4Marketing Basics

PRINCIPLES OF MARKETING
Unit - IV
Recommended Text Book: Philip Kotler, Gary Armstrong, Ahmed Tolba, &
Anwar Habib “Principles of Marketing” (2011), Arab World Edition, Pearson
Prentice Hall, 8e ISBN 978-1-4082-5568-1 and E-TEXT BOOK (Kotler &
Armstrong)
For BSBA/BBA/MBA Students; Notes prepared
only for general studies purpose & reference
By Dr. Sandeep S. Solanki
(Ph.D., MBA, M.Com)
Jodhpur, Rajasthan, India
1
All notes from recommended Arab World Edition book of Philip Kotler

UNIT – IV
(Product, Branding, Packaging, New Product Development & Pricing Concepts)
TOPICs:
1. Product Levels And Product Classification
2. Product Decisions: Product Attributes, Branding, Packaging – Labeling, Product
Line Decisions - Breadth - Depth – Variants
3. Branding Decisions - Brand Definition and Branding Strategies
4. New Product Development
5. Product Life Cycle
6. Pricing-Concepts – Pricing Strategies
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UNIT – IV
PRODUCT LEVELS and PRODUCT CLASSIFICATION:
Definition of Product: Anything that can be offered to a market for attention, acquisition, use or
consumption that might satisfy a want or need. Ownership of the product is transferred from seller to
the buyer. Products are tangible, which can be touched and seen by naked eyes. For example, an Apple
iPod, tea, coffee, soap, car etc. Broadly defined, products include physical objects, services, events,
persons, places, organization, ideas, or a mix of all these entities (market offerings – studied earlier).
Definition of Service: Any activity or benefit that one party can offer to another that is essentially
intangible and does not result in the ownership of anything. Services can be felt (like feeling of
satisfaction or dissatisfaction, happy or unhappy) but not touched or seen with naked eyes. For
example, tours & travel services, insurance, banking, investment agencies, medical services etc.
LEVELS OF PRODUCT: Three levels of product/services have been identified and each level adds
more customer value. The most basic level is the core customer value, which addresses the question –
what is the buyer really buying? The consumer is paying for a solution of some core problem and
seeking benefits out of it. For example, when a consumer is buying a mobile instrument, he is paying
to for a freedom for an on-the-go connectivity or communication with people and resources. At the
second level, the core benefits are transformed into actual product with additional features and
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UNIT – IV
designs. For example, the same mobile communication device is given a brand name, colors, internet
access and packaging. Finally, the third level is the augmented level in which the core benefits and
actual product benefits are extended with additional consumer services and benefits, such as after-sale
services. For example, a mobile device is now offered with warranty on parts, quick repair services, a
toll-free number and website with virtual assistant for instant queries or information. The three levels
of product are shown in the following figure:
4

UNIT – IV
PRODUCT CLASSIFICATION:
Product are classified broadly into two: Consumer Products and Industrial Products.
Consumer Products: are products and services bought by final consumers for personal consumption.
Marketers usually classify these products further based on how consumers go about buying them: a)
Convenience products; b) Shopping products; c) Specialty products; and d) Unsought products.
a) Convenience products: are consumer products that consumers usually buy frequently, immediately,
and with a minimum of comparison and buying effort. These products are mostly of low price with
widespread distribution availability. Producers of such product do mass promotion. For example, soap,
chewing gum, chocolates, bread, milk, cereal, magazines etc.
b) Shopping products: are less frequently purchased consumer products that customers compare
carefully on suitability, quality, price and style. When buying shopping products, consumers spend
much time and effort in gathering information and making comparison. Higher prices are charged for
such products and have selective (fewer) distribution outlets. Promotion is done by both producers and
retailers. For example, furniture, electronics, clothing, automobile, home appliances, hotel, airline
services etc.
c) Specialty products: are consumer products with unique characteristics or brand identification for
5

