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MARKETING MANAGEMENT Topics: Lesson 11 to 22Product & Product Life CycleNew Product DevelopmentConsumer Adaptation ProcessPackaging and LabelingBrand ManagementPrice/ Pricing / Pricing ObjectivesPenetration Pricing

PRODUCT

In marketing, a product is anything that can be offered to a market that might satisfy a want or need. However it is much more than just a physical object.

A product is the sum of the physical, psychological, physiological, and sociological satisfactions the buyer derives from purchase, ownership and consumption

Two basic criteria of product classificationo End use or marketo Degree of processing or physical transformation

A "man" can also be an "experience", which like a service is intangible. However an experience is unique to the receiving individual, based upon their history. Example: amusement parks offer rides (product), acceptance of credit cards (service), and audience participation at the dolphin show (experience). My value of the dolphin show is different from yours, and to the extent I value it more, will trade more for it (money).

Three aspects of a Product (There are three aspects to any product or service)

1. Core Benefit In-use benefits Psychological benefits (e.g., self-image enhancement, hope, status, self worth) Problem reduction benefits (e.g., safety, convenience)

2. Tangible Product or Service Product attributes and features Quality Styling Packaging protection and label information Brand name

3. Augmented Product or Service Warranty Installation Delivery Credit availability After-sale service and maintenance

TYPES OF PRODUCT

Consumer Products: used by end users Industrial Products: used in the production of other goods Convenience Goods: purchased frequently and with minimal effort, often referred to as

FMCG (Fast Moving Consumer Goods) Impulse Goods: purchase stimulated by immediate sensory cues Emergency Goods: goods required immediately Shopping Goods: some comparison with other goods Specialty Goods: extensive comparisons with other goods and a lengthy information

search Unsought Goods: e.g., cemetery plots, insurance Perishable Goods: goods that will deteriorate quickly even without use Durable Goods: goods that survive multiple use occasions, often further subdivided into

`white goods' (refrigerators and cookers, for example) and `brown goods' (such as furniture, as well as electrical/electronic devices)

Non-durable/consumption/consumable goods: goods that are used up in one occasion Capital goods: installations, equipment, and buildings Parts and materials: goods that go into a finished product Supplies and services: goods that facilitate production Commodities: undifferentiated goods (e.g., wheat, gold, sugar)

Product management involves developing strategies and tactics that will increase product. It classifies and rates products based on five variables:

1. Replacement rate (how frequently is the product repurchased?)2. Gross margin (how much profit is obtained from each product?)3. Buyer goal adjustment (how flexible are the buyers' purchasing habits in regards to this product?)4. Duration of product satisfaction (how long will the product produce benefits for the user?)5. Duration of buyer search behavior (how long will they shop for the product?)

Product differentiation is the modification of a product to make it more attractive to thetarget market. The objective of this strategy is to develop a position that potential customers will see as unique. If your target market sees your product as different from the competitors',

A successful product differentiation strategy will move your product from competing based primarily on price to competing on non-price factors (such as product characteristics, distribution strategy, or promotional variables).

PRODUCT LIFE CYCLE

This is the stage where a product is conceptualized and first brought to market. The goal of any new product introduction is to meet consumer's needs with a quality product at the lowest possible cost in order to return the highest level of profit.

Most product life-cycle curves are portrayed as bell-shaped (see Figure 10.1). This curve is typically divided into four stages: introduction, growth, maturity, and decline.22

1. Introduction -A period of slow sales growth as the product is introduced in the market. Profits are nonexistent because of the heavy expenses of product introduction.

2. Growth -A period of rapid market acceptance and substantial profit improvement.

3. Maturity-A slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or decline because of increased competition.

4. Decline - Sales show a downward drift and profits erode.

In the introduction phase, sales may be slow as the company builds awareness of its product among potential customers. Advertising is crucial at this stage, so the marketing budget is often substantial. The type of advertising depends on the product. If the product is intended to reach a mass audience, than an advertising campaign built around one theme may be in order. If a product is specialized, or if a company's resources are limited, than smaller advertising campaigns can be used that target very specific audiences. As a product matures, the advertising budget associated with it will most likely shrink since audiences are already aware of the product.

Author Philip Kotler has found that marketing departments can choose from four strategies at the commercialization stage. The first is known as "rapid skimming." The rapid refers to the speed with which the company recovers its development costs on the product—the strategy calls for the new product to be launched at a high price and high promotion level. High prices mean high initial profits (provided the product is purchased at acceptable levels of course), and high promotion means high market recognition. This works best when the new product is unknown in the marketplace.

The opposite method, "slow skimming," entails releasing the product at high price but with low promotion level. Again, the high price is designed to recover costs quickly, while the low promotion level keeps new costs down. This works best in a market that is made up of few major

players or products—the small market means everyone already knows about the product when it is released.

The other two strategies involve low prices. The first is known as rapid penetration and involves low price combined with high promotion. This works best in large markets where competition is strong and consumers are price-conscious. The second is called slow penetration, and involves low price and low promotion. This would work in markets where price was an issue but the market was well-defined.

Besides the above marketing techniques, sales promotion is another important consideration when the product is in the introductory phase. According to Kotler and Armstrong in Principles of Marketing, "Sales promotion consists of short-term incentives to encourage purchase or sales of a product or service. Whereas advertising offers reasons to buy a product or service, sales promotion offers reason to buy now." Promotions can include free samples, rebates, and coupons.

Growth

The growth phase occurs when a product has survived its introduction and is beginning to be noticed in the marketplace. At this stage, a company can decide if it wants to go for increased market share or increased profitability. This is the boom time for any product. Production increases, leading to lower unit costs. Sales momentum builds as advertising campaigns target mass media audiences instead of specialized markets (if the product merits this). Competition grows as awareness of the product builds. Minor changes are made as more feedback is gathered or as new markets are targeted. The goal for any company is to stay in this phase as long as possible.

It is possible that the product will not succeed at this stage and move immediately past decline and straight to cancellation. That is a call the marketing staff has to make. It needs to evaluate just what costs the company can bear and what the product's chances for survival are. Tough choices need to be made—sticking with a losing product can be disastrous.

If the product is doing well and killing it is out of the question, then the marketing department has other responsibilities. Instead of just building awareness of the product, the goal is to build brand loyalty by adding first-time buyers and retaining repeat buyers. Sales, discounts, and advertising all play an important role in that process. For products that are well-established and further along in the growth phase, marketing options include creating variations of the initial product that appeal to additional audiences.

