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					MARKETING MIX - PRODUCT & PRICE
For many a product is simply the tangible, physical entity that they may be buying or selling.
You buy a new car and that's the product - simple! Or maybe not. When you buy a car, is the
product more complex than you first thought? In order to actively explore the nature of a
product further, let’s consider it as three different products - the CORE product, the ACTUAL
product, and finally the AUGMENTED product.

THREE LEVELS OF A PRODUCT
So what is the difference between the three products, or more precisely 'levels?'




The CORE product is NOT the tangible, physical product. You can't touch it. That's because the
core product is the BENEFIT of the product that makes it valuable to you. So with the car
example, the benefit is convenience i.e. the ease at which you can go where you like, when you
want to. Another core benefit is speed since you can travel around relatively quickly.

The ACTUAL product is the tangible, physical product. You can get some use out of it. Again
with the car example, it is the vehicle that you test drive, buy and then collect.

The AUGMENTED product is the non-physical part of the product. It usually consists of lots of
added value, for which you may or may not pay a premium. So when you buy a car, part of the


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augmented product would be the warranty, the customer service support offered by the car's
manufacture, and any after-sales service.



THE PRODUCT LIFE CYCLE
The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is
planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as
it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die
out (decline).

In theory it's the same for a product. After a period of development it is introduced or launched
into the market; it gains more and more customers as it grows; eventually the market stabilizes
and the product becomes mature; then after a period of time the product is overtaken by
development and the introduction of superior competitors, it goes into decline and is
eventually withdrawn.

However, most products fail in the introduction phase. Others have very cyclical maturity
phases where declines see the product promoted to regain customers.

STRATEGIES FOR THE DIFFERING STAGES OF THE PRODUCT LIFE CYCLE




Introduction
The need for immediate profit is not a pressure. The product is promoted to create awareness.
If the product has no or few competitors, a skimming price strategy is employed. Limited
numbers of product are available in few channels of distribution.

Growth
Competitors are attracted into the market with very similar offerings. Products become more



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profitable and companies form alliances, joint ventures and take each other over. Advertising
spend is high and focuses upon building brand. Market share tends to stabilise.

Maturity
Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at
a decreasing rate and then stabilize. Producers attempt to differentiate products and brands
are key to this. Price wars and intense competition occur. At this point the market reaches
saturation. Producers begin to leave the market due to poor margins. Promotion becomes
more widespread and use a greater variety of media.

Decline
At this point there is a downturn in the market. For example more innovative products are
introduced or consumer tastes have changed. There is intense price-cutting and many more
products are withdrawn from the market. Profits can be improved by reducing marketing spend
and cost cutting.

Problems with Product Life Cycle
In reality very few products follow such a prescriptive cycle. The length of each stage varies
enormously. The decisions of marketers can change the stage, for example from maturity to
decline by price-cutting. Not all products go through each stage. Some go from introduction to
decline. It is not easy to tell which stage the product is in. Remember that PLC is like all other
tools. Use it to inform your gut feeling.

CUSTOMER LIFE CYCLE
The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC).
However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e.
looks at the products or services that customers NEED throughout their lives. It is marketing
orientated rather than product orientated, and embodies the marketing concept. Essentially,
CLC is a summary of the key stages in a customer's relationship with an organization. The
problem here is that every organization's product offering is different, which makes it
impossible to draw out a single Life Cycle that is the same for every organization.




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      Let's consider an example from the Banking sector. HSBC has a number of products that
       it aims at its customers throughout their lifetime relationship with the company. Here
       we apply a CLC. You can start young when you want to save money. 11-15 year olds are
       targeted with the Livecash Account, and 16-17 year olds with the Right Track Account.
       Then when (or if) you begin College or University there are Student Loans, and when
       you qualify there are Recent Graduate Accounts.
      When you begin work there are many types of current and savings account, and you
       may wish to buy property, and so take out a mortgage. You could take out a car loan, to
       buy a vehicle to get you to work. It would also be advisable to take out a pension. As you
       progress through your career you begin your own family, and save for your own
       children's education. You embark upon a number of savings plans and schemes, and
       ultimately HSBC offer you pension planning (you may want to insure yourself for funeral
       expenses - although HSBC may not offer this!).
      This is how an organization such as HSBC, which is marketing orientated, can recruit and
       retain customers, and then extend additional products and services to them -
       throughout the individual's life. This is an example of a Customer Life Cycle (CLC).
      Another important point is that a lifetime CLC is made up many shorter CLC's. So, for
       example, Volkswagen Cars retains a customer for many years and one can predict the
       products that meet a customers needs throughout his or her family lifetime. However
       the purchase of each car, will in itself be a CLC with many Customer Touch Points. The
       consumer may need a bigger vehicle as his or her family expands - so they visit VW's
       website and register.
      The customer reviews models and books a test-drive with her or his local dealer. He or
       she decides to buy the car and arranges finance. The car is then delivered from the
       factory, and returns every year for its annual service. Then after three years, the
       customer decides to trade in his or her car, and the cycle begins again. The longer-term
       life cycle is simply the shorter-term life cycles viewed consecutively.



