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Pricing Strategies, Product Strategies and PLC Management Notes Pricing Strategies, Product Strategies and PLC Management

Notes
Dr Amit Rangnekar www.dramitrangnekar.com Pricing Strategies based on cost, competitor and customer Strategy Example Meaning Cost based Cost plus (markup) Break even Retail Pharma, FMCG Margins known, prices can be high Large volumes Competition based Going rate Sealed bids Competitive Cartelling Banks, petrol, Tenders Pepsi, Coke Cement, OPEC Customer based Auctions EDLP Loss leader Penetration Perceived Value Predatory Prestige Price Skimming Psychological Value Ebay Airlines, Discounters Factory outlets FMCG, Pharma Clubs, lifestyle brands Dominant brands Designer, Car, Watch Technology brands Bata, mobile, internet Buffet, superstores Bidding Every day low price, different prices, bargain based Discount to entice purchase, experience brand Low price launch, increase later, low differentiation What customer is willing to pay Sell at / below competitors cost Perception of premium, exclusivity New launch at premium prices, reduce later Below perceived barrier price, Rs 100< 99 perception Enticing pricing, deal Wide choice, no differentiation, competitionprice/service/ reach

Product mix pricing Bait & Hook (Captive) Bundling Razors, Printers Season tickets, Maggi noodles with ketchup Cheap main product, costly peripherals, consumables Bundle own/ others leading brand with new introduction or slow moving product

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Pricing Strategies, Product Strategies and PLC Management Notes


By-product Optional feature Product line Two-Part Oil+ lube, Poultry+ egg Car-EMI, warranty Bisleri in 8 pack sizes Mobile- Airtime + VAS Price process products cheaper Profitable brands take care of others in the portfolio Price full product line Mandatory component plus services

Discriminatory pricing Customer segment Image Location Student discounts Licence plate numbers Theatres, Stadium Students are offered travel discounts- air, rail, bus Premium is charged for specific car numbers Different seats command different rates Higher quantity, prompt payment- discounts Hotel rates vary by season in tourist destinations Multiplexes rates vary by weekdays, weekends

Quantity and payment Bonus offer, discount Season Time Goa hotel prices vary Multiplex prices

Other Pricing strategies Geographic Promotional Financing Psychological Discounting Old for New Price point Usage pricing Medicines, books Discounts, BOGOF EMI, warranty, AMC Prices slashed 399 to 199, online Electronics, apparel Maruti, Cadbury, Nokia, Titan, Bata Broadband pricing Same medicines and books are priced different across geographies Introduction, revive, new line Absorb add-ons and facilitate easier payment options Buyer bargains, raise price and then offer discount Exchange offers Range, occasions Flat rate, time based or volume based

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Pricing Strategies, Product Strategies and PLC Management Notes


Product Strategies Product Classification Product Commodity Generics Customer Value Hierarchy Need satisfier, tangible No physical differentiation- Natural resources, agricultural products When brand means the category- Bisleri, Amul, Cadbury, Xerox, Band Aid Core, Basic, Expected, Augmented and Potential product levels that drive value

Classifications of Products Consumer Goods Convenience goods Frequently purchased, minimum effort, easily available Staples- toothpaste, soap, biscuits, milk, sugar Impulse goods- chips, chocolates, ice creams Emergency goods- sweaters, raincoats, umbrellas Shopping goods Speciality Unsought Industrial Goods Durability, tangibility Durable Nondurable Services High lifespan, low frequency- Car, fridge, TV, furniture Limited period use- footwear, clothes, home furnishing Acts, performances, deeds Product Relationships Product Hierarchy Product mix -Lines -Width Needs extend from core to potential, through levels (hierarchies) All the products, lines, extensions, SKU Related products, same customer groups, same channels Samsung, LG, Sony Consumer Electronics Number of different product lines HP- PCs, Laptops, Printers Clothes, footwear, TV, laptops, refrigerators Jewellery, cars, tools, camera, adventure gear Fire extinguishers, Encyclopedia, Life insurance, Mediclaim B2B- materials, parts, capital items and services

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Pricing Strategies, Product Strategies and PLC Management Notes


