competition and competitor’s strengths, then the product may have to deal with
severe competition in the market. This often leads to failure of new products.
3. Inadequate Market Research: If a marketer is unable to study the market and makes
erroneous predictions about the customer’s needs and wants, then this may fail to
satisfy the potential customers.
4. Lack of Uniqueness: If a product is incompetent in comparison with the competitor’s
product, then customers have no reason to purchase a new product.
Challenges in New Product Development
5. Poor Product Design: A poorly designed product may cause inconvenience to customers in
using the product. This is one of the major reasons of customers’ to dislike about a product.
6. Lack of Superiority: It is essential for a product to prove itself superior in contrast to other
similar products available in the market. Sale of new products cannot be made on the basis of
superfluous claims made by the marketers. Hence, leading to the failure of new products.
7. Incorrect STP Approach: A product may fail to capture the market, when a marketer
incorrectly segments the market, targets the target audience and positions the new product.
8. Technical Issues: While using a new product, if a customer faces any technical issues, then he
may discontinue purchasing the same product again.
9. High Production Costs: When the price of a product is high compared to the other products in
the market, then this may lead to product failure. This occurs, when the actual production cost
exceeds the expected production cost.
Challenges in New Product Development
10. Wrong Entry Timing: If a new product enters the market at the wrong time
by making hasty decisions or by entering late in the market, then also the
product may fail to establish its position in the market.
11. Ineffective Promotion: Ineffective utilisation of promotional tools lead to
new product failure. The customers remain unaware of the product’s attributes
and functions, due to which customers do not purchase the product.
Brand Management
Introduction
Brand creation is more than just giving a name to a product. A brand is essentially a
promise that the company makes to customers. It is a promise towards satisfaction of
their needs and assuring world-class product and service quality.
Three questions “who”, “what” and “why”, are very crucial for the successful branding of
any product. Marketers should introduce who the product is, what does it do, and why
should consumers know about it.
According to American Marketing Association, “Brand is a name, term, sign, symbol, or
design, or a combination of them which is intended to identify the goods or services of
one seller or a group of sellers and to differentiate them from those of competitors.”
Branding guides the consumers in several ways including picking out the most useful
products, and quality assurance associated with the product, etc.
Brand Management
Brand Elements: Components of Branding
1. Brand Names: With the help of brand name one can easily differentiate
between two products. The foremost step towards establishing a reliable and
lucrative brand is to choose such a brand name which can be remembered or
recognised by the target consumers when they encounter it. For example,
Dove, Google, etc.
2. URLs: Uniform Resource Locators (URLs) are the domain names which are
used to specify locations for the web pages. Brands use these URLs to locate
themselves on a web page. Those who desire to have a particular URL can
register for it with the services like ‘register.com’, after paying specific fees.
An example of a URL is https://www.computerhope.com/, which is the URL
for the Computer Hope website.
Brand Management
Brand Elements: Components of Branding
3. Logos/Trademarks: A logo refers to the symbol that signifies product or brand of the company.
Through logos the organisations become capable of building a specific brand image in the mind
of the customers. Hence, it becomes quite essential to give due attention to the attractiveness,
utility, and distinctiveness of the logo. The image of the organisation should be reflected through
its logo. Usually, the logo of an organisation is trademarked which helps in preventing other
organisations to copy it.
4. Characters: Characters stand for a unique feature of brand, which help in adding certain
human element in it. Success can be attained by a brand by bringing out an emotion reaction for
the prospective consumers. The difference does not lie in the brand character or icon, but a
brand can be successful if its icon stands for something flawless, unique, and sturdy and which is
able to connect with the consumers from deep inside.
5. Slogans: One of the best ways used by organisations to attract customer’s attention is through
creating unique and memorable slogans. Some examples of such slogans as follows:
Pepsi: “Pepsi thi..pi gaya”
LIC: “Bharosa Zindagi ka”
Brand Management
Brand Elements: Components of Branding
6. Jingles: The musical messages for advertising a brand is known as jingles. They
are usually composed by professional lyricists and are written in such a way that
it sinks in the mind of the listeners. Jingles can also be understood as an
extended musical version of slogans. Some of the famous jingles are given below
Amul: “Amul Doodh Pita Hai India”
7. Packaging: It refers to the process of creating the design and pattern of the
container or the wrapper of the product. It makes a part of packing function
which falls under the sub-division of marketing. Packaging is the final container in
which the final product is packed and offered to the customers in market.
Brand Management
Types of Brand
 Brand Management
Types of Brand

1. According to Ownership:
i) Manufacturer’s Brand: When the name of the manufacturer of the product is used for branding the product, it is called manufacturer’s brand. For
example, using name of Samsung for branding its products like smartphones, TV, AC, etc.
ii) Middlemen’s Brand: In this type of branding, instead of the manufacturer it is the middlemen whose name is used as brand. The middlemen may
be wholesalers, retailers, etc.
2. According to the Market Area:
i) Local Brand: In this, the brands are decided keeping the local markets in mind. Thus, there are different local brands for different markets.
ii) Provincial Brand: In this, the brand name is decided for a particular state or province. Therefore, for a single product, different brand names exist
in different provinces.
iii) Regional Brand: In this, the brand name is for a particular region. Different regions will thus have different brand names. The entire country may
be divided into regions like North, South, East, Central, etc.
iv) National Brand: When a particular product is available with the same brand name throughout the country, it is referred as national brand.
v) International Brand: When a particular product is available with the same brand name throughout the world, it is known as international brand.
Brand Management
Types of Brand

3. According to the Number of Products:

i) Family Brand: When all the products of a company are marketed with the same brand
name in different market segments, it is called family brand. For example, the Reliance
Group uses its parent name to brand various product lines like Reliance Petrochemicals,
Reliance Communications, Reliance Retail, etc.
ii) Product Line Brand: When a company decides to give different names to different
product lines then it follows product line branding. For example, HUL uses this strategy
to brand its various product lines like soaps, beverages, detergents, etc.
iii) Individual Brand: When the company uses different names for the products in the
same product line, it is called individual branding strategy. For example, different
individual brands of soaps are used by HUL like Lifebuoy, Rexona, Lux, etc.
Brand Management
Types of Brand

