Goal of Improving Product Image and Quality

Businesses seek their own unique ways to satisfy customer needs as well as to compete with other businesses in the future. Therefore, when designing a product, it is necessary to first identify the core benefits, then increase the product levels to best satisfy customer needs.

1.1.2.Product positioning

Product positioning is a marketing strategy by which a business determines the position of its product relative to that of its competitors. More specifically, it is the business's attempt to create in the minds of consumers an image of the product or certain special features of the product relative to that of its competitors.

There are two ways to position a product:

- Direct positioning: applies to companies with strong financial potential, reputation in the market or products that do not meet customer needs.

- Indirect positioning: applied to companies with insufficient financial potential, new to the market or the company's products are fiercely competitive in the market.

1.2. Product life cycle

1.2.1.Concept of product life cycle:

The product life cycle is the period of time a product exists on the market and is known to consumers, that is, from the time the product is commercialized until it is taken off the market. The development of the product life cycle directly affects the volume and revenue of that product. The product life cycle is considered for each specific product line, each category group, and even for each specific brand of goods.

The length of each product life cycle depends on many factors such as consumer demand, the function and quality of each product, the technology used to produce the product, and the rapidity of change in technology and other substitute products.

1.2.2. Stages of the product life cycle:

For each product, product category and brand, there may be different quantities and lengths of goods. However, in theory, the product life cycle has 4 main stages as follows, this theory is often applied to industrial finished goods or high-value consumer goods.

- Penetration stage: The characteristic of this stage is that the volume of goods consumed is slow because consumers have not given up their old consumption habits and may not know about the product. Costs in this stage are often high because production is in small quantities but the cost of penetrating the market is large. Therefore, sales increase slowly, profits are low, and even accept losses. Therefore, the goal of this stage is to expand the product, gradually increasing demand for the product.

- Development stage: In this stage, demand begins to increase sharply, production costs gradually decrease due to mass production, sales increase rapidly while profits also increase and are relatively stable. However, the task of this stage is to focus on expanding the market, increasing business promotion activities to stimulate customers. Enterprises also need to focus on improving product quality, improving designs to increase competitiveness.

- Maturity and saturation stage: At this stage, demand, sales, and profits are at their maximum and then gradually decrease. Production and consumption costs are at their minimum. Businesses face the fiercest competition because after passing the above two stages, many competitors will jump into the field in which the business is operating. In terms of time, this stage is often longer than the previous stages and poses new, more complex tasks in marketing activities. Businesses need to increase design and testing to create new product models and new demand for products, increase pre- and post-sales services, or modify marketing mix tools.

- Decline stage: Sales decrease in large numbers due to market saturation leading to a decrease in customers. At this time, the company faces two situations: pushing the product out of the market to end a product life cycle or improving the product to start a new product life cycle. The decision

The choice between these two situations depends on the characteristics of the product, the characteristics of the market, the goals of the business and the manager's perspective on the problem.

Businesses must always be aware that goods move in a regular manner to make appropriate decisions. Before selling any product, businesses need to carefully research the product life cycle of the business to be more proactive in financial matters, coordinate marketing and resources to exploit the advantages of each stage, research and launch new products reasonably and effectively.

Figure 2: Stages of the product life cycle

Sales and profits

Sales

Profit

Penetration

Develop	Ripe	recession	Time
market		saturated

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2. Pricing policy

2.1.Concept of price

Price is a very important element in marketing-mix activities. Price is the only variable of marketing-mix to generate revenue for the business. Pricing decisions are linked to the financial results of the business. Price information always plays an important role in proposing business decisions.

In exchange activities, price is defined as the exchange relationship in the market 5 . This means that price is a symbol of the value of products and services in exchange activities. Exchange through price is an exchange based on the value of the things being exchanged, so we often have to evaluate the value of

5 : Basic marketing textbook, National Economics University, National Economics University Publishing House, 2006.

If the criterion of value is economic utility, then the acceptance of a price depends largely on the utility judgment that the participants in the exchange place on that price.

For buyers , the price of a product or service is the amount of money that the buyer must pay to the seller to receive ownership of that product. Because it is the amount of money that the buyer must spend, price is an important indicator in the process of choosing and purchasing products of the buyer. When choosing goods, if all conditions such as product quality, product reputation, after-sales service... are the same, customers will inevitably choose products with lower prices. However, price only represents a part of the cost that consumers must pay to own and use the product, not the only factor that affects the buyer's decision. The buyer's willingness to pay also depends a lot on the characteristics of the product and the target customers of the business.

For sellers , the price of a product or service is the income that the seller receives from the consumption of that product. Sellers consider the consumption price as the revenue calculated on a unit of product. High or low selling price is considered the price behavior trend of the seller. Sellers must consider, calculate, and rely on the target to be able to set a reasonable price and make decisions on adjusting and changing prices to suit the ever-changing business environment.