-Length -Depth -Consistency Product Strategies Product positioning Repositioning Product overlap Product scope -Single product -Multiple products -System of products -Product design --Standard product --Customised product --Standard + modified product -Product pruning -Diversification -Value marketing New product strategy -New to the world product -New to the firm product -Cost reduction, repositioning -Product convergence Dr Amit Rangnekar Apple- Ipad,Ipod,Iphone;Nintendo Wii Chic sachet, Maruti Kizashi / Ertiga Surf/Ariel price cut, Amul ice cream; Moov Smart phones with multiple features, Swiss knife www.dramitrangnekar.com Page 4 Economies- soap, shampoo, biscuits Flexibility- designer brands, wedding dress Best of both- configured laptop, customized cars Maruti- Zen, Versa, Gypsy; Nokia, Samsung in mobiles Related- Amul milk to butter, cheese, Unrelated- Amul milk to pizza, retail McDonalds, Titan, Maruti Nokia, Bisleri, Reva Maruti, HUL, P&G Canon- camera, lens, filter; Diabetes Testing- Glucometer, strips, lancet, needles Locate brand in customers mind- Maruti Value, Tata trust, Nokia rugged Moov shifted from joint pain to back pain, Colgate from cavities to strong teeth Glaxo- Crocin , Calpol for fever, Coke- Coca Cola , Thums Up Number of items within a product line Number of variants of each product offered in the line Closely related product lines in end use- similar customers, channels, facilities

Pricing Strategies, Product Strategies and PLC Management Notes


Product mix decisions Product line -How many items per line -Expanding the product line -Product line extension -Product category extension -Brand extension -Downward stretch -Upward stretch -Two way stretch -Horizontal stretch -Line pruning -Line fill -Cannibalise Add to existing product line- Bisleri packs 20,10,5,2.1 liters, 500/250 ml Add new items/lines- HUL markets detergents, toothpaste, tea, soaps, shampoo New category- Maggi noodles- soups, ketchups; Vaseline petroleum jelly- lip care, skin care Lower range- Taj Hotels to Vivanta, Gateway, Ginger; Levi's to Denizen Higher range- Toyota to Lexus, Titan to Regalia Volkswagen- VW , Skoda, Audi, Lamborghini Titan watches by occasion/ wear- Raga ethnic, Fastrack casual, Edge formal BMW introduces new models in every line, no product in decline stage Maruti 9 models / 24 variants- Rs 3 to Rs 10 lakhs; IPod nano, shuffle, classic80/40/20/8/4gb models, Cadbury Re 1 to Rs 500 Honda Civic Hybrid may cannibalise Civic, City, Accord buyers Design: Ferrari, Mont Blanc, Apple, Enfield Bullet Features: Samsung, Nokia, Titan Quality: Bose speakers, Raymond Pricing: value (McDonald), quality (Tupperware), luxury (Taj Hotels) Identity: perception of Nike sneakers with/ without the swoosh? Positioning: reliable (Dabbawallas), convenient (Flipkart), safe (Bisleri) How many lines to offer- Samsung in TV, laptops, tabs, mobiles etc HUL soaps- 8 brands* 2 fragrances* 2 packs

Product decisions

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Pricing Strategies, Product Strategies and PLC Management Notes


Product Lifecycle (PLC) The product life cycle describes the four stages that every product goes through from its birth to its decline. As each product has a limited lifespan, each stage of the lifecycle will present opportunities as well as challenges, which will affect the profitability and the strategy in each phase of the lifecycle. However, there are products that keep extending their lifecycle by launching new extensions and variants. Product Lifecycle

The PLC helps outline the market trends and is used for product planning and control as well as for sales forecasting1,2. The main stages of the product life cycle are: Introduction The product category may be new or could exist as a niche or as a small segment, which with greater acceptance, may grow larger. In this phase the major task is to create awareness about the product category and to educate potential customers about its uses and benefits. Tablets (Tab), Maruti Ertiga, Blackberry 10, Windows 8, IPad Mini. Growth Products or services experience a phase of rapid unit sales growth. The challenge in this phase is to build your brand. With greater acceptance, coverage and availability, the sales growth is high. But the growth may also attract competition, which will grow the market further. Incumbents focus on brand building strategies and may launch extensions and variants to cater to different segments. Smartphones, Apple, Samsung, Audi, BMW, Ghari, Cadbury, Samsung Galaxy Note 2. Maturity In this phase, from a sellers market, there is a shift towards a buyers market, a bigger market. But growth rates are stagnant or slowing down. Margins may decline or price wars may ensue. Consolidation may occur as bigger and more ambitious players acquire small firms or small firms close operations. Competitors are present in all segments, and carve out new features to serve specific but profitable segments. Firms may revitalize their brands. Laptops, Nokia, Mecedes Benz, Wheel, Bournvita. Dr Amit Rangnekar www.dramitrangnekar.com Page 6