4. According to Use:
i) Fighting Brand: These brands are launched in the market with a significant
difference from the brands that are already being offered by the competitors of
the company. For example, ITC has launched a cigarette brand named “NOW’.
ii) Competitive Brand: Competitive brands on the other hand fight for the same
positioning in the market and do not have any significant differences. For
example, Rexona, Lux, etc., are all examples of competitive brands.
Brand Management
Functions of Brand
1) Related to Consumers
i) Identification of Product Source: Brands naturally project the identity of the producer
and marketers because they reflect the initiator or creator of the product.
ii) Assignment of Responsibility to Product-maker: The consumers are authorised by
the brands to allocate the authority to a specific distributor or producer.
iii) Risk Reducer: A buyer may realise several kinds of risks during procuring and utilising
products including physical, financial, functional, social, psychological, risk of time
wastage, etc. Brands can help to minimise these risks encountered during product
decisions.
iv) Search Cost Reducer: The amount of money spent by the consumers on exploring
various products is reduced considerably with the help of branding. Brands assist in
minimising these costs at the internal level.
 Brand Management
Functions of Brand
v) Promise, Bond or Deal with Maker of Product: A brand and a consumer share a relation which can be termed as a kind of
‘bond’ or ‘commitment’. Consumers being faithful and dedicated towards a brand have an implied perception about the behaviour
of the brand.
vi) Symbolic Device: Brand can act as an illustrative mechanism which enables the consumers to present their own personality.
Few specific brands indicate different characteristics or values due to their association with particular class or category of people.
vii) Signal of Quality: Brands can act as major contributors towards conveying particular product attribute to consumers. Products
and their traits or advantages have been categorised into three main categories by researchers which are given below:
a) Search Goods: Here Visual examination of the product can be done to analyse the characteristics of the product comprising of
size, colour, style, composition, durability, weight, of product, etc.
b) Experience Goods: In case of experience goods, product traits, probably equally significant, cannot be simply evaluated by
physical examination but actual verification and experience is required. This may include safety measures, quality of service,
sturdiness, effortless handling or use of the product.
c) Credence Goods: Under this, product traits are seldom acknowledged or comprehended, e.g., insurance coverage. Consumers
can face lot of problems while evaluating and understanding the characteristics and benefits of a product in case of credence
goods.
 Brand Management
Functions of Brand
2. Related to Manufacturers
i) Means of Identification to Simplify Handling or Tracing: Basically brands carry out the function of recognising which simplifies
the task of handling and tracking down products in an organisation. It facilitates inventory management and helps in maintaining
accounting records.
ii) Means of Legally Protecting Unique Features: A company receives security in a legitimised way because of brands. The
exclusive outlook and characteristics of products are safeguard by brands.
iii) Signal of Quality Level to Satisfied Customers: Regular and satisfied customers are prompted to buy the product one more
time because of the brands which communicate about the level of quality maintained by the product.
iv) Means of Endowing Products with unique Associations: A product is graced with exclusive features or associations or
reputation due to branding. Thus, it helps in making the product unique
v) Source of Competitive Advantage: Branding acts as a source of competitive advantage. Generally, product designs or
production/manufacturing techniques may be copied by the competitors.
vi) Source of Financial Returns: The concept of branding may be fruitful in terms of being a potential source of financial returns.
For example, a major portion of corporate value of a given FMCG company is represented by its intangible assets and goodwill.
Brand Management
Brand Management Process
 Brand Management
Brand Management Process
1. Identifying and Establishing Brand Positioning: The strategic brand management process starts with a clear
understanding of what the brand is to represent and how it should be positioned with respect to competitors.
Brand positioning can be defined as the “act of designing the company’s offer and images so that it occupies
a distinct and valued place in the target customer’s mind,” such that the potential benefit to the firm is
maximised.
2. Planning and Implementing Brand Marketing Programmes: Building brand equity requires creating a brand that
consumers are sufficiently aware of and with which they have strong, favourable, and unique brand associations.
Some important considerations of each of these three factors are as follows:
i) Choosing Brand Elements: The most common brand elements are brand names, URLs, logos, symbols,
characters, packaging, and slogans.
ii) Integrating the Brand into Marketing Activities and the Supporting Marketing Program: Marketing programs
can create strong, favourable, and unique brand associations in a variety of ways.
iii) Leveraging Secondary Associations: The third and final way to build brand equity is to leverage secondary
associations. Brand associations may themselves be linked to other entities that have their own associations,
creating these secondary associations.
Brand Management
Brand Management Process
3. Measuring and Interpreting Brand Performance: The task of determining or
evaluating a brand’s positioning often benefits from a brand audit. A brand audit is a
comprehensive examination of a brand to assess its health, uncover its sources of equity,
and suggest ways to improve and leverage that equity.
Once marketers have determined the brand positioning strategy, they are ready to put
into place the actual marketing program to create, strengthen, or maintain brand
associations.
4. Growing and Sustaining Brand Equity: Maintaining and expanding on brand equity
can be quite challenging. Brand equity management activities take a broader and more
diverse perspective of the brand’s equity- understanding how branding strategies should
reflect corporate concerns and be adjusted, if at all, over time or over geographical
boundaries or market segments.
Brand Management
Importance of Branding
1) To Consumers
i) Easy to Recognise: The existence of the brand name allows the consumers to identify the
brand in the market clutter. This is because the brand has a distinctive packaging, colour, design,
etc.
ii) Availability of Quality Products: A brand is an assurance of quality. Even the producers have
to make constant efforts to invest in R&D etc., so that they offer quality product and fulfill the
brand promise.
iii) Minimum Fluctuations in Price: It has been seen that price fluctuations do not occur in
brands. Consumers therefore get assured prices.
iv) Improved Packing: The packaging of the brands is given lot of importance. The name of the
brand and other details are included in the brand packaging.
v) Mental Satisfaction: The use of brands by consumers also gives lot of satisfaction to the
consumers as it gives them a feeling that they are using a superior product.
 Brand Management
Importance of Branding
2. To Producers
i) Easy to Advertise: Having a proper brand helps the organisation to develop advertising strategies as the brands
vision, target markets and value propositions are clearly defined. The name of the brand can be used by the
organisation in its advertising campaigns.
ii) Easy to Identify the Products: The brand name helps consumers to identify the products. This helps in
advertising the products easily.
iii) Creation of Separate Market: The brand name helps the company to develop a value proposition for a
particular market. This also helps it to develop a separate market for its products.
iv) To Get More Price: Branding attracts and retains customers. They become loyal to the brand and are ready to
pay any price for the brand.
v) Easy to Expand the Product Mix: The existence of a successful brand helps the company in expanding the
product mix. The company can add new products to the product mix and also add to its product lines.
vi) Personal Contacts with Consumers: The brand also helps the company to establish a direct link with its
customers and to eliminate the activities of all middlemen who have vested interests.
Brand Management
Product versus Brand
Brand Management
Product versus Brand
Brand Equity
Period of 1980s witnessed the extensive use of brand equity concept by the advertising
professionals. Different valuable academic contributions concerning the brand equity
were offered by scholars like Srivastava and Shocker, Kapferer, Keller and Aaker
throughout the 1990s. Today, a common description of the brand equity is possible and
it says that brand equity is the value assigned to a particular brand by customers as per
their perception about it.
The idea behind the concept of brand equity is the value attached to the brand, which is
more than value attached to its tangible attributes. Therefore, brand equity comes under
the category of intangible assets of an organisation.
According to Biel, “Brand Equity can be thought of as the additional cash flow achieved