UNIT – IV
which a significant group of buyers is willing to make a special purchase effort. These are of high price
and have exclusive distribution only in one market area. Promotion is done only to the selected target
customer segment. It includes luxury goods. Buyers normally do not compare specialty products. For
example, Rolex watches, Swarovski jewellery, Jimmy Choo shoes, Zara fashion, Oud Rosewood,
Chanel perfume etc.
d) Unsought products: are consumer products that the consumer either does not know about or knows
about but does not normally think of buying. Most major new innovations are unsought until the
consumer becomes aware of them through advertising. Price varies and aggressive advertising is
required. For example, life insurance, medical check-ups, pesticide for home etc.
Industrial Products: are those purchased for further processing or for use in conducting a business.
Thus, the distinction between a consumer and industrial product is based on the purpose for which the
product is bought. If a consumer buys a printer for personal use at home, it is categorized as consumer
product but if the same printer is used for business purposes, it is said as industrial product. There are
three types of industrial products – a) materials and parts, b) capital items, and c) supplies and
services.
a) Materials and parts include raw materials such as farm & dairy products, and industrial parts such
as iron, electricals, cement, tires, small motors etc.
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UNIT – IV
b) Capital items are industrial products that aid in the buyer’s production or operations, including
installations, and accessory equipment. For example, generators, drill presses, elevators, fax machines,
office furniture etc.
c) Supplies and Services: include operating supplies and repair & maintenance items such as
lubricants, coal, stationary, paint, nails etc.
PRODUCT DECISIONS: PRODUCT ATTRIBUTES, BRANDING, PACKAGING –
LABELING, PRODUCT LINE DECISIONS - BREADTH - DEPTH – VARIANTS:
A. PRODUCT ATTRIBUTES B. BRANDING
C. PACKAGING D. LABELING
E. PRODUCT LINE DECISIONS F. PRODUCT MIX (or product portfolio)
A. PRODUCT ATTRIBUTES: Developing a product or service involves defining the benefits that it
will offer. These benefits are communicated and delivered by product attributes such as quality,
features, and style & design.
i) Product Quality: Product quality can be defined in terms of customer value and satisfaction
through performance and conformance. Performance quality refers to the ability of a product to
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UNIT – IV
perform its functions. And conformance quality refers to freedom from defects and consistency in
delivering a targeted level of performance. For example, Siemens defines quality as: ‘Quality is when
our customers come back and our products don’t.’
ii) Product Features: Features of the product are the extras on basic model. Product features are a
competitive tool for differentiating the company's product from competitors’ products. A product can
be offered with varying features to add benefits. For example, reverse automatic gearing gives
enhanced safety in cars; child lock in television prevents children to use it; micro-block technology in
refrigerators prevents bacterial growth and keeps fruits & vegetables fresh up to 15 days.
iii) Product Style & Design: Product design involves shaping the customer’s product-use experience,
whereas style simply describes the appearance of the product. Good design contributes to a product’s
usefulness as well as its looks and style. For example, various designs and styles of chairs improves its
utility as shown in following figure:
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UNIT – IV
B. PRODUCT BRANDING: A brand is a name, term, sign, symbol or design, or a combination of
these, that identifies the maker or seller of a product or services. Brand names help consumers identify
products that might benefit them and also say something about product quality and consistency of
product performance.
C. PRODUCT PACKAGING:
Packaging involves designing and producing
the container or wrapper for the product in such
a way so as to protect the inside material and
hold the product with safety. Customer gets
attracted as well. 9