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CRM is a term that is often referred to in marketing. However, there is no complete agreement upon a single
definition. This is because CRM can be considered from a number of perspectives.

EMARKETING – PRODUCT
We've already considered product as part of the marketing mix. Two previous tools for product
decision-making have been introduced - Product Life Cycle (PLC) and the Three Levels of a
Product. Both of these tools are equally applicable to the context of eMarketing, and can be
easily applied to include eMarketing and product.

For example a product marketed solely online will go through a life cycle in the same
unpredictable way as a product marketed through any traditional channel (PLC). Products
marketed online will have a CORE benefit to the consumer, be an ACTUAL tangible product,
with AUGMENTATION that adds value such as insurance, warranties and so on (Three Levels of
a Product). Although tools actually specify the term 'product,' they can be easily adapted to
include brands, services or solutions.

The eMarketing Product/Business Matrix (depicted below) should be used in conjunction with
Product Life Cycle (PLC) and the Three Levels of a Product. It represents an additional tool for
audit that bridges existing businesses and new online start-ups, and existing products and new
products. It allows marketers to categorise those marketing on the Internet as an Online
Extender, an Online Alternative, an Online Innovator (Existing Business), or an Online Innovator
(Online Start-Up). Let's take a look at it in more detail.




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A - Online Extender
An ONLINE EXTENDER is an existing business that has a strategy whereby it extends its
marketing activities to the Internet. It could be any traditional, terrestrial organisation that has
historically grown through using traditional channels of distribution to get existing products,
brands, services or solutions to market.

B - Online Alternative
The ONLINE ALTERNATIVE is a new start-up that uses the Internet as an original channel of
distribution to get products, brands, services or solutions, currently available elsewhere, to
market. Some segments may be better targeted with this online alternative, for example
remote or fragmented markets.

C and D - Online Innovators

Online Innovators come in two forms:

      C - ONLINE INNOVATORS are existing businesses that see a benefit to launching new
       and innovative products, brands, services or solutions online by leveraging new
       technology. Existing businesses have a wealth of knowledge and learning that underpin
       their moves onto the Web. Remember, the Internet is not a business paradigm shift (at
       least not yet) and so current business approaches are often adapted for the Internet.
       Existing businesses have experience.
      D - ONLINE INNOVATORS are start-ups that seize the opportunity to launch new and
       innovative products, brands, services or solutions online. Despite not having as much
       knowledge and learning as some of their competitors, they are flexible and can move
       much more quickly. Start-ups often lack experience.

PRICING STRATEGIES
There are many ways to price a product. Let's have a look at some of them and try to
understand the best policy/strategy in various situations.

Premium Pricing
Use a high price where there is a uniqueness about the product or service. This approach is
used where a a substantial competitive advantage exists. Such high prices are charge for
luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde flights.

Penetration Pricing
The price charged for products and services is set artificially low in order to gain market share.
Once this is achieved, the price is increased. This approach was used by France Telecom and Sky
TV.



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Economy Pricing
This is a no frills low price. The cost of marketing and manufacture are kept at a minimum.
Supermarkets often have economy brands for soups, spaghetti, etc.

Price Skimming
Charge a high price because you have a substantial competitive advantage. However, the
advantage is not sustainable. The high price tends to attract new competitors into the market,
and the price inevitably falls due to increased supply. Manufacturers of digital watches used a
skimming approach in the 1970s. Once other manufacturers were tempted into the market and
the watches were produced at a lower unit cost, other marketing strategies and pricing
approaches are implemented.

Premium pricing, penetration pricing, economy pricing, and price skimming are the four main
pricing policies/strategies. However there are other important approaches to pricing.