by associating a brand with the underlying product or service.”
According to Aaker, “Brand equity is a set of brand assets and liabilities linked to a
brand, its name and symbol add to or subtract from the value provided by a product or
service to a firm and/or to that firm’s customers.”
Brand Equity
Sources of Brand Equity
1. Market Research: Market research is one of the important sources of brand equity.
Prior to launching a new product in the market, a quantitative as well as qualitative
investigation is important so as to get acquainted with the ongoing market trends
and other aspects.
2. Quality: Quality of the brand is also a source of brand equity. The quality of the new
product should be excellent in order to establish an everlasting impact on the minds
of its customers. Quality leads to satisfaction among the consumers and they
promote the brand to other users also.
3. Marketing Mix: Another source of brand equity is marketing mix strategies implied
for the brand or product. The appropriate utilisation of the marketing mix promotes
efficient marketing of the brand. As marketing of the brand is effective, it leads to
improved brand equity.
Brand Equity
Sources of Brand Equity
4. Brand Extension: Brand equity can also be achieved by undergoing brand expansion.
It refers to addition of new products under the same brand name. As different new and
improved products with unique features are introduced by the parent brand, it leads to
improved brand equity.
5. Customer Opinion: Views of customers are also one of the major sources of brand
equity. Most of the companies welcome the valuable suggestions and responses from
their customers because this helps them to evaluate the shortcomings as well as strong
points associated with their product/brand.
6. Customer Satisfaction: Satisfied customers are also the sources of brand equity as
they explore the value of the brand in the target market. More the products and services
offered as per the requirements of the customers, more they become satisfied. Thus, it
is clear that satisfied customers lead to improved brand equity.
 Brand Equity Models
The major two models of brand equity are:
1 Aaker’s Brand Equity Model
2 Keller’s Model of Brand Equity
1. Aaker’s Brand Equity Model
Aaker has formulated a Brand Equity model that explains the variables behind the making of a brand. Brand Equity can be
considered as a “set of assets and liabilities linked to a brand, its name and symbol that add to or subtract from the value
provided by a product or service to a firm and or to that firm’s competitor’s.”
Aaker Guidelines for building Strong Brands
1. Brand Identity 2. Value Proposition
3. Brand Position 4. Execution
5. Consistency over time 6. Brand system
7. Brand Leverage 8. Tracking Brand equity
9. Brand Responsibility 10. Invest in brands
Brand Equity Models
Customer-Based Brand Equity Model (CBBE): Keller’s Model of Brand
Equity
Customer perspective was used by Keller to describe the concept of brand equity.
Customer-Based Brand Equity Model or CBBE Model answers two questions, i.e., ‘what
makes a brand strong?’ and ‘How to build a strong brand?’ Generally, customers through
their brand experiences develop certain feeling, belief or attitude about the given brand,
it is called power of the brand.
“Customer-based brand equity is defined as the differential effect that brand
knowledge has on consumer response to the marketing of that brand.”
Three major components of this definition are as follows:
1. Differential Effect: Brand equity ascends from varying responses from the
customers. Non-occurrence of variations in customer responses clearly means that
the brand name is actually a commodity or a generic product. Here, the prices are
used as competition basis. For example, customers interested by the brand of the
airlines, instead they use pricing as a basis of purchasing air tickets.
Brand Equity Models
Customer-Based Brand Equity Model (CBBE): Keller’s Model of Brand
Equity
2. Brand Knowledge: Brand knowledge is the main reason behind differences in customer responses.
All the feelings, emotions, beliefs, attitudes, thoughts, etc., which customers associate with the brand
are collectively called brand knowledge. Generally, brands focus to develop unique, favourable and
strong customer associations. For example, Le Meridian (luxury), Café Coffee Day (relaxed enjoyment),
Pizza Hut (fast worth and hygienic), etc.
3. Consumer Responses to Marketing: The varying responses from the customers that establish brand
equity are revealed through opinions, inclinations and actions associated with the various facets of
brand marketing. Powerful brands which have good market image bring in more earnings.
When in comparison to brand being unidentified, customers respond more positively towards an
identified brand and its marketing, it is called positive customer-based brand equity. Here, taking out
advertising support or any price increase has minor impact on the customers. Moreover, new
distribution channels as well as brand extensions are welcomed by customers.
On the contrary, negative customer-based brand equity of the brand means customers’ response is
less favourable towards the marketing actions of the brand in comparison to an unknown or fake
product.
Brand Equity Models
Customer-Based Brand Equity Model (CBBE): Keller’s Model of Brand
Equity
Brand Knowledge
From the perspective of the CBBE model, brand knowledge is the key to creating
brand equity, because it creates the differential effect that drives brand equity.
What marketers need, then, is an insightful way to represent how brand
knowledge exists in consumer memory. Brand knowledge can be characterised in
terms of two components- brand awareness and brand image.
 Brand Equity Models
Customer-Based Brand Equity Model (CBBE): Keller’s Model of Brand
Equity
Drivers of Brand Equity
1. Perceived Quality: The quality perceived by the customer related to a brand is the first driving force of brand
equity. Here, the mode of rating the perceived quality is not relevant.
2. Name Awareness: Brand name awareness is another driver of brand equity. The brand name should be such
that customers can recall or remember it. Differentiation alongwith brand name awareness is the key driver
of brand equity.
3. Brand Associations: Brand association is also a driving force of brand equity and various firms are learning
the advantages of getting their brand associated with different personalities, icons, events and even with
other brands in the market. For example, Hema Malini associated with Kent RO and Virat Kohli associated
with Adidas are the brand associations that influence the customers’ perceptions.
4. Brand Loyalty: Although brand loyalty gets less attention while counting for the drivers of brand equity yet it
plays an important role in it. Only a satisfied consumer can narrate the story of the brand in the best possible
manner which influences other people’s perception.
5. Other Proprietary Assets: Brand equity can also be derived from trademarks, patents and other uniqueness
associated with a brand but all this will only be helpful when the customers will be able to distinguish the
brand from the list of other brands available in the market.
Brand Equity Models
Significance of Brand Equity
1. Significance to Customers: Following are the ways
- Products and brands related information can be easily stored, processed or interpreted by the
customers with the help of brand equity.
- Brand equity fills the customers with confidence while making a purchase decision.
- The ultimate importance of the brand equity to the customer is the satisfaction drawn while using
the brand/product.
2. Significance to Marketer:
- Brand equity facilitates marketing activities. It helps in implementing more efficient marketing
programs.
- Improved customer loyalty is the result of positive brand equity.
- Marketers can charge high prices for their products in case of positive brand equity
- Brand equity facilitates the growth of the firms as it adds value to the brand.
Devising Branding Strategies
Introduction
The process of devising a brand strategy involves determining the importance
that the image of the company holds with respect to the product image while
making a purchase decision. The question here arises that whether the customer
chooses a product keeping aside the company’s image or due to it?
The factors that influence the corporate reputation or image account cannot be
controlled by majority of the product managers. The product manager is
responsible for the product image and the product brands. The communication
at this level is aimed at the marketing channels and the end-customers.
Devising Branding Strategies
Branding Decisions
The aim behind engaging in branding is aligning or developing the expectations that as
the basis of brand experience. They work on forming an impression that a brand which is
related to a product or service has features or qualities which make it unique or special.
Branding strategies, ingredient branding and co-branding are integral parts of branding
decisions.
General Branding Strategies
Branding can be defined as a process that creates a unique image and name of any
product or service in the mind of the customer through initiating advertising and
promotional campaigns using a consistent theme. Its motive is to establish an important
and differentiated existence that is capable of acquiring and retaining its loyal
customers. For this, there are four general strategies:
Devising Branding Strategies
Branding Decisions