Maturity

At the maturity stage, sales growth has started to slow and is approaching the point where the inevitable decline will begin. Defending market share becomes the chief concern, as marketing staffs have to spend more and more on promotion to entice customers to buy the product. Additionally, more competitors have stepped forward to challenge the product at this stage, some of which may offer a higher quality version of the product at a lower price. This can touch off price wars, and lower prices mean lower profits, which will cause some companies to drop out of the market for that product altogether. The maturity stage is usually the longest of the four life cycle stages, and it is not uncommon for a product to be in the mature stage for several decades.

A savvy company will seek to lower unit costs as much as possible at the maturity stage so that profits can be maximized. The money earned from the mature products should then be used in research and development to come up with new product ideas to replace the maturing products. Operations should be streamlined, cost efficiencies sought, and hard decisions made.

From a marketing standpoint, experts argue that the right promotion can make more of an impact at this stage than at any other. One popular theory postulates that there are two primary marketing strategies to utilize at this stage—offensive and defensive. Defensive strategies consist of special sales, promotions, cosmetic product changes, and other means of shoring up market share. It can also mean quite literally defending the quality and integrity of your product versus your competition. Marketing offensively means looking beyond current markets and attempting to gain brand new buyers. Relaunching the product is one option. Other offensive tactics include changing the price of a product (either higher or lower) to appeal to an entirely new audience or finding new applications for a product.

Decline

This occurs when the product peaks in the maturity stage and then begins a downward slide in sales. Eventually, revenues will drop to the point where it is no longer economically feasible to continue making the product. Investment is minimized. The product can simply be discontinued, or it can be sold to another company. A third option that combines those elements is also sometimes seen as viable, but comes to fruition only rarely. Under this scenario, the product is discontinued and stock is allowed to dwindle to zero, but the company sells the rights to supporting the product to another company, which then becomes responsible for servicing and maintaining the product.

Problems With the Product Life Cycle Theory

While the product life cycle theory is widely accepted, it does have critics who say that the theory has so many exceptions and so few rules that it is meaningless. Among the holes in the theory that these critics highlight:

There is no set amount of time that a product must stay in any stage; each product is different and moves through the stages at different times. Also, the four stages are not the same time period in length, which is often overlooked.

There is no real proof that all products must die. Some products have been seen to go from maturity back to a period of rapid growth thanks to some improvement or re-design. Some argue that by saying in advance that a product must reach the end of life stage, it becomes a self-fulfilling prophecy that companies subscribe to. Critics say that some businesses interpret the first downturn in sales to mean that a product has reached decline and should be killed, thus terminating some still-viable products prematurely.

The theory can lead to an over-emphasis on new product releases at the expense of mature products, when in fact the greater profits could possibly be derived from the mature product if a little work was done on revamping the product.

The theory emphasizes individual products instead of taking larger brands into account.

The theory does not adequately account for product redesign and/or reinvention.

NEW PRODUCT DEVELOPMENT

new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market. There are two parallel paths involved in the NPD process : one involves the idea generation, product design, and detail engineering ; the other involves market research and marketing analysis.

Types of new products

There are several general categories of new products. Some are new to the market (ex. DVD players into the home movie market), some are new to the company (ex. Game consoles for Sony), some are completely novel and create totally new markets (ex. the airline industry). When viewed against a different criteria, some new product concepts are merely minor modifications of existing products while some are completely innovative to the company.

Changes to Augmented Product - minor modification of existing product

Core product revision – new to the firm

Line extensions -

New product lines – new to the market

Repositioning – new to both

Completely new – completely innovative

The process

There are several stages in the new product development process...not always followed in order:

1. Idea Generation (The "fuzzy front end" of the NPD process, see below) o Ideas for new products can be obtained from customers (employing user

innovation), the company's R&D department, competitors, focus groups, employees, salespeople, corporate spies, trade shows, or through a policy of Open Innovation. Ethnographic discovery methods (searching for user patterns and habits) may also be used to get an insight into new product lines or product features.

o Formal idea generation techniques can be used, such as attribute listing, forced relationships, brainstorming, morphological analysis and problem analysis

2. Idea Screening

o The object is to eliminate unsound concepts prior to devoting resources to them.

o The screeners must ask at least three questions:

Will the customer in the target market benefit from the product?

Is it technically feasible to manufacture the product?

Will the product be profitable when manufactured and delivered to the customer at the target price?

3. Concept Development and Testing

o Develop the marketing and engineering details

Who is the target market and who is the decision maker in the purchasing process?

What product features must the product incorporate?

What benefits will the product provide?

How will consumers react to the product?

How will the product be produced most cost effectively?

Prove feasibility through virtual computer aided rendering, and rapid prototyping

What will it cost to produce it?

o test the concept by asking a sample of prospective customers what they think of the idea

4. Business Analysis

o Estimate likely selling price based upon competition and customer feedback

o Estimate sales volume based upon size of market

o Estimate profitability and breakeven point

5. Beta Testing and Market Testing

o Produce a physical prototype or mock-up

o Test the product (and its packaging) in typical usage situations

o Conduct focus group customer interviews or introduce at trade show

o Make adjustments where necessary

o Produce an initial run of the product and sell it in a test market area to determine customer acceptance

6. Technical Implementation

o New program initiation

o Resource estimation

o Requirement publication

o Engineering operations planning

o Department scheduling

o Supplier collaboration

o Logistics plan

o Resource plan publication

o Program review and monitoring

o Contingencies - what-if planning

7. Commercialization (often considered post-NPD)

o Launch the product

o Produce and place advertisements and other promotions

o Fill the distribution pipeline with product

o Critical path analysis is most useful at this stage

To reduce the time the process takes many companies are completing several steps at the same time (referred to as concurrent engineering). Most industry leaders see new product development as a proactive process where resources are allocated to identify market changes and seize upon new product opportunities before they occur (in contrast to a reactive strategy in which nothing is done until problems occur). Many industry leaders see new product development as an ongoing process (referred to as continuous development) in which a new product development team is always looking for opportunities.