Psychological Pricing
This approach is used when the marketer wants the consumer to respond on an emotional,
rather than rational basis. For example 'price point perspective' 99 cents not one dollar.

Product Line Pricing
Where there is a range of product or services the pricing reflect the benefits of parts of the
range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole
package $6.

Optional Product Pricing
Companies will attempt to increase the amount customer spend once they start to buy.
Optional 'extras' increase the overall price of the product or service. For example airlines will
charge for optional extras such as guaranteeing a window seat or reserving a row of seats next
to each other.

Captive Product Pricing
Where products have complements, companies will charge a premium price where the
consumer is captured. For example a razor manufacturer will charge a low price and recoup its
margin (and more) from the sale of the only design of blades which fit the razor.

Product Bundle Pricing
Here sellers combine several products in the same package. This also serves to move old stock.
Videos and CDs are often sold using the bundle approach.




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Promotional Pricing
Pricing to promote a product is a very common application. There are many examples of
promotional pricing including approaches such as BOGOF (Buy One Get One Free).

Geographical Pricing
Geographical pricing is evident where there are variations in price in different parts of the
world. For example rarity value, or where shipping costs increase price.

Value Pricing
This approach is used where external factors such as recession or increased competition force
companies to provide 'value' products and services to retain sales e.g. value meals at
McDonalds.

EMARKETING PRICE

What is unique about pricing for the Internet?
The emarketing mix is simply an adaptation of the traditional marketing mix, and 'P' for price.
However, the Internet has influenced how online businesses price in a number of ways.

      International pricing and competition give consumers access to the lowest price for any
       generic good. For example, British consumers benefit when buying products from the
       United States since there are almost two Dollars to the Pound. Conversely this makes
       British goods more expensive to the American consumer. So it's cheap to buy spectacles
       from a US website and then to import them into the UK (even including transport costs
       and import taxes).


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      Online auctions are a popular and innovative way of pricing, for example eBay. Here you
       register with the online auction company as a seller and/or a buyer. You can place an
       item into auction where buyers bid against each other. The highest bidder wins. The
       auction website takes a commission. The commission is factored into the price you pay.
      Greater access to pricing information, more quickly and in a format that makes pricing
       comparable and transparent. There are a number of sites that will compare and contrast
       prices for the same or similar goods and services e.g. prices on car insurance.
      Pricing could also include the cost of an online advertising medium such as Google
       Adwords. Here an online supplier would buy a keyword located in a text or image based
       advert onto Google's own search engine or onto a website belonging to a Google
       publisher. For example you search for the term 'hair straighteners' on Google and you
       are directed to a site about hair dressing. On this site is plenty of information about hair
       straightening, placed next to some contextual adverts. You click on the advert and are
       taken to a site selling hair dressing supplies. You buy the hair straighteners, and your
       suppliers pay a small 'pay- per-click' fee which is split between Google and their
       publisher. This is factored into the price you pay.

HOW ARE TRADITIONAL PRICING TACTICS USED IN EMARKETING?

Of course the Internet marketer still has a whole selection of other more traditional pricing
approaches to choose from that can be adapted to eMarketing scenarios:

      Premium pricing e.g. selling music via iTunes.
      Penetration pricing e.g. giving away free subscriptions to land grab market share for
       new start-ups such as Youtube.com and Myspace.com.
      Economy pricing e.g. selling basic products and services online like basic web design or
       paperclips.
      Price skimming e.g. new product launches online such as albums or games.
      Psychological pricing e.g. products and services sold at 99p or $99.99 (Price Point
       Perspective).
      Product line pricing e.g. subscription 1 @ free, subscription 2 @ $10.00 (with added
       value) and subscription 3 @ $49.99 for 10 years.
      Pricing variations e.g. budget airlines selling tickets online where the first tickets bought
       are the cheapest, and the last ones bought tend to be more expensive.
      Optional product pricing e.g. selling a holiday online with travel insurance.
      Captive product pricing e.g. once you buy virus software from one brand, your updates
       must also come from them.
      Product bundle pricing e.g. buying Internet access which comes with free online phone
       calls.
      Promotional pricing e.g. Betting incentives, such as free Dollars to gamble online for
       current customers that gamble on football games to tempt them to play online poker,
       or vouchers with codes sent by e-mail as rewards e.g. Amazon.com.

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      Geographical pricing e.g. Microsoft pricing in different currencies in different
       international markets.




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