1. Individual Name: One family for this type is Proctor and Gamble (India) that has numerous
individual brands in different categories of products like Tide and Ariel (Fabric Care), Vicks
(healthcare), Pampers (baby care) and Pantene and Head & Shoulder (hair care). Even within the
same product class, companies use different brand names addressing different quality lines.
2. Blanket Family Names: Tata follows this type of policy. It uses the company’s blanket family name
in diverse categories of products like coffee, tea, salt, automobiles, mutual funds, etc. The
companies incur a lower development cost in case of blanket names as they need not run name
research or spend a lot of money on advertisements for creating awareness for the brand.
3. Different Family Name for Every Product: This policy is followed by the Aditya Birla Group in
India. Different products of this group have different family names. For example, it manufactures
aluminium under the brand name Hindalco, cement under the brand name Ultratech, and suiting
under Graviera and Grasim.
4. Corporate Name alongwith the Individual Product name: The names provided to Kellogg’s Corn
Flakes, Kellogg’s Krispes and Kellogg’s Raisin Bran all are mix of the corporate and the individual
names.
Devising Branding Strategies
Co-branding and Ingredient Branding
Co-branding refers to the combination of two or more brands into a single joint product.
Co-branding is also regarded as brand alliance or brand bundling. The promotion of the
brands also takes place together in a similar manner. For example, Citibank-Indian oil
credit cards, Mahindra-Renault, Bharti-Walmart, etc.
According to Kotler, “Co-branding is the two or more well-known brands combined in an
offer and each brand sponsors expect that the other brand name will strengthen the
brand preference or purchase intention and hope to reach a new audience”.
There are mainly three types of co-brand:
1) Ingredient Branding: Ingredient branding mentions a fundamental element of the
product with the actual name of the product with the actual name of the product. The
combined image of two powerful brands benefits both of them. For example, the ‘Intel
Inside’ mark is used by most of the desktop producers with their own brand name so
that they can enjoy the benefit of the brand image of Intel.
Devising Branding Strategies
Co-branding and Ingredient Branding
2) Co-operative Branding: Formation of a new product through combining two or more
brands is known as co-operative branding. Just like a joint venture, the two brands retain
their identity and are familiar and well known in their own segments. The awareness
about one brand is improved and enhanced by other brand. In this regard, the Jet
Airways-Citibank Credit Cards can be seen as a perfect example. Both the companies
have joined hands in order to improve their market share. This also benefits the
customers. When customer book a ticket with Jet Airways through their Citibank credit
card, they receive some redeemable credit points.
3) Complementary Branding: As the name suggests, the two brands under
complementary branding are marketed together so that they are purchased and
consumed together. For example, McDonald’s burger is accompanied with Coke.
Therefore, Pepsi (the rival of Coke) is prohibited by McDonald’s in its stores.
Devising Branding Strategies
Co-branding and Ingredient Branding
Advantages of Co-branding
1. Convincingly Positioned: Due to the involvement of different brands, the products
are positioned in a unique and convincing manner.
2. Creating Points of parity: Many strong points of distinction or points of similarity, or
both, can be created through co-branding. Because of that, higher sales can be
generated from the current target market and more opportunities from new
customers and channels can be facilitated.
3. Reduce the cost of Product Introduction: The product introduction cost is reduced
significantly by co-branding due to the combination of two strong brands images.
4. Means to Learn about Consumers: Knowledge about the customers and the way
firms approach them can be gained through co-branding. Co-branding can be seen
as a very good method for the creation of a unique product, particularly in
categories which are weakly differentiated.
 Devising Branding Strategies
Co-branding and Ingredient Branding
5. Other Advantages: Most of the brands want to join hands with other brands in this current marketing era so
that they can enjoy the benefits given below:
- Having successful line extensions by making the most out of the equity partner brand;
- Co-branding with a renowned brand maximises the success rate of brand extensions
- Component co-branding may result in usage extension;
Disadvantages of Co-branding
1. Risk and Lack of control: One disadvantage that comes from the combination of different brands is the risks
and absence of control for the individual brands.
2. High Consumer Expectations: There will be higher consumer expectations in terms of involvement and
commitment when it comes to co-branding.
3. Possible Negative Impact of Brand: There can be a negative effect on the image of the brands in case of poor
performance.
4. Lack of Focus: The brands under the co-branding arrangement may suffer from lack of focus and distraction.
Brand Extensions
The selection of brand management that helps in diversifying and controlling the parent
brand by penetrating fresh product category through developing a new brand is called
Brand Extension. The new product is promoted using the strengths and positive images
of the parent/existing brand.
According to Philip Kotler, “a brand extension strategy is any effort to extend a
successful brand image to launch new or modified products or lines.”
Types of Brand Extensions
1. Line Extension- Extended to Different Products in the same Product Line: This is the
easiest way of brand extension. The idea behind this is to add on to the product line and
carter to a broader segment of customers. This is also called the law of ‘benefit transfer’.
For example, Lifebuoy extended into Lifebuoy plus which is a perfect example of an
effective line extension fulfilling this criterion.
Brand Extensions
Types of Brand Extensions
2. Category Extension- Extended to Items in Related Product Line: In category
extension different products, associated with each other in some way, get the same
brand name. It can be said that they belong to a single category. For example, Dettol and
Maggi. Intially, Maggi was a noodle brand and latter Maggi soups, Maggi Ketchup. Dettol
has been a famous brand of antiseptic liquid. Today Dettol soap, handwash, hand
sanitizer, kitchen gel, body wash, etc.
3. Outside Category Extension- Extended to Items in an Unrelated Product Line: In this
case, the extension of the brand name happens across products that are entirely new
and unrelated and fall under entirely different product categories. This is the toughest
challenge for brand extension, and its value is leveraged to the most. This is also called
“brand stretching”. For example, Enfield was the brand name that was initially used for
motorcycles and later it extended to gensets and televisions. The products in this case
fall under unrelated categories.
Brand Extensions
Brand Extension Approaches
1. Adding Features and Benefits to Improve the Existing Product: Improving an already
existing product is a strategy appropriate for products in their growth or mature phase of the
life cycle. The improved product might have new features or improved performance.
2. Launching Different Price Versions of the Product: For some of the prospective buyers, price
might be the inhibiting factor. The market of the product can be increased by launching a
low-price version of the existing product.
3. Expanding the Product Range: When the range of an existing line of products is expanded,
the success and reputation of the existing brand can be used to sell more products using the
same channel for sales. The important decision that needs to be made here is whether a
range of similar products need to be expanded or a totally new type of products is to be
launched.
4. Introducing Niche Products: A small, specific market sector, known for some common,
special features make a niche market. In place of focusing on the entire market, it is better
for a company to focus on niche sectors in which its strengths and opportunities lie and it has
an upper hand from its competitors.
Brand Extensions
Brand Extension Approaches
5. Introducing Private Label Products: Products that are licensed in a modified or standard form
and given to other companies to sell them under their own brand in place of the brand name of
the manufacturing company are known as Private label. This strategy is helpful as it generates
good revenue at low cost.
6. Responding to Competitive Product Actions: In a competitive environment, it is crucial to have
a strategy to match or respond to the competitor’s activities. This strategy is devised to help the
company in retaining the market share.
Significance of Brand Extensions
1. Cost of New Launches: It requires about 500-1000 million dollars to develop a new brand.
This giant investment restraints companies from launching new brands. Therefore, brand
extension appears lucrative in such situations.
2. Promotional Efficiency: The cost of individual brand promotion is high and the amount
invested in the promotion of one brand is of no use to the other brand. When soap from
Dettol brand is advertised, all the products belonging to the same brand name get benefited.
Brand Extensions
Significance of Brand Extensions

