V. Answer the questions:

1. What can you say about the basic product?

2. How are products classified?

3. What do consumer products include?

4. What forms a product life cycle?

5. What is a product line?

6. What does the firm's product mix include?

7. How can marketers improve a product mix?

8. What are the seven steps by which new products should be developed?

9. Why are branding strategies used?

VI. Speak on the following:

1. Classification and moving of products through four stages.

2. The seven steps through which new products should be developed.

3. Prices of a product considering the combination of many factors.

UNIT 5

A PRODUCT AND PRICE

1. PRICES IN THE REAL ECONOMY

In a theoretical system of pure competition, no producer has control over the price of its product: all producers must accept the equilibrium price. If they charge a higher price, they will not sell their products. If they charge a lower price, they will lose sales revenue and profits. In addition, the products of the various producers are indistinguishable from each other when a system of pure competition exists. Every bushel of wheat, for example, is exactly like every other bushel of wheat.

In the real economy, producers try to gain some control over price by differentiating their products from similar products. Product differentiation is the process of developing and promoting differences between one's product and all similar products. The idea behind product differentiation is to create a specific demand for the firm's product — to take the product out of the competition with all similar products. Then, in its own little «submarket», the firm can control price to some degree. Jeans with various designer labels are a result of product differentiation.

Firms also gain some control over price through advertising. If the advertising is effective, it will increase the quantity demanded. This may permit a firm to increase the price at which it sells its particular output.

In a real market, firms may reduce prices to obtain a competitive edge. A firm may hope to sell more units at

a lower price, thereby increasing its total sales revenue. Although each unit earns less profit, total profit may rise.

Finally, the few large sellers in an oligopoly (an industry in which there are few sellers), have considerable control over price mainly because each controls a large proportion of the total supply of its product.

Firms in the real economy do exert some control over prices. How they use this control depends on their pricing goals and their production and marketing costs, as well as on the workings of supply and demand in competitive markets.

2. Price and nonprice competition

Before the price of a product can be set, an organization must decide on what basis it will compete — on the basis of price or some other combination of factors. The choice influences pricing decisions as well as other marketing-mix variables.

Price competition occurs when a seller emphasizes the low price of a product and sets a price that equals or beats competitors' prices. To use this approach most effectively, a seller must have the flexibility to change prices often and must do so rapidly and aggressively whenever competitors change their prices. Price competition allows a marketer to set prices based on demand for the product or in response to changes in the firm's finances. Competitors can do likewise which is a major drawback of price competition. In addition, if circumstances force a seller to raise prices, competing firms may be able to maintain their lower prices.

Nonprice competition is based on factors other than price. It is used most effectively when a seller can make its product stand out from the competition by distinctive product quality, customer service, promotion, packaging, or other features. Buyers perceive these distinguishing characteristics and consider them desirable. When customers have chosen a brand for nonprice reasons, they may not be easily attracted to competing firms and brands. Customers keep loyalty to the chosen firm's brand. Price is still an important part of a marketing mix in nonprice competition.