Research and development

The phrase Research and Development (also R and D or R&D) has a special commercial significance apart from its conventional coupling of research and technological development.In the context of commerce, "Research and Development" normally refers to future-oriented, longer-term activities in science or technology, mimicking scientific research in an apparent disregard for profits. Statistics on organizations devoted to "R&D" may express the state of an industry, the degree of competition or the lure of scientific progress. Some common measures include: budgets, numbers of patents or on rates of peer-reviewed publications.

Conjoint analysis (in marketing)Conjoint analysis, also called multi attribute compositional models, is a statistical technique that originated in mathematical psychology. Today it is used in many of the social sciences and applied sciences including marketing, product management, and operations research.

The objective of conjoint analysis is to determine what combination of a limited number of attributes is most preferred by respondents.

Process

The basic steps are: Select features to be tested Show product feature combinations to potential customers Respondents rank the combinations Input the data from a representative sample of potential customers into a statistical

software program and choose the conjoint analysis procedure. The software will produce utility

functions for each of the features. Incorporate the most preferred features into a new product or advertisement

COMMERCIALIZATION

THIS IS THE MOST CRUCIAL DECISION BY MARKETING MANAGERS It involves cost to the maximum It is the beginning of a long journey of the product No mistake of even a minor nature is acceptable or admissible.

The process of commercialization is defined as a series of steps to be taken by the marketing management towards bringing this new product to the markets and to the consumersSome of the major decisions have to be taken and strategies devised to launch and make product successful at the very outset.

The decisions required are:

WHEN TO LAUNCH THE PRODUCT?WHERE TO LANCH THE PRODUCT?TO WHOM TO LAUNCH THE PRODUCT?HOW TO LAUNCH THE PRODUCT?

Critical path scheduling (CPS) calls for developing a master chart showing the simultaneous and sequential activities that must take place to launch the product. By estimating how much time each activity takes, the planners estimate completion time for the entire project. Any delay in any activity on the critical path will cause the project to be delayed. If the launch must be completed earlier, the planner searches for ways to reduce time along the critical path.

CONSUMER ADOPTION PROCESS

Adoption is an individual's decision to become a regular user of a product.

Sequence of events beginning with consumer awareness of a new product leading to trial usage and culminating in full and regular use of the new product. Over time the adoption process resembles a bell curve formed by innovators, early adopters, the majority of consumers, late adopters, and laggards. See also diffusion; innovation.

An innovation is any good, service, or idea that is perceived by someone as new. The idea may have a long history, but it is an innovation to the person who sees it as new. Innovations take time to spread through the social system. Rogers defines the innovation diffusion process as "the spread of a new idea from its source of invention or creation to its ultimate users or adopters."50

The consumer-adoption process focuses on the mental process through which an individual passes from first hearing about an innovation to final adoption.51 Adopters of new products have been observed to move through five stages:

1. Awareness -The consumer becomes aware of the innovation but lacks information about it.2. Interest-The consumer is stimulated to seek information about the innovation. 3. Evaluation -The consumer considers whether to try the innovation. 4. Trial-The consumer tries the innovation to improve his or her estimate of its value.5. Adoption -The consumer decides to make full and regular use of the innovation.

The new-product marketer should facilitate movement through these stages. A portable electric-dishwasher manufacturer might discover that many consumers are stuck in the interest stage; they do not buy because of their uncertainty and the large investment cost. But these same consumers would be willing to use an electric dishwasher on a trial basis for a small monthly fee. The manufacturer should consider offering a trial-use plan with option to buy.

FACTORS INFLUENCING THE ADOPTION PROCESSAs said earlier, there is always resistance to change. WE ALL WANT CHANGE BUT WE DON’T LIKE IT EVEN WHEN THE CHANGE IS FOR THE BETTERMENTPEOPLE DIFFER IN READINESS TO TRY NEW PRODUCTSPeople differ in their approach towards change. Some differ in adopting new fashion, some in adopting new appliances, some doctors are hesitant to apply new medicines and still some farmers do not apply new implements. This is called adoption culture. After the early adoption, they increase the use and then others follow. Others are late adopters by nature. Let us categorize these customers into three units

One who are early adopters. They are very quick in their response. These people are venture some and willing to try new ideas. In fact they are innovators in life and early adopters.

Secondly Early Majority. They are very careful people and take time to adopt things. They tend to collect information about the change or the product, study carefully and then adopt on the basis of their merits.

The third ones are late majority and traditionalists. They are the ones who adopt late and then use the product.

As marketing managers, we must study the demographics, the psychographics and media characteristics of the product and also keep the theme of advertising message on these lines. We must find the innovators of the product and also opinion leaders and keeping in view the financial stature of the consumers and their category. Then there are certain areas where product change is imminent and quicker while some areas change or innovation in the product is least desired or welcomed

PERSONAL INFLUENCE PLAY A KEY ROLEIn case of some of the products, depending to which category they belong to , personal influence andselling is very important. Demonstrations, experimentation, and even free use is given to influence the change in product or its innovation. Cosmetic items, food items and items in use of household are subject to personal selling.

CHARACTERISTICS OF THE INNOVATION AFFECTS THE RATE OF ADOPTIONSome products are quick in innovation, such as fashion items or the ones that bring a direct change in our status etc. Some product take long to adoption. Such as technical products or automobiles etc.

The following things are considered1 Relative advantage2 Compatibility3 Complexity4 Divisibility

Other things, which influence adoption, are: social acceptability, scientific acceptability, cost and certainty

PACKAGING AND LABELING

Packaging is the science, art and technology of enclosing or protecting products for distribution, storage, sale, and use. Packaging also refers to the process of design, evaluation, and production of packages. Package labelling (BrE) or labeling (AmE) is any written, electronic, or graphic communications on the packaging or on a separate but associated

A label is a piece of paper, polymer, cloth, metal, or other material affixed to a container or article, on which is printed a legend, information concerning the product, addresses, etc. A label may also be printed directly on the container or article

The purposes of packaging and package labels

Packaging and package labelling have several objectives:

Physical Protection - The objects enclosed in the package may require protection from, among other things, shock, vibration, compression, temperature, etc.

Barrier Protection - A barrier from oxygen, water vapor, dust, etc., is often required. Package permeability is a critical factor in design. Some packages contain desiccants or Oxygen absorbers to help extend shelf life. Modified atmospheres or controlled atmospheres are also maintained in some food packages. Keeping the contents clean, fresh, and safe for the intended shelf life is a primary function.