3. Benefits to Consumers: For a customer, brand extension is a relatively safe

way to a new product category. As they are familiar with the brand name, the risk
that they might perceive while making a buying decision is reduced.
4. Leveraging Brand Equity: A brand extension that has sustained itself in the
market is believed to have satisfied the demands of the consumers. The equity
enjoyed by the brand depends on how it has fulfilled that value proposition.
Developing Services
Meaning & Definition of Services
Service is provided by seller to buyer in exchange of money (economic activity)
but it does not provide the ownership of the services provided to the buyer, only
values are exchanged. This is the feature that distinguishes services from physical
goods.
As per the marketing experts, the term ‘service’ is not limited to personnel
services like dentists’ services, hair cut, legal consult, auto repairing, etc.
According to Christopher Lovelock, “Services are economic activities offered by
one party to another, most commonly employing time-based performances to
bring about desired results in recipients themselves or in objects or other assets
for which purchasers have responsibility”.
 Classification/Categories of Services
Easy to Remember Chart
By Market Segment By Degree of By Skills of Service By Business By Degree of
Tangibility Providers Orientation Regulation
End Consumer Highly Tangible Professional Non-Profit Services Highly Regulated
Services Services
Business Consumer Service Connected Non-Professional Commercial Services Limited Regulated
Services to Tangible Goods Services
Highly Intangible Non-Regulated
Developing Services
Classification/Categories of Services
1. By Market Segment: As the needs and requirements of different markets are not
homogenous, the services are different for different market segments.
a) End Consumer Services: The services which are bought by the customers for self-
consumption are termed as ‘end consumer services’. For example, hair cutting, beauty care, body
massage, etc.
b) Business Consumer Services: The various services which are bought by the organisations are
called ‘business consumer services’ or Business to Business (B2B) services. For example,
consultancy, market survey, advertising, etc.
2. By Degree of Tangibility: The types of services are also influenced by the degree of tangibility.
a) Highly Tangible: Services are termed ‘highly tangible’ when any tangible product offering is
included in it. Sometimes, the lifespan of such products is limited.
For example, a person can take a car on rent for a specific period, after the completion of the
time period, the customer needs to return the car to the service provider.
Developing Services
Classification/Categories of Services
b)Service Connected to Tangible Goods: Some kind of warranty is provided on the products by
the business organisations. If a customer faces any difficulty with the products, free services are
offered to the customer for a limited period of time.
For example, if a customer buys a cell phone, the manufacturer provides the free service for a
limited time.
c) Highly Tangible: In these types of services, no physical product is offered to the customer. For
example, in Yoga centre, the customer does not get any product apart from the Yoga Exercises.
3. By skills of service Providers: Type of services is greatly influenced by the skills and abilities of
service providers.
a) Professional Services: Formal training is essential for providing these kinds of services. For
example, services offered by doctors, IT consultants, lawyers, etc.
b) Non-Professional Services: No formal training is required to provide services to the
customers. Housekeeping is the typical example of these types of services, where there is no
need of formal training for the service providers.
 Developing Services
Classification/Categories of Services
4. By Business Orientation: The nature of business orientation of a service organisation also determines the type
of services offered by it. A service organisation may be public or private or it may be a non-profit or profit
establishment.
a) Non-Profit Services: Serving the society and not generating profit are the main objectives of such services. For
example, services of charitable hospitals, government schools, etc.
b) Commercial Services: Earning maximum profits and revenues are the main objectives of such services. For
example, services offered by airlines, banks, insurance advisers, etc.
5. By Degree of Regulation: The level of regulations which are imposed by the government can be the other basis
of classification of various services.
a) Highly Regulated: A large variety of rules and regulations are formulated to regulate these services. For
example, hospitals, insurance, mass transportation, etc.
b) Limited Regulated: Some of the services have limited rules and restrictions. For example, fast foods, catering,
etc.
c) Non-regulated: In some of the services, there are no regulations. For example, lawn care, house painting, etc.
 Developing Services
Distinctive Characteristics of Services
1. Intangibility: The first unique characteristic of services is their intangibility. It is not possible to touch,
see, taste, smell, hear or even feel services before they are actually bought. For example, a person may
not experience the joy of living in a five star hotel, unless and until he stays there.
2. Inseparability: It is the next distinctive characteristic of services which is also referred to as
‘immediacy’ by some professionals.
- Inseparability of production of services with its consumption and
- Inseparability of the service from the individual who owns the ability and executes the service.
3. Variability/Heterogeneity: Services also enjoy the characteristic of heterogeneity or variability. Each
service is exclusive and one-time generated, offered and consumed. It can never be exactly done in the
same manner as the earlier one.
- The services cannot be separated from the provider, so it leads to unevenness.
- Services greatly involve people, and anything which involves people is certainly variable.
- Services are affected by the time and the place where the service is being provided.
4. Perishability: Services are perishable and they cannot be preserved. For example, some hotels and guest
Developing Services
Goods Versus Services
Developing Services
Goods Versus Services
Developing Services
Service Differentiation