UNIT – IV
D. PRODUCT LABELING: Labels range from simple tags attached to products to complex graphics
that are part of the package. Labeling on the product describes key ingredients in the package, bar-
coding for price, guidelines for product usage, safety measures and informs about the company name,
production facility location, and customer care details. Labeling also helps to identify the product and
promote the brands.
E. PRODUCT LINE DECISIONS: A product line is a group of products that are closely related
because they function in a similar manner, are sold to the same customer groups, are marketed through
the same types of outlets, or fall within given price ranges. The length of the product line is too short if
the manager can increase profits by adding items or the line is too long if the manager can increase
profits by dropping items. For example, Unilever produces several lines of toothpaste – Signal,
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UNIT – IV
Close-Up, and Pepsodent. And Johnson & Johnson produces several lines of skin creams – Johnson’s
Baby, Neutrogena, Ph5.5, and Roc.
F. PRODUCT MIX (or product portfolio): A Product Mix (or product portfolio) consists of all the
products and items that a particular seller offers for sale. A company’s product mix has four important
dimensions: a) Product Mix Width; b) Product Mix Length; c) Product Mix Depth; and d) Product
Mix Consistency.
a) Product Mix Width: refers to the number of different product lines the company carries.
b) Product Mix Length: refers to the number of items the company carries within its product lines.
c) Product Mix Depth: refers to the number of versions offered of each product in the line.
d) Product Mix Consistency: refers to how closely related the various product lines are in end use,
production requirement, distribution channels, or some other way.
11
PRODUCT MIX
Product Mix Width (3) Personal Care Food & Beverages Household
Product Line Length (8)
Skincare Haircare Oralcare Tea Coffee Snacks Softdrink
Liquid Cleaning
Products
Product Depth
(versions-product mix
depth) - 19
Soap Shampoo Toothpaste Tea Bags Coffee Powder Potato Chips CocaCola Clorex
Sunscrea
m
Hai Oil Toothbrush Loose Tea Coffee Beans Noodles Flavors Harpic
Lotion Mouth Freshner
Deodrants

UNIT – IV
BRANDING DECISIONS - BRAND DEFINITION AND BRANDING STRATEGIES:
Q. What do you understand by a BRAND?
Ans. A brand is the company’s promise to deliver a specific set of features, benefits, services, and
experiences consistently to the buyers. Brand represents consumers’ perceptions and feelings about a
product and its performance. Products are created in the factory, but brands are created in the
consumers’ mind.
Q. What do you understand by a BRAND EQUITY?
Ans. Brand equity is the differential effect that knowing the brand name has on customer response to
the product and its marketing. It is a measure of the brand’s ability to capture consumer preference and
loyalty. A brand has positive brand equity when consumers react more favorably to it than to a generic
or unbranded version of the same product. It has negative brand equity if consumers react less
favorably than to an unbranded version.
Q. What are the advantages or benefits of BRAND EQUITY?
Ans. 1) Brands hold power and value in the marketplace in varying impact, such as GE and Yamaha.
Brands also create consumer excitement and loyalty, such as Google and Apple. 2) Brands possesses
strength along four dimensions of consumer perception (according to an Ad agency Young &
Rubican’s Brand Asset Valuator): 12