Containment or Agglomeration - Small objects are typically grouped together in one package for reasons of efficiency. For example, a single box of 1000 pencils requires less physical handling than 1000 single pencils. Liquids, powders, and flowables need containment.

Information transmission - Packages and labels communicate how to use, transport, recycle, or dispose of the package or product. With pharmaceutical, food, medical, and chemical products, some types of information are required by governments.

Marketing - The packaging and labels can be used by marketers to encourage potential buyers to purchase the product. Package design has been an important and constantly evolving phenomenon for dozens of years. Marketing communications and graphic design are applied to the surface of the package and (in many cases) the point of sale display.

Security - Packaging can play an important role in reducing the security risks of shipment. Packages can be made with improved tamper resistance to deter tampering and also can have tamper-evident features to help indicate tampering. Packages can be engineered to

help reduce the risks of package pilferage: Some package constructions are more resistant to pilferage and some have pilfer indicating seals. Packages may include authentication seals to help indicate that the package and contents are not counterfeit. Packages also can include

anti-theft devices, such as dye-packs, RFID tags, or electronic article surveillance tags, that can be activated or detected by devices at exit points and require specialized tools to deactivate. Using packaging in this way is a means of loss prevention.

Convenience - Packages can have features which add convenience in distribution, handling, display, sale, opening, reclosing, use, and reuse.

Portion Control - Single serving or single dosage packaging has a precise amount of contents to control usage. Bulk commodities (such as salt) can be divided into packages that are a more suitable size for individual households. It is also aids the control of inventory: selling sealed one-liter-bottles of milk, rather than having people bring their own bottles to fill themselves.

Packaging types

Various household packaging types for foods

Packaging may be looked at as several different types. For example a transport package or distribution package is the package form used to ship, store, and handle the product or inner packages. Some identify a consumer package as one which is directed toward a consumer or household.

It is sometimes convenient to categorize packages by layer or function: "primary", "secondary", etc.

Primary packaging is the material that first envelops the product and holds it. This usually is the smallest unit of distribution or use and is the package which is in direct contact with the contents.

Secondary packaging is outside the primary packaging – perhaps used to group primary packages together.

Tertiary packaging is used for bulk handling and shipping.

Using these three types as a general guide, examples of packaging materials and structures might typically be listed as follows:

Primary packaging Aerosol spray can Bags-In-Boxes

Beverage can

Wine box

Bottles

Blister packs

Carton

Cushioning

Envelopes

Plastic bags

Plastic bottles

Skin pack

Tin can

Wrappers

Secondary packaging Boxes Cartons

Shrink wrap

Tertiary packaging Bales Barrel

Crate

Container

edge protector

Flexible intermediate bulk container , Big bag, "Bulk Bags", or "Super Sacks"

Insulated shipping container

Intermediate bulk container

Pallets

Slip Sheet

Stretch wrap

These broad categories can be somewhat artibrary. For example, depending on the use, a shrink wrap can be primary packaging when applied directly to the product, secondary packaging when combining smaller packages, and tertiary packaging on some distribution packs.

Packaging as a potent marketing tool•SELF-SERVICEHelps in self-service buying these days. Packaging helps identifying product•CONSUMER AFFLUENCEConsumers today are prepared to pay for little extra where they get their purchase decision made easy from packaging and labeling•COMPANY AND BRAND IMAGEPackaging enable us to establish brands and image of the product.•INNOVATIVE OPPORTUNITYBrings innovative ideas in presenting the productPackaging types•PRIMARY PACKAGING•SECONDARY PACKAGING•TRANSPORT PACKAGING

•DECORATIVE PACKAGINGMandatory LabelingMandatory labeling is the requirement of consumer products to state their ingredients or components.

BRAND MANAGEMENT

Brand Management is the application of marketing techniques to a specific product, product line, orform of product”.

Brands in the field of marketing originated in the 19th century with the advent of packaged goods. According to Unilever records, the world's first registered brand was Pears Soap. Industrialization moved the production of many household items, such as soap, from local communities to centralized factories. When shipping their items, the factories would literally brand their logo or insignia on the barrels used. These factories, generating mass-produced goods, needed to sell their products to a wider market, to a customer base familiar only with local goods, and it turned out that a generic package of soap had difficulty competing with familiar, local products. The fortunes of many brands of that era, such as Uncle Ben's rice and Kellogg's breakfast cereal, illustrate the problem. The packaged goods manufacturers needed to convince the market that the public could place just as much trust in the non-local product. Campbell soup, Coca-Cola, Juicy Fruit gum, Aunt Jemima, and Quaker Oats were among the first American products to be 'branded', in an effort to increase the consumer's familiarity with the products.

Around 1900, James Walter Thompson published a house ad explaining trademark advertising, in an early commercial description of what we now know as branding. Companies soon adopted slogans, mascots, and jingles which began to appear on radio and early television. By the 1940s, Mildred Pierce manufacturers began to recognize the way in which consumers were developing relationships with their brands in a social/psychological/anthropological sense. From there, manufacturers quickly learned to associate other kinds of brand values, such as youthfulness, fun or luxury, with their products. This began the practice we now know as branding, where it is felt that consumers buy the brand instead of the product. This trend arose in the 1980s into what has been described as "brand equity mania".[1] In 1988, when Phillip Morris purchased Kraft for six times what the company was worth on paper, it was felt that what they really purchased was its brand name.

April 2, 1993, labelled Marlboro Friday, was marked by some as the death of the brand.[1] On that day, Phillip Morris declared that they were going to cut the price of Marlboro cigarettes by 20%, in order to compete with bargain cigarettes. Marlboro cigarettes were notorious at the time for their heavy advertising campaigns, and well-nuanced brand image. On that day, Wall street stocks nose-dived[1] for a large number of 'branded' companies: Heinz, Coca Cola, Quaker Oats, PepsiCo. Many thought the event signalled the beginning of a trend towards "brand blindness" (Klein 13).

A good brand name should:

• Be legally protectable a• Be easy to Pronounce• Be easy to Remember• Be easy to Recognize• Attract Attention• Suggest product Benefits (e.g.: Easy-Off) or suggest usage• Suggest the company or product Image• Distinguish the product's Positioning relative to the competition.

Branding PoliciesThere are a number of possible policies.