In the service industry, differentiation has been observed as the main element by
Kotler as it is very easy to copy the service innovations. Thus, continuous
development of new innovations remains the main issue for these service
organisations so that they can have a temporary competitive advantage.
Service differentiation can be thus seen as a significant process of including
some unique differences in a brand to look different from the competing
organisations.
Development of some certain plans which can match the requirements of
target customers is the main objective of this method. For example, the airline
which offers differentiated service in three different classes- first class, business
class and economy class.
Developing Services
Service Differentiation
Techniques for Service Differentiation
1. Best Cost Provider Strategy: This strategy mainly has the objective of facilitating a
greater value for the money paid by the customers. The main attempts of the service
providing firms are to provide the vital service traits and performances features for
exceeding the expectations of the customers when it comes to price.
2. Focused (Market Niche) strategy based on low cost: Identifying subgroups within a
large market having some special combinations of characteristics and finding out some
distinctive trait combinations are the main activities in niche or focused marketing.
3. Focused (Market Niche) strategy based on Differentiation: Serving the customers
better is the main objective of this focused strategy. When a certain segment of
customers is recognised by the firm having substantial wants and looking for some
unique characteristics and quality levels, then this policy can offer a number of benefits.
 Developing Services
Service Differentiation
Factors Involved in Service Differentiation
1. Ordering Ease: This mainly deals with the ease of placing an order with a certain firm. For example, Baxter
Healthcare has made the order placing process quite easy by providing the computers to the hospitals from
which they can place their orders directly to Baxter.
2. Delivery: It is mainly related to the delivery of the product or service to the customer with accuracy,
customer care and speed. For example, Deluxe Check Printer Inc. has created such a reputation among the
customers that the firm is able to dispatch the check only after one day of receiving the order and in fact, the
firm is maintaining its record of not being late even for a single day for almost 18 years.
3. Installation: Making the product operational at its operational site is the main concern here. For example,
Goof installation service is expected by the customers who buy heavy equipment.
4. Customer Training: It mainly deals with the training provided to the employees for using the equipment of
vendors properly and efficiently. For example, not only the costly X-rays equipment are sold by General
Electric in hospitals but even training is also provided to the users.
5. Customer Consulting: The different types of services, data or information which is provided to the customers
from the seller are included under customer consulting. For example, different types of research information
are provided to the customers by Rite and drugstore chain’s communications program, called the Vitamin
Institute in order to facilitate educated judgements and making them comfortable if they want any kind of
help on the internet.
Pricing Decisions
Introduction
The only component of marketing mix that generates returns is called price, however,
others only generate costs. Price can be easily altered, whereas, other product aspects
like channel obligations and product attributes cannot be changed so easily. Therefore,
price is the most flexible component of the marketing mix. It can conceptually be
defined as:
Price= Quantity of money received by the seller
-----------------------------------------------------
Quantity of goods and services rendered/received by the buyer
According to Prof. K.C.Kite, “Pricing is a managerial task that involves establishing
pricing objectives, identifying the factors governing the price, ascertaining their
relevance and significance, determining the product value in monetary terms and
formulation of price policies and the strategies, implementing them and controlling
them for the best results.”
 Pricing Decisions
Consumer Psychology and Pricing
Traditionally, it was assumed by economists that consumers accepted the given prices and were generally ‘price
takers’. However, marketers understand that the price related information is now actively processed by the
consumers.
Therefore, it is essential for marketers to apprehend how consumers develop certain price perceptions. Following
concepts can be helpful in understanding consumer psychology and pricing:
1. Reference Prices: Generally, only a small number of customers are able to remember the particular prices of
products, although they all may possess a sound understanding about price ranges. A reference price is the
expected or reasonable price of a product.
Reference price is the perceived price that is in the mind of customers which they often use to compare the price
of the concerned product. Reference price can be influenced by various factors such as:
a) Memory of past price,
b) A reference frame (like prices of substitute products, marked prices to discounts, prices which are channel-
specific, prices suggested by the manufacturer, pre-sale prices, competitive prices).
Pricing Decisions
Consumer Psychology and Pricing
Prices are framed by clever marketers in such a manner that indicates the best value for
the consumers. For example, the annual subscription rate of Amazon Prime is Rs 999 but
its monthly rate is Rs 125. This makes the expensive subscription a little less expensive;
however, the total of the monthly rate is even more than the annual rate.
2. Price Quality Inference: Generally, consumers judge the quality of products with its
price. Moreover, this price and quality relationship often influences their buying
decision. For example, a pair of Denims of Rs 1499 is considered more durable when
compared to a pair of Denims of Rs 699.
This price-quality inference can be understood in a better way through the example of
cars. There is a significant relationship between price and perceived quality of cars. High
quality cars are supposed to be expensive similarity, expensive cars are perceived to
have high quality.
Pricing Decisions
Consumer Psychology and Pricing
3. Price Cues: Any strategy or technique used by marketers to depict the
superiority of value preposition at that particular price point with respect to that
of the competitors’ price and past or future prices is termed as price cues. For
example, signage of ‘Limited offer’ or ‘Sale’ at point of purchase. The
effectiveness of the price cues can be evaluated by emphasising on the role of
price knowledge of customers and their ability in judging whether or not good
value is offered at those prices.
Pricing Decisions
Pricing Procedure: Setting-up the Price
One of the most challenging decisions that marketers make is decisions related to
price setting. This may affect the profitability of the organistaion and once set,
prices cannot be easily changed. Practically, pricing decisions, being financial
aspect of the organisation, must be made on the basis of the findings regarding
competition, target market, product content, distribution, and positioning.
Pricing Decisions
Pricing Procedure: Setting-up the Price
1. Setting Pricing Objectives: Identifying the pricing objective is the foremost
step towards pricing. Deciding target market is one of the pre-requisities of
selecting pricing objectives. If the objective are clear, it becomes easier to set
the price. For example, Sony practices ‘market skimming’ pricing strategy on
a regular basis.
2. Determining Demand: Once the objectives are identified, the firm decides
the demand. The level of demand is different for each price. Hence, it will
impact the marketing objectives of the firm differently. Generally, demand is
inversely proportional to price, i.e., demand decreases with the increase in
price. For example, when a perfume company increases its prices, more of its
goods get sold.
 Pricing Decisions
Pricing Procedure: Setting-up the Price
Demand for a particular product can be determined by observing following elements:

1. Price Sensitivity:

- Unique Value Effect

- Substitute-Awareness Effect

- Difficult-Comparison Effect

- Total Expenditure Effect

- End-Benefit Effect

- Shared-Cost Effect

- Sunk-Investment Effect

- Price-Quality Effect

- Inventory Effect

2. Estimating Demand Curves

3. Price Elasticity of Demand

Pricing Decisions
Pricing Procedure: Setting-up the Price
3. Estimating Costs: The price a company can set for its product is given a ceiling through
demand. The company may intend to price its product so that it can balance its
production, selling, as well as distribution costs and earn a reasonable rate of return
against its risk and efforts. Costs are divided into two types:
- Overhead or Fixed Costs: This cost remains constant irrespective of the revenue
earned from production and sales. For example, the amount of goods produced has no
impact on the cost of land.
- Variable Costs: This cost changes with the quantity of goods produced. For example,
with the amount of goods produced the cost of raw material changes.
4. Analysing Competitor’s Pricing: Next crucial step that needs to be taken while setting
prices is the analysis of competitor’s costs, offers and prices. In addition, the company
should also consider the competitors’ price responses to market changes, which lie
within the array of prices decided on the basis of company costs and market demand.
Pricing Decisions
Pricing Procedure: Setting-up the Price
5. Selecting Pricing Method:
- Cost-based Price: This lays down the floor for pricing
- Competitor-based Price: This gives the orientation framework for pricing.
- Customer Demand-based Price: This lays down the ceiling for pricing.
6. Selecting the Final Price: After selecting the suitable pricing method, it becomes easier for the
organisation to finalise the price. Below mentioned are certain additional factors that the organisation
needs to take into account while finalising its price:
a) Psychological Pricing: Price acts as quality indicator for certain customers. Generally, the
perceptions regarding quality and price of products interact in consumer buying activity. Products
like cars, which are priced high, are believed to be high quality and vice versa.
b) Company’s Pricing Policies: The prices should fall in line with the pricing policies of the company.
Several companies have a separate department that takes care of pricing policies and develops or
approves pricing decisions. Main purpose is to select the price which is fair to customers and
profitable to the organisation.
Pricing Decisions
Pricing Procedure: Setting-up the Price
3. Impact of Price on other Parties: The management needs to analyse how other
parties are going to react to the final price. What are the responses of the dealers and
distributors concerning it? Are the sales people ready to sell the product at that price?
4. Influence of other Marketing Mix Elements: The quality and advertising of the brand
must be considered in comparison to competition. When the relationship between
relative price, advertising and quality was studied, the following findings were revealed:
- Premium prices were charged by brands providing average relative quality
- Highest prices were charged by brands providing high relative quality
- In the later stages of the product life cycle, the firm witnessed a positive relation
between high advertising and high prices in case of leading brands.
Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
Firms generally prefer to prepare a specific pricing structure, indicating various
variables over a single price. Therefore, after deciding the method of pricing, the
requisite price of the specific goods or services is finalised with the help of
various pricing policies or customised pricing approaches.
Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
1. New Product Pricing: Pricing a new product is an especially challenging decision
problem. The newer the concept of the product, the more difficult the pricing
decision is. Pricing a new product is harder than pricing a mature product because of
the magnitude of the uncertainties involved.
Two common approaches to new product pricing, which reflect different marketing
objectives and market conditions, are penetration pricing and skimming pricing.
a) Price Skimming: Companies adopt when they launch a new product, in this strategy
while launching a product company sets high price for a product initially and then reduce
the price as time passes by so as to recover cost of product quickly.
b) Penetration Pricing: Penetration pricing is the practice of initially setting a low price
for one’s goods or services, with the intent of increasing market share. The price may be
set so low that the seller cannot earn a profit.
Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
2. Product-Mix Pricing Strategies: Price-setting logic must be modified when; the
product is part of a product mix. In this case, the firm searches for a set of prices that
maximises profits on the total mix. Eight situations involving product-mix pricing:
a) Product Line Pricing: Companies normally develop product lines rather than single
products and introduce price steps. A men’s clothing store might carry men’s suits at
three price levels Rs800, Rs1500, and Rs4500.
b) Optional-Product Pricing: Many companies offer optional products, features, and
services alongwith their main product.
c) Captive-Product Pricing: Some products require the use of ancillary, or captive,
products. Manufactures of razors and cameras often price them low and set high mark-
ups on razor blades and film, respectively.
Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
d) Two-Part Pricing: Service firms often engage in two-part pricing, consisting of a fixed fee plus a
variable usage fee. Telephone users pay a minimum monthly fee plus charges for calls beyond the
minimum number. Amusement parks charge an admission fee plus fees for rides over a certain
number.
e) By-product Pricing: The production of certain goods such as meats, petroleum products, and
other chemicals often results in by-products. If the by-products have value to a customer group,
they should be priced on their value.
f) Product-Bundling Pricing: Sellers often bundle products and features. Pure bundling occurs
when a firm only offers its products as a bundle. In mixed bundling, the seller offers goods both
individually and in bundles.
g) Premium Pricing: This strategy is used by a firm that has heterogeneity of demand for
substitute products with joint economies of scale.
h) Image Pricing: This strategy is used when consumers infer quality from the prices of substitute
models or competing products. The firm varies its prices over different brands of the same
product line. This strategy is commonly used in textiles, cosmetics and perfumes.
Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
3. Price Discounts and Rebates: Discounts are incentives offered to customers, usually as a means of
attracting repeat business from those customers. While the implementation of some type of discount
on price will vary from one situation to another, the basic idea is to provide customers with a sense of
receiving some type of additional value by not having to pay the standard or published price for goods
and services.
Rebating is highly attractive to consumers, offering a partial cash reimbursement for their purchases