UNIT – IV
a) what makes the brand stand out – differentiation; b) how consumers feel it meets their needs –
relevance; c) how much consumers know about the brand – knowledge; and d) how highly consumers
regard and respect the brand – esteem. Brand with strong brand equity rate high on all these
dimensions. 3) A brand with high brand equity is a very valuable asset. Brand valuation is the process
of estimating the total financial value of a brand. For example, the estimated brand value of Google is
US$86 billion and that of Microsoft is US$ 71 billion. 4) High brand equity provides a company with
many competitive advantages such as high brand awareness and consumer loyalty. 5) A powerful brand
forms the basis for building strong and profitable consumer relationships, also said as creating
customer equity.
MAJOR STRATEGIC BRANDING DECISIONS:
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UNIT – IV
MAJOR STRATEGIC BRANDING DECISIONS: Major strategic decisions related to branding are:
1. Brand Positioning; 2. Brand Name Selection; 3. Brand Sponsorship; and 4. Brand
Development
1. Brand Positioning: Brands are positioned in the mind of the target consumers. And this can be done
in three basis: a) based on product attributes such as, Pampers's baby diapers; b) based on associating
the brand name with some desirable benefits such as, Nike (performance) and Lexus (quality); and c)
based on strong beliefs and values as a pack of emotional wallop such as Apple, Godiva and Starbucks.
2. Brand Name Selection: Brand names are based on careful review of product benefits and target
market. Desirable qualities for a brand name include that it should be about product qualities (Die
Hard batteries), it should be easy to pronounce and recognize (iPod Touch), it should be distinctive
(Virgin airlines), it should be extendable (Amazon), it can be easily translated in foreign languages,
and it is capable of registration and legal protection (Blackboard school software).
3. Brand Sponsorship: There are four options a brand can be launched in the market: a) first, a
product may be branded as national brand or manufacturer’s brand, such as Kellog’s products; b)
secondly, the manufacturer may sell its product(s) to the distributors and the distributors may sell
further by branding the product in their names also said as private brands or store brands, such as
Wal-Mart’s private brands account for a whopping 40% of its sales (Sam’s Choice and Equate
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UNIT – IV
pharmacy are both private brands of Wal-Mart); c) third way of branding is licensing. Some
companies take licensed names or symbols previously created by other manufacturers, for a fee, and in
return they get an instant and proven brand name. For example, some sellers of apparel use names or
initials of well-known fashion innovators such as Calvin Klein, Tommy Hilfiger, Gucci, or Armani; d)
And fourth way of branding is co-branding. Co-branding occurs when two established brand names of
different companies are used on the same product, such as Sony-Ericsson (Sony Corporation +
Telefonaktiebolaget LM Ericsson).
4. Brand Development: can be pursued in four ways – a) Line Extensions; b) Brand Extensions; c)
Multi-brands; and d) New Brands.
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UNIT – IV
a) Line Extensions: occur when a company extends existing brand names to new forms, colors, sizes,
ingredients, or flavors of an existing product category. For example, there is an array of seven different
Jeep SUV models – Commander, Grand Cherokee, Compass, Patriot, Liberty, Wrangler and Wrangler
Unlimited. Another example of Toyota car portfolio – Avalon, Camry, Camry Solara, Corolla, Matrix,
Prius, Venza and Yaris.
b) Brand Extensions: A brand extension extends a current brand name to new or modified products in
a new category. For example, Nestle using its brand name in chocolates as well as bottle water market.
Also, Victorinox extended its venerable Swiss Army brand from multitool knives to products ranging
from cutlery and ballpoint pens to watches, luggage and apparel.
c) Multi-brands: Companies often introduce additional brands in the same category. Multi-branding
offers a way to establish different features and appeal to different buying motives. It is like separate
name for every additional product. For example, Procter & Gamble (P&G) markets many different
brands in each of its product categories.
d) New Brands: A company might believe that the power of its existing brand name is waning, and a
new brand name is needed. Or it may create a new brand name when it enters a new product category
for which none of the company’s current brand names are appropriate. For example, Toyota created the
16

UNIT – IV
separate Scion brand, targeted toward younger consumers.
NEW PRODUCT DEVELOPMENT (NPD)-STAGES:
NPD means original products, product improvements, product modifications, and new brands that the
firm develops through its own research-and-development efforts. To create successful new products, a
company must understand its consumers, markets, and competitors and develop products that deliver
superior value to customers. There are eight major steps/stages in a systematic NPD planning:
1. Idea Generation: The NPD starts with idea generation – the systematic search for new product
ideas. The are two sources of idea generation – internal and external. The internal sources includes
inviting ideas from employees, engineers, executives, scientists, manufacturing staff to salespeople of
17

UNIT – IV
the company itself. Company may invite new product ideas from external sources as well such as from
customers, retailers, dealers, suppliers, distributors, government agencies, MR firms, commercial
laboratories and even by watching competitors. For example, LEGO (a toy company) invited 250
LEGO customers to interact with its engineers to its offices to assess new designs. The result was the
Santa Fe Super Chief train-set, selling 10,000 units in less than two weeks.
2. Idea Screening: The purpose at this stage is to reduce then number of ideas received during idea-
generation stage. By spotting good ideas and dropping poor ones, help company to go ahead only with
the product ideas that will turn into profitable products. The company ensures R-W-W (real, win,
worth it).
3. Product Concept Development and Testing: A product concept is a detailed version of the idea
states in meaningful consumer terms. And testing of this product concept involves presenting to group
of target consumers symbolically (word or picture description) or physically. The consumers are asked
to react, and the company may decide upon which concept has the strongest appeal.
4. Marketing Strategy Development: The marketing strategy development stage gives a statement on
three aspects – first, about target market, sales, market share and product goals; secondly about
product’s planned price, distribution and marketing budget for the first year; and thirdly, about planned
long-run sales, profit goals and marketing mix strategy. 18