Company name

Often, especially in the industrial sector, it is just the company's name which is promoted

Family branding

In case a very strong brand name (or company name) is made the vehicle for a range of products, even a range of subsidiary brands

Individual branding

Each product line has a separate name, which may even compete against other brands from the same company (for example, Persil, Omo and Surf are all owned by Unilever).

Brand extension

An existing strong brand name can be used as a vehicle for new or modified products; for example, many fashion and designer companies extended brands into fragrances, shoes and accessories, home textile, home decor, luggage, (sun-) glasses, furniture, hotels, etc. Mars extended its brand to ice cream, Caterpillar to shoes and watches, Michelin to a restaurant guide, Adidas and Puma to personal hygiene.

There is a difference between brand extension and line extension. When Coca-Cola launched "Diet Coke" and "Cherry Coke" they stayed within the originating product category: non-alcoholic carbonated beverages. Procter & Gamble (P&G) did likewise extending its strong lines (such as Fairy Soap) into neighboring products (Fairy Liquid and Fairy Automatic) within the same category, dish washing detergents.

Multi-brands

In a market that is fragmented amongst a number of brands a supplier can choose deliberately to launch totally new brands in apparent competition with its own existing strong brand (and often with identical product characteristics), simply to soak up some of the share of the market which will in any case go to minor brands. The rationale is that having 3 out of 12 brands in such a market will give a greater overall share than having 1 out of 10 (even if much of the share of these new brands is taken from the existing one). In its most extreme manifestation, a supplier pioneering a new market which it believes will be particularly attractive may choose immediately

to launch a second brand in competition with its first, in order to pre-empt others entering the market.

Individual brand names naturally allow greater flexibility by permitting a variety of different products, of differing quality, to be sold without confusing the consumer's perception of what business the company is in or diluting higher quality products.

Once again, Procter & Gamble is a leading exponent of this philosophy, running as many as ten detergent brands in the US market. This also increases the total number of "facings" it receives on supermarket shelves. Sara Lee, on the other hand, uses it to keep the very different parts of the business separate—from Sara Lee cakes through Kiwi polishes to L'Eggs pantyhose. In the hotel business, Marriott uses the name Fairfield Inns for its budget chain (and Ramada uses Rodeway for its own cheaper hotels).

Cannibalization is a particular problem of a "multibrand" approach, in which the new brand takes business away from an established one which the organization also owns. This may be acceptable (indeed to be expected) if there is a net gain overall. Alternatively, it may be the price the organization is willing to pay for shifting its position in the market; the new product being one stage in this process.

Abercrombie & Fitch is a multi-brands company, rolling out Lifestyle Brands.

Small business brands

Some people argue that it is not possible to brand a small business. However, many small businesses have become very successful due to branding. For example, Starbucks used almost no advertising, yet over a period of ten years developed such a strong brand that the company expanded from one shop to hundreds.

Own brands and generics

With the emergence of strong retailers, the "own brand", the retailer's own branded product (or service), emerged as a major factor in the marketplace. Where the retailer has a particularly strong identity, such as, in the UK, Marks & Spencer in clothing, this "own brand" may be able to compete against even the strongest brand leaders, and may dominate those markets which are not otherwise strongly branded. There was a fear that such "own brands" might displace all other brands (as they have done in Marks & Spencer outlets), but the evidence is that—at least in supermarkets and department stores—consumers generally expect to see on display something over 50 per cent (and preferably over 60 per cent) of brands other than those of the retailer. Indeed, even the strongest own brands in the United Kingdom rarely achieve better than third place in the overall market.

The strength of the retailers has, perhaps, been seen more in the pressure they have been able to exert on the owners of even the strongest brands (and in particular on the owners of the weaker third and fourth brands). Relationship marketing has been applied most often to meet the wishes of such large customers (and indeed has been demanded by them as recognition of their buying power). Some of the more active marketers have now also switched to 'category marketing'—in which they take into account all the needs of a retailer in a product category rather than more narrowly focusing on their own brand.

At the same time, generic (that is, effectively unbranded goods) have also emerged. These made a positive virtue of saving the cost of almost all marketing activities; emphasizing the lack of advertising and, especially, the plain packaging (which was, however, often simply a vehicle for a different kind of image). It would appear that the penetration of such generic products peaked in

the early 1980s, and most consumers still seem to be looking for the qualities that the conventional brand provides.

A Premium Brand typically costs more than other products in the category. An Economy brand is a brand targeted to a high price elasticity market segment. A fighting brand is a brand created specifically to counter a competitive threat. When a company's name is used as a product brand name, this is referred to as

Corporate branding When one brand name is used for several related products, this is referred to as Family

branding. When all a company's products are given different brand names, this is referred to as

Individual branding. When a company uses the Brand equity associated with an existing brand name to

introduce a new productor product line, this is referred to as Brand leveraging. When large Retailers buy products in bulk from manufacturers and put their own brand

name on them, this is called Private Branding, store brand, or private label. When two or more brands work together to market their products, this is referred to as

Co-branding. When a company sells the rights to use a brand name to another company for use on a

non-competing product or in another geographical area, this is referred to as Brand licensing.

PRICE AND PRICING

PRICING DEFINED“Is the manual process of applying value to purchase and sales orders”.

MARKETING MANAGERS MUST ADDRESS TO THE FOLLOWING –VIS-À-VIS PRICING:• How much to charge for a product or service?• What are the pricing objectives?• Do we use profit maximization pricing?• How to set the price?: (cost-plus pricing, demand based or value base pricing, rate of return pricing, or competitor indexing)• Should there be a single price or multiple pricing?• Should prices change in various geographical areas, referred to as?

Zone pricing?•Should there be quantity discounts?•What prices are competitors charging?•Do you use a price skimming strategy or a penetration pricing?

Pricing Strategies

Companies can chose from a variety of pricing strategies, some of the most common being penetration, skimming, and competitive strategies. While each strategy is designed to achieve a different goal, each contributes to a company's ability to earn a profit.

Penetration Pricing Strategy A company that wants to build market share quickly and obtain profits from repeat sales generally selects the penetration pricing strategy, which can be very effective when used correctly. For example, a company may provide consumers with free samples of a product and then offer the product at a slightly reduced price. Alternatively, a company may initially offer significant discounts and then slowly remove the discounts until the full price of the product is listed. Both options allow a company to introduce a new product and to start building customer loyalty and appreciation for it. The idea is that once consumers are familiar with and satisfied with a new product, they will begin to purchase the product on a regular basis at the normal retail price.