that is tax-free, since the Internal Revenue Service views rebates as a reduction in the price paid for a
product, rather than as income. The following are the most common tactics:
a) Quantity Discounts: When buyers get a lower price for buying in multiple units or above a
specified dollar amount, they are receiving a quantity discount.
b) Cash Discounts: It a price reduction offered to a consumer, an industrial user, or a marketing
intermediary in return for prompt payment of a bill.
c) Functional Discounts: When distribution channel intermediaries, such as wholesalers, perform a
service or function for the manufacturer, they must be compensated. This compensation, typically a
percentage discount from the base price, is called a functional discount (or trade discount).
 Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
d) Seasonal Discounts: It a price reduction for buying merchandise out of reason. It
shifts the storage function to the purchaser. Seasonal discounts also enable
manufacturers to maintain a steady production schedule year-round.
e) Promotional Allowance: Promotional allowance (also known as a trade allowance) is
a payment to a dealer for promoting the manufacturer’s products.
f) Rebates: A rebate is an amount paid by way of reduction, return, or refund on what
has already been paid or contributed. It is a type of sales promotion where marketer
uses it primarily as incentives or supplements to product sales.
g) Zero-Percent Financing: During the mid and late 2000s, new-car sales receded. To
get people back into the automobile showrooms, manufacturers offered zero-
percent financing which enabled purchasers to borrow money to pay for new cars
with no interest charge.
Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
4. Psychological Pricing: Price says something about the product. Psychological pricing is
a method of setting prices intended to have special appeal to consumers. When
consumers can judge the quality of a by examining it or by calling on past experience
with it, they use price less to judge quality. When consumers cannot judge quality
because they lack the information or skill, price becomes an important quality signal.
a) Odd/Even Pricing: The practice of using prices that end in either an odd or an even
number.
b) Reference Pricing: A concept of what the price of a product should be based on the
consumer’s frame of reference.
c) Prestige Pricing: The practice of selling products at high prices to build a reputation
for quality.
Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
5. Promotional Pricing: Promotional pricing takes several forms. Supermarkets and department stores
will price a few products as loss leaders to attract customers to the store in the hope that they will buy
other items at normal mark-ups.
a) Complementary Pricing: This strategy is used by firm that has customers with high transaction
costs for one or more of its products. Transactions costs are all those costs that a customer has to incur
to buy the product, like the registration fees that a flat buyer has to pay in order to be a legal owner.
b) Loss Leader Strategy: This is another example of complementary pricing strategy. This strategy
involves dropping the price on a well-known brand to generate demand or traffic at the retail outlet.
c) Special-event Pricing: sellers will establish special prices in certain seasons to draw in more
customers.
d) Cash Rebates: Auto companies and other consumer-goods companies offer cash rebates to
encourage purchase of the manufacturers’ products within a specified time period.
e) Low-interest Financing: Instead of cutting its price, the company can offer customers low-interest
financing.
 Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
f) Longer Payment Terms: Sellers, especially mortgage banks and auto companies, stretch loans over longer
periods and thus lower the monthly payments.
g) Warranties and Service Contracts: Companies can promote sales by adding a free or low-lost warranty or
service contact.
h) Psychological Discounting: This strategy involves setting an artificially high price and then offering the product
at substantial savings.
6. Geographical Pricing Strategy: This strategy seeks to exploit economies of scale by pricing the product below
the competitor’s in one market and adopting a penetration strategy in the order. The former is termed as
secondary market discounting. Many buyers want to offer other items in payment, this practice is known as
counter trade, it has following forms:
a) Barter: The direct exchange of goods, with no money and no third party involved
b) Compensation Deal: The seller receives some percentage of the payment in cash and rest in products.
c) Buyback Arrangements: The seller sells a plant, equipment, or technology to another country and agrees to
accept as partial payment products manufactured with the supplied equipment.
Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
d) Offset: The seller receives full payment in cash but agrees to spend a substantial
amount of the money in that country within a stated time period.
7. Discriminatory Pricing Strategy: This strategy involves a firm differentiating its price
across different market segments. The assumption in this strategy is that different
market segments do not communicate or have different search costs and value
perceptions of the product.
First Degree: price discrimination, the seller charges a separate price to each customer
depending on the intensity of his or her demand.
Second Degree price discrimination, the seller charges less to buyers who buy a larger
volume
Third Degree price discrimination, the seller charges different amounts to different
classes of buyers, as in the following cases:
 Pricing Decisions
Price Adaptation and Strategies: Pricing Strategies
a) Customer-Segment Pricing: Different customer groups are charged different prices for the same group or
service. For example, museums often chage a lower admission fee to students and senior citizens
b) Product-Form Pricing: Different versions of the product are priced differently but not proportionately to their
respective costs.
c) Image Pricing: Some companies price the same product with two different levels based on image differences.
d) Channel Pricing: Coca-Cola carries a different price depending on whether it is purchased in a fine restaurant,
a fast-food restaurant, or a vending machine.
e) Location Pricing: The same product is priced differently at different locations even though the cost of offering
at each location is the same. A theatre varies its seat prices according to audience preferences for different
locations.
f) Time Pricing: Prices are varied by season, day, or hour. Public utilities vary energy rates to commercial users
by time of day and weekend versus weekday. Restaurants charge less to “early bird” customers.
IMP Questions
1. Define NDP and explain its Process and challenges.
2. Write a short note on Brand Management
3. Difference between Product and Brand
4. Write a short note on Brand Equity
5. Explain in detail Devising Branding Strategies
6. Explain Co-branding and Ingredient Branding, Brand Extensions
7. Write a note on Developing Services
8. Write a short note on Pricing Decisions
IMP Terms
1. New product development
2. Brand
3. Brand Equity
4. Co-branding and Ingredient Branding
5. Brand Extensions
6. Services
7. Service Differentiation
8. Pricing Decisions
9. Consumer Psychology and Pricing