UNIT – IV
5. Business Analysis: involves a review of the sales, costs, and profit projections for anew product to
find out whether they satisfy the company’s objectives. If they do, the product concept can move to the
product development stage.
6. Product Development Stage: At this stage the product concept is converted into physical product by
applying engineering and/or R&D efforts. It calls for large jump in investment whether the product
idea/concept can be turned into a workable/functional product. Developing a successful prototype may
take days, weeks, months, or even years depending on the product type and prototype methods. Often,
products undergo rigorous tests to make sure that they perform safely and effectively, or that
consumers will find value in them.
7. Test Marketing: This is the stage at which the product and marketing program are introduced and
tested in real market settings. Test marketing gives the marketer experience with marketing the product
before going to the great expense of full introduction. It can cost high depending on the type of the
product category. When using test marketing, consumer-products companies usually choose one of the
three approaches – standard test markets, controlled test markets, and simulated test markets.
8. Commercialization: After successful test marketing, the company decides to manufacture the new
product at large scale. And then launch the new product into the market and thus commercialization
19

UNIT – IV
takes place. The company must decide over mainly on the timing for introduction (such as during
festive season) and the location or region (such as in main cities of the country).
PRODUCT LIFE CYCLE (STAGES) – expecting a long and happy life of the product:
The company wants to earn a decent profit to cover all the effort and risk that went into launching the
new product. A product life cycle is a graphical representation of various stages of product sales
growth and profit earned over a period of time. 20

UNIT – IV
PRODUCT LIFE CYCLE (STAGES):
The PLC has five distinct stages: 1) Product Development; 2) Introduction; 3) Growth; 4) Maturity;
and 5) Decline.
1) Product Development Stage: This is the stage when the product idea or concept has been
transformed into physical wear in the laboratory. The sales are zero and the company’s investment
costs has mounted.
2) Introduction Stage: The product is recently introduced or launched commercially in the market.
Customers who are innovators i.e., who wants to try new products will only buy the new product.
Distribution and promotion cost is very high. Profits are non-existent because of low sales.
3) Growth Stage: is the period of rapid market acceptance. Customers who are early adopters i.e., buy
after a favorable of word-of-mouth. Intensive distribution takes place to fulfill rising demand with
slight increase in promotion cost. Company start earning profit due to rapid increase in sales.
4) Maturity Stage: This stage lasts longer than previous stages and poses strong challenges from
competitors in terms of pricing. Consumers who are middle majority stays for a longer time. More
intensive distribution is required due to wide acceptance of the product in the market by majority of
the consumers. Promotion is still required to face high competition. Peak sales is achieved and efforts
21

UNIT – IV
to maintain for longer time is continued. Company tries to increase consumption of the product by
modifying product features, durability, quality, pricing etc.
5) Decline Stage: is the period when the sales of the product eventually dip. Sales of the product
decline for various reasons, say, obsolescence, shifts in consumer preference, and increased
competition.
PRICING-CONCEPTS – PRICING STRATEGIES:
Q. What is a Price of the product or service?
Ans. A price is the amount of money charged for a product or service. Broadly, price is the sum of all
the values that customers give up in order to gain the benefits of having or using a product or service.
Price is the only element in the marketing mix that produces revenue; all other elements represents
costs. A small percentage improvement in price can generate a large percentage in profitability.
Types of Pricing Strategies:
1) Value-based Pricing; 2) Good-value Pricing; 3) Everyday low Pricing; 4) High-low Pricing; 5) Cost-
plus Pricing; 6) BE analysis and Target profit pricing; 7) Competitor’s Strategies and Pricing; 8)
Market-Skimming Pricing; 9) Market-Penetration Pricing ……………..continue………….
22