Price Skimming Strategy A price-skimming strategy uses different pricing phases over time to generate profits. In the first phase, a company launches the product and targets customers who are more willing to pay the item's high retail price. The profit margin during this phase is extremely high and obviously generates the highest revenue for the company. Since a company realizes that only a small percentage of the market was penetrated in the first phase, it will price the product lower in the second phase. This second phase pricing will appeal to a broader cross-section of customers, resulting in increased product sales. When sales start to level off during this phase, the company will price the product even lower. This third-phase pricing should appeal to those consumers who were price-sensitive in the first two phases and result in increased sales. The company should now have covered the majority of the market that is willing to purchase its product at the high, medium, and low price ranges. The price-skimming strategy provides an excellent opportunity for the company to maximize profits from the beginning and only slowly lower the price when needed because of reduced sales. Price adjustment with this strategy closely follows the product life cycle, that is, how customers accept a new product. Price skimming is a frequently used strategy when maximum revenue is needed to pay off high research and development costs associated with some products.

Competitive Pricing Strategy Competitive pricing is yet another major strategy. A company's competitors may either increase or decrease their prices, depending upon their own objectives. Before a company responds to a competitor's price change with one of its own, a thorough analysis as to why the change occurred needs to be conducted. An investigation of price increases or decreases will usually result in one or more of the following reasons for the change: a rise in the price of raw materials, higher labor costs, increasing tax rates, or rising inflation. To maintain an acceptable profit margin for a particular product, a company will usually increase the price. In addition, strong consumer demand for a particular product may cause a shortage and, therefore, allow a company to increase its price without hurting either demand or profit.

When a competitor increases its price, a company has several options from which to chose. The first is to increase its price to approximately the same as that of the competing firm. The second is to wait before raising its price, a strategy known as price shadowing. Price shadowing allows the company to attract new customers—those who are price-sensitive— away from the competing firm. If consumers do switch over in large numbers, a company will make up lost profits through higher sales volume. If consumers do not switch over after a period of time, the company can increase its price. Typically, a company will increase its price to a level slightly below that of its competitors in order to maintain a lower-price tactical advantage. The airline industry uses the competitive pricing strategy frequently.

When competitors decrease their prices, a company has numerous options. The first option is to maintain its price, since the company is confident that consumers are loyal and value its unique product qualities. Depending on the price sensitivity of customers in a given market, this might not be an appropriate strategy for a company to use. The second is to analyze why a competitor might have decreased its prices. If price decreases are due to a technological innovation, then a price decrease will probably be necessary because the competitor's price reduction is likely to be permanent. Regardless of its competitor's actions, a company may decrease its price. This price reduction option is called price covering. This option is most useful when a company has done a good job of differentiating the qualities of its product from those of a competitor's product. On the flip side, the advantage of price covering is reduced when no noticeable difference can be seen between a company's product and that of a competitor.

Options for Increasing Sales

Companies have several options available when attempting to increase the sales of a product, including coupons, prepayment, price shading, seasonal pricing, term pricing, segment pricing, and volume discounts.

Coupons Almost all companies offer product coupons, reflecting their numerous advantages. First, a company might want to introduce a new product, enhance its market share, increase sales on a mature product, or revive an old product. Second, coupons can be used to generate new customers by getting customers to buy and try a company's product—in the hope that these trial purchases will result in repeat purchases. A variety of coupon distribution methods are available, such as Sunday newspapers and point-of-purchase dispensers.

Prepayment A prepayment plan is typically used with customers who have no or a poor credit history. This prepayment method does not generally provide customers with a price break. There are, however, prepayment methods that do reduce the price of a product. For example, the prepayment strategy is widely used in the magazine industry. A customer who agrees to purchase a magazine subscription for an extended period of time normally receives a discount as compared to the newsstand price. Purchase of gift certificates is another example of how prepayment can be used to promote sales. For example, a company may offer discounts on a gift certificate whereby the purchaser may only pay 90 to 95 percent of the gift certificate's face value. There are several advantages of using this strategy. First, consumers are encouraged to buy from the company offering the gift certificates rather than from other stores. Second, the revenue

is available to a company for reinvestment prior to the product's sale. Finally, receivers will not redeem all gift certificates, and as a result, a company retains all the revenue.

Price Shading One way to increase company sales is to allow salespeople to offer discounts on the product's price. This tactic, known as price shading, is normally used with aggressive buyers in industrial markets who purchase a product on a regular basis and in large volumes. Price shading allows salespeople to offer more favorable terms to preferred industrial buyers in order to encourage repeat sales.

Seasonal Pricing The price for a product can also be adjusted based on seasonal demands. Seasonal pricing will help move products when they are least saleable, such as air conditioners in the winter and snow blowers in the spring. An advantage of seasonal pricing is that the price for a product is set high during periods of high demand and lowered as seasonal demand drops off to clear inventory to make room for the current season's products.

Term Pricing A company has another positive reinforcement strategy for use when establishing product price. For example, a company may offer a discount if the customer pays for the product promptly. The definition of promptly varies depending on company policy, but normally it means the account balance is to be paid in full within a specific period of time; in return, a company may provide a discount to encourage continuation of this early payment behavior by the customer. This term pricing strategy is normally used with large retail or industrial buyers, not with the general public. Occasionally, a company will offer a small discount to customers who pay for a product with cash.

Segment Pricing Segment pricing is another tactic a company can use to modify product price in order to increase sales. Everyday examples of segment pricing discounts are those extended to children, senior citizen, and students. These discounts have several positive benefits. First, the company is appearing to help those individuals who are or are perceived to be economically disadvantaged, a perception that helps create a positive public relations image for a company. Second, members of those groups who ordinarily may not purchase the product are encouraged to do so. Therefore, a company's sales will increase, which will likely result in increased market share and revenue.

Volume Discounts A common method used by a company to price a product is volume discounting. The idea behind this pricing strategy is simple—if a customer purchases a large volume of a product, the product is offered at a lower price. This tactic allows a company to sell large quantities of its product at an acceptable profit margin. Volume pricing is also useful for building customer loyalty.

