Product. First of all, there are different types of products: tangible and intangible

First of all, there are different types of products: tangible and intangible. Tangible are physical objects or products, which you can actually see, touch, or smell. Intangible are the ones, which are virtual or the ones, which you can’t touch. The example of intangible product can be: telephone service or computer programs.

There are also two different types of benefits which the customer gets from these products. Tangible benefits can be measured. For example, laptop with the good price-value, a house with low mortgage and etc. Intangible benefits cannot be measured, but give customers satisfaction of the products or services he gets. E.g. Swiss watch makes the customer feel good and secured about the quality of this product.

Other important things about the product are its features, design, quality, range, and brand. Homogeneous or generic products like: soap, toilet paper, and shampoo are very similar and it doesn’t really matter what company sells them.

However, there are brands and designs which are unique. E.g. design clothes, watch, bags and glasses like: Zegna, Armani, Cartier and etc. are made of fine and expensive fabrics and materials, and are the high quality products. Some of these clothes makers have a patent, so only their company can make this type of the products. This makes these products unique, because they are all different and are of a high quality. Brands are important, because customers extra money for the name of the product. Brands have specific brand images or logos, which are instantly recognisable to the public. E.g. sometimes only the name or the brand of the product can give the customer an intangible benefit and make him feel good that he has this product. Sometimes brand names of expansive products like Rolex watch show the status of its owner.

There is also can be a variety of brands, which fits each targeted category of people. For example clothe makers like Armani have slightly different brands for different types of their products, like: ‘Emporio Armani’, ‘Giorgio Armani’, ‘Armani Jeans’ and etc. Each brand name is used to target particular group of people. As I have already said, it is also very important, that when the customer hears the brand name, it reminds him about the product.

Reliability, innovation, quality and customer service are the main factors, which make the customer decide whether he wants to buy certain goods or services. Reliability shows whether the customer actually needs the product and he is going to use it for. Innovation and technology show how modern and functional the product is. For example, before 2002, there were no mobile phones with the camera and possibility of sending multimedia messages. After they came out, people had a desirable demand to buy the new product, test it themselves and be the first people to have a mobile phone with a camera. This seemed to make people who had those phones feel unique and different, because they were very few people who had those products.

Quality of the product shows how well the product is made, how long it will last for and, therefore, shows whether it’s worth buying it or not. Quality is also one of the main factors which determine the price of the product. For example ‘Parker’ pens are well known for the good quality of their products and this is one of the main reasons why their pens are more expansive than others. Long guaranty and good customer service also show that the product is of a high quality. For example, ‘Toyota’ has a very good customer service, because they always have spare parts for their cars and it takes them a very short period of time to fix the problem. Their cars also have a 3-5 years long guaranty which shows, that their products (cars) can be used and run for a long period of time without having to repair them.

Some of the brand names have different impact on the people. Sometimes it affects so that people are more tend to buy the product.

Life cycle of the product shows the stage at which the product is currently is. There are five main stages of the life cycle of the product:

 

1. Development- is the stage at which the company does market research in order to find out what kind of the product customers would like to have. At his stage the company is also trying to find out what products already exist on the marketing and search for all potential competitors. Design, development and production of the product at the first stage usually lead to very high costs, because the sales and demand are very low.

2. Introduction- is the next stage at which the product is launched and the business starts to promote it. At this stage the company needs to be sure about the potential demand and sales of the product, because they have to cover the cost of launching and advertising the product. The initial price of the product at this stage is usually high, because the demand is low and business needs to cover the costs of production and promotion. As soon as the demand rises, costs of making the product decrease and it becomes cheaper, which increases demand and the number of people who buy it. Sometimes companies first introduce low prices for their products, in order to get enough demand for their products and encourage sales to cover the costs.This usually happens when the company goes onto the new market and tries to become more competitive.

3. Growth – is the third stage, at which the sales grow rapidly, demand increases, and profits rise. Also, because there are more people buying the products, the costs of production go down and it becomes cheaper to produce it. This helps the company to gain from the economies of scale and increase their profits. At this stage, depending on the situation in the market, businesses might change their pricing strategy and can choose to increase, decrease the price or keep the same in order to achieve more stability. New competitors might enter the market, so the other businesses might have to change their promotional strategies. Businesses can get a feedback, whether the customers are satisfied with the quality of their products and improve them, if it’s needed.