UNIT – IV
1) Value-based Pricing: The company first assesses customer needs and value perceptions. It then sets
its target price based on customer perceptions of value. The targeted value and price then drive
decisions about what costs can be incurred and the resulting product design. As a result, pricing begins
with analyzing consumer needs and value perceptions, and price is set to match consumer’s perceive
value. For example, some car buyers consider the luxurious Bentley Continental GT automobile to be
good value, even at an eye-popping price of US$175,000.
2) Good-value Pricing: Good Value Pricing offers just the right combination of quality and good
service at a fair price. This has involved introducing less-expensive versions of established brand-name
products. For example, Volkswagen reintroduced the Rabbit, an economical car with a base price
under US$16000, because the people want an entry-level price and top-level features.
3) Everyday Low Pricing (EDLP): EDLP is one type of good-value pricing. EDLP involves charging
a constant, everyday low price with few or no temporary price discounts. For example, Wal-Mart.
4) High-low Pricing: is opposite to EDLP. High-low pricing involves charging higher prices on an
everyday basis but running frequent promotions to lower prices temporarily on selected items.
5) Cost-plus Pricing: The simplest pricing method is cost-plus pricing or markup pricing. This is
adding a standard markup to the cost of the product. Two major types of costs are Variable and Fixed.
23

UNIT – IV
Variable Cost vary or changes directly with the level of production. For example, each PC produced
by Sony involves a cost of computer chips, wires, plastic, packaging and other inputs. These cost tend
to be the same for each unit produced but changes with number of units products. Fixed Cost or
Overhead Cost, are the costs that do not vary with production level. For example, a company must pay
each months’ bills for rent, heat, interest, and executive salaries, whatever the company’s output. Total
costs are the sum of the fixed and variable cost for any given level of production. Suppose variable
cost per unit is $10, Fixed cost is $300, 000 and expected sales is 50, 000 units. Therefore, fixed cost is
$6, and the total cost is $10+$6 = $16 (Total Cost per unit). Management wants to charge a price that
will at least cover the total cost of production per unit at a given level of production. Given that total
cost per unit is $16 and management wants to add the mark-up of 20% on cost, then calculate the total
sales price per unit or the markup price? [Ans. $16 + $4 = $20 is the markup price or S.P.]
Markup Price = Unit Cost / (1 – desired return on sales or desired profit percent on cost or the added
markup).
6) Break-Even Analysis and Target Profit Pricing: The firm tries to determine the price at which it
will break-even (BE) and then make a target profit it is seeking. BE pricing is a cost-oriented variation
called as target profit pricing which determines total cost (fixed + variable) and target total revenue.
For this company must achieve break-even number of units to be sold said as the BE volume.
24

UNIT – IV
BE volume is the minimum number of units to be sold by the company at which the total cost and total
revenue would be equal, i.e., no profit no loss status. After achieving BE point of sales, the company
can now set the target profit it wants to achieve and accordingly target a greater number of units
required to be sold in future. Referring the previous example, the markup price is $20, Fixed cost is
$300,000 and Variable cost per unit is $10, the BE volume should be calculated as; BE Volume = F.C.
/ (Markup Price – V.C.). Therefore, here, the BE volume = 30,000 units and to earn target profit of
$200,000, the company must sell 50, 000 units. This is also shown in the following BE chart:
25

UNIT – IV
7) Competitor’s Strategies and Pricing: In setting its prices, the company must also consider costs,
prices, and market offerings of its competitors as well. Consumers will base their judgements of a
product’s value on the prices that competitors charge for similar products. If consumers perceive that
the company’s product or service provides greater value, the company can charge a higher price; but if
consumers perceive less value relative to competing products, the company must either charge a lower
price or change customer perceptions to justify a higher price. For example, a consumer who is
thinking about buying a Canon digital camera will evaluate Canon’s customer value and price against
the value and prices of comparable products made by Kodak, Nikon, Sony and others.
8) Market-Skimming Pricing: This pricing strategy is for entirely new products launched in the
market. Many companies set high initial prices to ‘skim’ revenues layer by layer from the market. This
means the launching price of the product is very high but eventually sell at low prices to attract more
customers to afford it. For example, Sony charged US$43,000 for its world’s first HDTV in 1990 and
now in 2001 it was available at US$200 and available at less than US$500 in many countries.
9) Market-Penetration Pricing: Some companies use market-penetration pricing strategy, also for
entirely new products launched in the market. They set a low initial price in order to penetrate the
market quickly and deeply – to attract a large number of buyers quickly and win a large market share.
This allows company to recover the cost faster due to high sales volume and cut prices ever further. 26

UNIT – IV
For example, Sharaf DG (2004), used penetration pricing for electronic retail goods in GCC market.
HERE ENDS UNIT-IV
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