A well chosen price should do THREE THINGS: Pricing Objectives

A critical part of a company's overall strategic planning includes the establishment of pricing objectives for the products it sells. A company has several pricing objectives from which to choose, and the objective chosen will depend on the goals and type of product sold by a company. The four most commonly adopted pricing objectives are (1) competitive, (2) prestige, (3) profitability, and (4) volume pricing.

Competitive Pricing The concept behind this frequently used pricing objective is to simply match the price established by an industry leader for a particular product. Since price difference is minimized with this strategy, a company focuses its efforts on other ways to attract new customers. Some examples of what a company might do in order to obtain new customers include producing high-quality and reliable products, providing superior customer service, and/or engaging in creative marketing.

Prestige Pricing A company may chose to promote, maintain, and enhance the image of its product through the use prestige pricing, which involves pricing a product high so as to limit its availability to the higher-end consumer. This limited availability enhances the product's image, causing it to be viewed as prestigious. Although a company that uses this strategy expects to have limited sales, this is not a problem because a profit is still possible due to the higher markup on each item. Examples of companies that use prestige pricing are Mercedes-Benz and Rolls Royce.

Profitability Pricing The basic idea behind profitability pricing is to maximize profit. The basic formula for this objective is that profits equal revenue minus expenses (P = R - E). Revenue is determined by a product's selling price and the number of units sold. A company must be careful not to increase the price of the product too much, or the quantity sold will be reduced and total profits may be lower than desired. Therefore, a company is always monitoring the price of its products in order to make sure it is competitive while at the same time providing for an acceptable profit margin.

Volume Pricing When a company uses a volume-pricing objective, it is seeking sales maximization within predetermined profit guidelines. A company using this objective prices a product lower than normal but expects to make up the difference with a higher sales volume. Volume pricing can be beneficial to a company because its products are being purchased on a large scale, and large-scale product distribution helps to reinforce a company's name as well as to increase its customer loyalty. A subset of volume pricing is the market-share objective, the purpose of which is to obtain a specific percentage of sales for a given product. A company can determine an acceptable profit margin by obtaining a specific percentage of the market with a specific price for a product.

• Achieve the financial goals of the firm (eg.: profitability)• Fit the realities of the market place (will customers buy at that price?• Support a product's positioning and be consistent with the other variables in the marketing mix

price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product

price will usually need to be relatively high if manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns

a low price can be a viable substitute for product quality, effective promotions, or an energetic selling effort by distributors

PSYCHOLOGICAL PRICING

Psychological pricing or price ending is a marketing practice based on the theory that certain prices have a psychological impact. The retail prices are often expressed as "odd prices": a little less than a round number, e.g. $19.99 or £6.95 (but not necessarily mathematically odd, it could also be 2.98). The theory is this drives demand greater than would be expected if consumers were perfectly rational. Psychological pricing is one cause of price points.

The psychological pricing theory is based on one or more of the following hypotheses:

Consumers ignore the least significant digits rather than do the proper rounding. Even though the cents are seen and not totally ignored, they may subconsciously be partially ignored. Some suggest that this effect may be enhanced when the cents are printed smaller (for example, $1999).

Fractional prices suggest to consumers that goods are marked at the lowest possible price.

Now that consumers are used to psychological prices, other prices look odd.

When items are listed in a way that is segregated into price bands (such as an online real estate search), price ending is used to keep an item in a lower band, to be seen by more potential purchasers.

PRICING OBJECTIVES

When deciding on Pricing Objectives you must consider:1) The overall Financial, Marketing, and Strategic objectives of the company;2) The objectives of your Product or Brand;3) Consumer Price Elasticity and Price Points4) The Resources you have available.

Some of the more common Pricing Objectives are:o Maximize long-run profit maximize short-run profito Increase sales volume (quantity)o Increase market shareo Obtain a target rate of return on investment (ROI)o manager attempts to keep prices stable in the marketplace and to compete on

non price considerations. Stabilization of margin is basically a cost-plus approach in which the manager attempts to maintain the same margin regardless of changes in cost.

o Company growtho Maintain price leadershipo Discourage new entrants into the industryo Match competitors priceso Encourage the exit of marginal firms from the industryo Survivalo Avoid government investigation or interventiono Obtain or maintain the loyalty and enthusiasm of distributors and other sales

personnelo Enhance the image of the firm, brand, or producto Be perceived as “fair” by customers and potential customerso Create interest and excitement about a producto Discourage competitors from cutting priceso Use price to make the product “visible"o Build store traffico Help prepare for the sale of the business (harvesting)o Social, ethical, or ideological objectiveso Get competitive advantage

DISCOUNT AND ALLOWANCES

“Discounts and allowances are reductions to a basic price”.

The Purpose of Discounts is to• Increase short-term sales,• Move out-of-date stock,• Reward valuable customers,• Encourage distribution channel members to perform a function.

Some discounts and allowances are forms of Sales Promotion.

1) Cash discounts for prompt payment - These are intended to speed payment and thereby provide liquidity to the firm. They are sometimes used as a promotional device.•2/10 net 30 - this means the buyer must pay within 30 days, but will receive a 2% discount if they pay within 10 days.•3/7 EOM - this means the buyer must pay by the end of the month, but will receive a 3% discount if they pay within 7 days.•2/15 net 40 ROG - this means the buyer must pay within 40 days of receipt of goods, but will receive a 2% discount if paid in 15 days.

2) Quantity discounts - These are price reductions given for large purchases. The rationale behind them is to obtain economies of scale and pass some (or all) of these savings on to the customer. In some industries, buyer groups and co-ops have formed to take advantage of these discounts.

Generally there are two types:•Cumulative quantity discounts (also called accumulation discounts). These are price reductions based on the quantity purchased over a set period of time. The expectation is that they will impose an implied switching cost and thereby bond the purchaser to the seller.•Non-cumulative quantity discounts. These are price reductions based on the quantity of a single order. The expectation is that they will encourage larger orders, thus reducing billing, order filling, shipping, and sales personal expenses.

3) Trade discounts (also called functional discounts) –These are payments to distribution channel members for performing some function . Examples of these functions are warehousing and shelf stocking. Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked. Trade discounts are most frequent in industries where retailers hold the majority of the power in the distribution channel (referred to as channel captains).