Pricing Strategies, Product Strategies and PLC Management Notes


Decline As demand for the product reduces, the market growth declines to levels lower than the previous years. New technologies may replace the older ones or the major players may reposition themselves or use strategies to revive their waning sales. Firms promote new uses for old products, target new markets, or harvest profits as much as possible. Desktops, Motorola, Hummer, Nirma, Amul Chocolates. PLC is product centric and the duration may differ across industries and within markets. The PLC does not factor in the environment, profitability, competition, customers, channels, communication and technology. Table 10.2 Product Lifecycle Characteristics, Objectives and Strategies Characteristics Sales Cost/customer Profits Customers Competitors Introduction Low Highest Loss Innovators Nil/few/existing Awareness, Trial Basic product Cost + Selective Awareness, trial Growth Higher High Low Early adopters Growing Gain market share, Usage Product extensions, service, warranty Penetrate, Skim Intensive Awareness, interest Maturity Highest Low High Majority Shake out Maximise profit, Defend share Diversify, revive Competitive Extensive Benefits, differentiation, encourage switching Decline Lower Low Decline Laggards Decline Reduce cost, Milk/ Harvest Sustain, hive off weak Reduce Selective Target loyals

Objectives
Products Price Distribution Promotion

Source: Adapted from Wasson, Weber, Doyle 10.1.3 PLC Strategies

Increasing competition, technology & changing economic conditions make firms reformulate positioning and differentiation strategies during a PLC.
10.1.3.1 Marketing Strategies: Introduction Stage

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Pricing Strategies, Product Strategies and PLC Management Notes


At this stage, high promotional expenditure is incurred to convert customers to the firms product, induce product trial and ensure availability. Hence in the initial stages, there may be a loss or very low profits.

If the product is a pioneer or being introduced for the first time, its success can bring in huge profits and the advantages of being the first mover. But a pioneering introduction could be risky and costly due to high development costs, as acceptance by customers may take longer than expected. The pioneer would have to invest in creating brand awareness, but can gain instant recall, leadership, strong association with the category, wide availability and brand equity.

If the product is not a pioneer but a follower, it can succeed by introducing better products or technology than the innovator in terms of performance and benefits. The follower would have to incur less promotion and development costs.

10.1.3.2 Marketing Strategies: Growth Stage


The sales growth in this stage is faster as acceptance of the product grows, and product is introduced across new markets, geographies and customer segments. However the growth may attract new competitors. Pricing strategy may be to penetrate the market, while increased demand will ensure wider availability. Higher promotional spends may be incurred to educate the market and fight competition. Profits may increase due to economies of scale.

Introduction of product extensions and variants, as well as new features for existing products may be added to target newer segments. Advertising may focus on converting new customers and retaining existing ones by highlighting their benefits over competitive brands. 10.1.3.3 Marketing Strategies: Maturity Stage In this stage product growth rates would decline, as increased competition would wean away customers. The major players would assert themselves by acquiring smaller firms and a consolidation in the industry may be evident, where few players would dominate, besides specialists and nichers. Maturity would result in industry overcapacity and price wars. Firms may focus on few profitable products and lucrative new segments to remain relevant, and increase use, users, and usage of existing customers.

10.1.3.4 Marketing Strategies: Decline Stage In the decline stage, sales are lower than earlier years as customers shift due to changes in tastes, advances in technology and availability of superior competitive alternatives. The lack of sales and erosion in profits may force firms to reduce promotion and milk or harvest. Firms could focus on retaining key customers through selective product promotion and limited investment.

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Pricing Strategies, Product Strategies and PLC Management Notes


10.1.4 Style, Fashion, Fad While the shape of the PLC is a typical bell curve, certain products or markets have distinctive PLC shapes. Style, fashion, and fad are 3 types of PLC with distinct shapes.

Figure 10.2 Style, Fashion, Fad

10.1.4.1 Style Style is a more personal but distinctive form of self-expression. A person may use cuff-links or smoke a pipe or wear a cap, or wear traditional clothes, all of which are personal choices or individual style. A person may don a peculiar style for years without caring for the latest fashion.

10.1.4.2 Fashion Fashion is the style that is popular or currently accepted in a market. But how long fashion would last is difficult to predict. Fashions pass through four stages5- Distinctiveness, emulation, mass-fashion and decline. Fashion may go out of fashion but returns after some time. Bell bottoms, pleated trousers, long hair keep coming and going in and out of fashion.

10.1.4.3 Fad Fads are fashions that are immediately accepted, become popular quickly, are followed with enthusiasm by few, but peak early and phase out very fast. Fads do not satisfy an underlying need due to which they do not last long and are short lived. The Ghajini hair-cut, Pool (similar to Billiards) as a sport in India and the 3 Idiots stool, were all fads that faded out after the initial enthusiasm.

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