4. Maturity- is another stage at which the sales of the product reach its peak and the profits are at its maximum as well, because the development costs of the product have already been paid for. The sales of the products, which have been on the market for a long time, may drop. At this stage the businesses might also think about the extension strategy for the product. It means, that instead of just letting the product go into the decline stage, where the sales drop, the company will try to extend its life cycle, by modifying it. This can be exactly the same product with slightly different design or new functions. For example after the sales of the Motorola V3 reached its peak, they introduced a new Motorola V3i with a better camera and more variety of colours. By doing this, the company can prevent falling of the sales or slow them down. Introducing a new product would lead to the high costs of further development, but modifying already exiting product is much cheaper, than introducing something completely new.

5. Decline- is the last stage, at which the demand for the product decreases, which causes sales and profits to fall. At this stage sales decrease very rapidly and profits fall. Businesses decrease or fully stop advertising the product, in order to decreases the costs. Usually at this stage or even before the product gets into this stage, businesses start developing a new product, so as soon as one of their products declines, they can replace it with another one. The businesses use retained profits gained from selling one product, in order to develop a new one. Although at this stage sales of the product decreases, the company can still keep their product profitable, if it keeps the costs of advertising as low as possible or stops advertising. Because the customers already know about this product, they can still buy it without much advertising. Sometimes, at this stage businesses might decide to sell the product and the rights to produce it to the other business, which might want to buy it. For example, the company A, which sells mobile phones with colour screens, stops selling one type of the mobile phone, because its sales decline. At the same there can be a new company B coming into the market, which doesn’t know how to make phones with colour screens or doesn’t have the right technology. Then company A might offer company B to buy their technology or a license to produce certain types of mobile phones with colour screens. If company B likes the offer and buys this license, it then gets a technology and finds out the methods of producing the products they want. At the same time company A, which doesn’t use this method any more can benefit from their knowledge and technology to the other new company.

Price

Price is the part of the marketing mix, and it determines the revenue that businesses get from selling certain products. Right price helps businesses to sell products at the quantity that they want and cover the costs of producing the products. Price should also be balanced. It should be high enough to cover the costs and be low enough to be competitive. Usually businesses would expect more people to buy their products, if they decrease the price on the products. However, this doesn’t always happen. Sometimes, people are ready to pay the same price or even higher, but they want more variety, more of the product. In a competitive market there can be many companies, which produce similar products. Therefore, if one company increases the price on their products, the customers can easily switch to another similar product produced by another company, but being sold for a lower price. So price is a very important factor, especially in a competitive market.

Price on the product can also vary depending on the size of the market and the number of companies in this market. For example, in some markets there’s a monopoly when there are one or very few main firms which produce certain types of products. Because there are not very many competitors in the market, they can charge higher prices for their products. Because there is very little choice, customers will have to buy these products for high prices, especially if these products are desirable (food, water, domestic products and etc.).

The price should also fit in with the quality of the product, its desirability and targeted group of people who are willing to buy the product. For example, Rolls Royce charges premium price for its brand name and because it produces cars of a very high quality. There are very few competitors on the market which sell luxury cars like Rolls Royce. There are very few cars produced and Rolls Royce is trying to make their cars more desirable by producing fewer cars than is demanded. Because of this, Rolls Royce customers need to order their cars in advance; and because there are very few cars made, it makes the customers feel that they have an exclusive product. For this reason, Rolls Royce can charge higher prices for their cars, than other companies do. Target group of people who can afford to buy Rolls Royce is also very small, so the companies have to make their products exclusive, in order to charge higher prices to cover the costs of production of luxury cars. Depending on demand, exclusiveness, and quality of the product, businesses can charge higher or lower prices.

Other businesses, like Walkers crisps can charge prices for their products according to the size of the pack, the amount of the product inside, brand and district, or place where the product is being bought.

For example, if there’s a decrease for potatoes supplied for the Walkers, the company- supplier can charge a higher price, so Walkers will probably have to charge a higher price on its products as well. Walkers can use different methods of pricing the products. For example, Walkers can charge lower price on the bigger amount of their crisps being sold. Also Walkers can charge lower prices to their consumers, if consumers periodically buy big amounts of their products. Also, Walkers can make a special contract with a consumer, which gives its consumers an opportunity to have discounts and buy their products for a lower price, if they buy certain amounts of the product stated in the contract.