4) Seasonal discounts - These are price reductions given when an order is placed in a slack period(example: purchasing skis in April in the northern hemisphere or in September in the southern hemisphere). On a shorter time scale, a happy hour may fall in this category.

5) Promotional allowances - These are price reductions given to the buyer for performing somepromotional activity. These include an allowance for creating and maintaining an in-store display or a co-op advertising allowance.6) Brokerage allowance - From the point of view of the manufacturer, any brokerage fee paid is similar to a promotional allowance. It is usually based on a percentage of the sales generated by the broker.

PENETRATION PRICING

The Advantages of Penetration Pricing to the firm are: It can result in fast diffusion and adoption. This can achieve high market penetration rates

quickly. This can take the competition by surprise, not giving them time to react. It can create goodwill among the all-important early adopter segment. This can create

valuable word of mouth. It creates cost control and cost reduction pressures from the start, leading to greater

efficiency. It discourages the entry of competitors. Low prices act as a barrier to entry It can create high stock turnover throughout the distribution channel. This can create

critically important enthusiasm and support in the channel.

The main disadvantage with penetration pricing is that it establishes long term price expectations for the product, and image preconceptions for the brand and company. This makes it difficult to eventually raise prices.

Some commentators claim that penetration pricing attracts only the switchers (bargain hunters), and that they will switch away from you as soon as you increase prices. There is much controversy over whether it is better to raise prices gradually of a period of years (so that consumers don’t notice), or employ a single large price increase (which is more efficient).

A common solution to the price expectations problem is to set the initial price at the long term market price, but include an initial discount coupon. In this way, the perceived price points remain high even though the actual selling price is low. Another potential disadvantage is the low profit margins may not be sustainable long enough for the strategy to be effective.

Price Penetration is most appropriate when:

• Product demand is highly price elastic.• Substantial economies of scale are available.• The product is suitable for a mass market (sufficient demand).• The product will face stiff competition soon after introduction.

In marketing, a LOSS LEADER is an item that is sold below cost in an effort to stimulate other profitable sales. It is a kind of sales promotion.

Sales of other items in the same visit

One use of a loss leader is to draw customers into a store where they are likely to buy other goods. The vendor expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the vendor. Marketing academics have shown that retailers should take both the direct and indirect effect of substantial price promotions into account when evaluating their impact on profitability.[1] To make a very precise analysis one should also include effects over time since deep price promotions may induce stockpiling, which may invalidate the effect of such product associations, typically discovered by association rule analysis.[2]

An example would be a supermarket selling sugar or milk at less than cost to draw customers to that particular supermarket chain.

When automobile dealerships use this practice, they usually offer at least one vehicle below cost and must disclose all of the features of the vehicle (including the VIN). If the loss leader vehicle

has been sold, the salesperson has no choice but to try to sell another vehicle at regular price. If someone is not the first person at the dealership when there is a "1 only at this price" vehicle for sale,it is not likely that he or she would find the car at that price near the end of the day. Loss leader vehicles are typically new vehicles and they are almost always base models that do not bring much profit to the dealership. However, at the end of the month, provided sales have been good, the manufacturer may choose to give give the dealership bonus money. If the dealership is a certified dealership, e.g., Ford "Blue Oval Certified," part of their advertising funding will come directly from Ford. This bonus/ad money will often be used to pay for the loss of profits with the loss leader. Loss leaders help generate lots of foot traffic at vehicle dealerships.

Characteristics of loss leaders

A loss leader may be placed at the back of a store, so that purchasers must walk past racks of other displayed goods which have higher profit margins.

A loss leader item is usually a product that customers purchase frequently—thus they are aware of the usual price and that the offered price is a bargain.

Items offered as loss leaders are often very limited in number, which discourages stockpiling by customers. A retailer must subscribe to this method of selling on a regular basis in order to compel customers to make repeat visits.

Sales of related items over time

This is also known as the razor and blades business model, referring to the most famous example. Razor handles are sold at a loss, but sales of disposable razor blades are very profitable. American businessman King Gillette famously invented this business model, in which safety razors were sold or even given away as loss leaders so that his company could profit by selling disposable razor blades.

This practice is commonly used with video game console makers that sell their console units at very low margins, or even at a loss, to achieve a higher market share. They rely on profits from software sales where the markups are considerably higher. They also receive profits from third party software companies for licensing fees. Microsoft has used this technique with the Xbox and Xbox 360. Sony has done the same with the PlayStation 3 (PS3) and, to a lesser extent, with the PlayStation 2 and PSP.[citation needed] This also translates to higher prices that are charged for the games and for original console accessories such as game controllers. Furthermore, the price of a game developed for multiple platforms (for example, Xbox 360, PS3, and PC) is typically the same across all of those platforms, even if one or more of the platforms is not actually a loss leader (in this example, the PC; however, Nintendo's Wii is also sold at profit, unlike its console brethren).

Inkjet printers are also often sold to retail customers below their true value and could also be viewed as loss leaders. Some of the printers, especially the entry-level models, are sold at a loss-leading price which seems apparently affordable to most consumers, but they pay the regular price for ink cartridges and specialty papers supplied by the manufacturer.

Dealers who normally use "fruitshop" style trading methods--stocking small quantities of a variety of products, cannot compete with loss leaders by negotiating to buy larger quantities of consumables at a lower price because they would still have to sell at a loss to be competitive.

Loss leaders can be an important part of companies' marketing and sales strategies.

PRICE WAR

Attempt by a market competitor to drive one or more other competitors out of the market by pricing relatively lower. Before launching a price war, the initiator must be sure that it can survive a low price longer than the competitors can. The initiator is best positioned to sustain the low price if the lower price is a reflection of a true cost advantage and if competitive products have no perceived advantages. Strategies available to a competitor forced into a price war, other than matching the lower price, include adding perceived value to its product or targeting the nonprice sensitive segment of the market.

In the short-term, price wars are good for consumers who are able to take advantage of lower prices.

Typically they are not good for the companies involved. The lower prices reduce profit margins and can threaten survival.

In the long term, they can be good for the dominant firms in the industry however. He, who laughs last, laughs best.

Typically the smaller more marginal firms will be unable to compete and will shut down. The remaining firms absorb the market share of the terminated ones. The main losers then, are the marginal firms and the People that invested in them. In the long-term, the consumer could lose also. With fewer firms in the industry, prices tend to increase, sometimes to a level higher than before the price war.