Businesses use different types of pricing certain products. The most common methods of pricing the product are:

• Competitor methods. When the business (E.g. Sony-Ericsson) looks at the price being charged by their competitors, in order to give an indication as to what price their business should charge. In some parts of the market it is impossible to find out what price your competitors charge, but in open businesses, which produce technology (E.g. mobile phones, TV’s, etc.) it’s much easier to find this kind of information. Some businesses use this method of pricing, because their business always needs to look at the prices of their competitors in order to be competitive on the market. Usually in these types of markets there are price makers, who set the price for the certain products. After they set their prices, other businesses can follow and charge similar, lower, or higher prices. Competition reduces
• Cost plus pricing. Business looks at its costs before charging a price to its customers. The profit needs to be greater than the costs, because otherwise it will do bankrupt. Cost plus pricing method occurs when the company takes direct and indirect cost of production of the product and then, adds a fixed percentage (mark up for the brand, name of the company and etc.)
• Penetration price. When the business is new, it has to persuade consumers to buy its product. Businesses give their products a low initial price, in order to tempt consumers away from the other companies presented on the market. However, the penetration pricing should last for a short period of time. Usually the company can’t keep low prices every time. In order to improve the quality of the products, the company has to update equipment from time to time. Sometimes it includes new workers, factories and etc. This can affect the price, the business charges. This method might not be used by some companies, because they have very well known brands and there’s no need to charge lower prices for their products. However, sometimes these companies, as well as other companies, have to decrease their prices, in order to promote their products and attract more people to buy them. The best thing for the business to do is to keep the price proportional to demand, because sometimes and achieve equilibrium.
• Skimming- occurswhen the business starts selling its products with a high price. After the business achieves economies of scale from the sales of this product, it then usually decreases the price. The new product can often be sold at a higher price. Usually businesses set high initial prices on the high tech and luxury goods like TV’s, mobile phones, computers, cars and etc. This happens because many consumers are willing to pay more to have a latest product. But after a while the product becomes “ordinary” and consumers might not want to buy it on the high price, so the company has to decrease the price. Skimming, as a penetration pricing would be normally used for a short period of time. Businesses use this method of pricing, because they want to keep their profits on its high rate for as long as possible. For example, if Nokia develops a new type of a mobile phone with a build in projector, then it will be tend to charge higher prices on these crisps, because people might be interested in the new product and might buy it, without paying much attention to the high price.
• Differential pricing- is when the business charges different price for the same product when selling it to the different customers. For example, Walkers have the same prices just in the UK and Ireland. In the other countries, where Walkers are called Lays or Frito Lay, they have different prices. For any country or, sometimes a town the price might be different, because the company sells its products under different brand name.
• Promotional pricing. Businesses use this type of pricing, when they start to decrease the price on their products. Of course they still want to get some profit. So, in order to attract customers or sell off old products, they decrease the price and say that they give you a discount. When the costumers hear discount, they feel the company gives them a present and start to buy more and more of a product. For example, in order to attract people to buy more of their old brand products businesses might give a 25% free amount of the product for the same price. This helps to keep sales of the old brands on its possible highest rate.
• Psychological pricing. This trick is usually used in order to make costumers feel they get the product for a lower price. For example, when the price is £6.99, it seems to be much cheaper than £7. This type of pricing is also called merchandising. (Merchandising includes the place where the product is being sold in the shop, the colour of the price label, smell of the product, which attracts costumers to buy it, and many other things.) In some shops like ASDA, you can find a price 5.69 pounds for six pairs of socks, but in the other shops it can be 6 pounds or 5.99. Some companies don’t sell their products straight to their costumers, they sell them to the consumers (shops, newsagents, etc.) first and then shops, retailers or outlets decide what price to charge for the products. There’s also another very important factor, which is the part of economics- proportion of the consumer’s income spend on the good. Depending on how much consumer’s income is, the consumer will be more or less likely to react on the change in price. For some people, 1pound difference in the price for the socks might be very small, but for others it can a huge difference. So they might even prefer to spend longer by searching the same goods for the cheaper price.