Typically, there are 5 steps to pricing product 6 (which is an industrial finished product).

Diagram 1: Steps to product pricing

Identify goals (long-term or situational)

Determine the cost

Determine the quantity of goods that can be sold

Determine competitor prices

Determine the optimal price

6 : Theoretical Marketing Textbook, Foreign Trade University, Education Publishing House, 2000.

2.2. Objectives of pricing policy

Pricing objectives will guide the determination of the role, tasks and pricing behavior in each transaction. Therefore, before making pricing decisions, a business needs to decide what it wants to achieve with each specific product line. A company can pursue any of the following objectives7 :

2.2.1. Objective of ensuring survival

A company's primary goal is to ensure survival when it is in trouble or facing fierce competition. To keep the factory running and ensure inventory turnover, the company must cut prices. Profits are less important than ensuring survival. If prices cover variable costs and some fixed costs, the company can continue to operate.

2.2.2. Revenue target

Sales = selling price x number of products

Sales will be maximized when the optimal selling price (the price at which the number of products sold is the highest) is reached. The optimal price is usually a low price (the enterprise implements an aggressive pricing policy). Thanks to the advantage of scale, the cost per unit of product will be smaller, the price of a unit of product is low but the sales volume is large, the total profit will be larger. This policy is often applied when a new enterprise enters the market, when there are new competitors or when the enterprise needs to strengthen its power and expand its market share.

2.2.3. Goal of maximizing profits

When businesses find that the business environment allows them to achieve their financial goals, they will set prices in a way that maximizes profits.

Absolute profit = Total revenue - Total cost

Relative profit = Absolute profit/total investment x 100%

= Absolute profit/sales x 100%

7 : Marketing Management, Philip Kotler, Statistical Publishing House, 1999.

Assuming that total costs remain constant and the quantity of products produced remains constant, profit is maximized when prices are at their highest (applied in the short term). To achieve this goal, businesses often apply skimming pricing policies, setting high prices as soon as they launch products on the market. This policy is applied to customers who are less price-sensitive and believe that high prices mean good quality. To implement this strategy, the business's products must be unique, new, difficult to imitate, and make customers especially interested and excited.

2.2.4. Market share leadership goal

If a business sets a market share target, it means that the business wants to reap long-term profits through increasing economies of scale. To achieve this goal, the business often sets prices in a low trend to attract more customers to the business. Assuming that the total sales of the market and of competitors are constant (in the short term), to increase market share, that is, to increase the market share that the business occupies, the business needs to increase its sales:

Market share = business sales

Total market turnover

= Number of products sold by the business Total number of products consumed by the market

In addition, when considering the correlation of forces and the competitiveness of the enterprise, we can also set a price to increase the relative market share of the enterprise. This goal is often applied when the enterprise positions its products directly with other enterprises.

Relative market share = firm sales

Competitor sales

= number of products sold by the business

number of products sold by competitors

2.2.5. Objectives to improve product image and quality

Businesses can set the goal of their product image being the leading product, with perfect product quality in the target market.

Usually, with this goal, businesses must have a solid position in the market, pricing their products at a high price. This high price is partly to cover the costs of producing high quality products, and on the other hand, it is to use the quality-price relationship to influence customers' perception of the high quality of the product. Especially with some products and services, low price means low quality such as Mercedez cars, Abbott milk, Yamaha motorbikes...; services such as lawyers, doctors, consultants...

2.2.6. Situational objectives: when launching a new product to the market

There are many situational objectives in business that businesses base their prices on. However, when launching a new product in the market, every business often has to consider the objectives they want to achieve. There are two common pricing policies to achieve situational objectives: price skimming and attack pricing:

- Skimming price policy: right in the early stages of the product life cycle, businesses set high prices to immediately achieve profit goals. The requirements to implement this policy are that the product must be completely new, never appeared on the market, have a complex structure, be difficult to imitate, have high technology content and be exclusive by patent. However, if sales start to stagnate, we can apply an improved skimming price policy, which means reducing prices to meet the needs of lower-income market segments. By setting this price, we can exploit and expand the target market, increase profits and prevent competitors from entering the market.

- Attack pricing policy: is to set the price of the product low enough to quickly gain a large market share, especially when new competitors appear in the market. This policy is only applied when the new product has a simple structure, is easy to imitate, the level of competition is not fierce, the market is price sensitive, and costs decrease when the number of products produced increases.

2.2.7. Price competition:

With this goal, businesses often lower their product prices to match those of their competitors to retain customers and prevent competitors from entering.

Competition is the process of taking away market share and attracting customers from competitors. This competition often occurs with businesses that have relatively similar products, which do not attract special attention or sympathy from customers. Price competition often leads to price wars or dumping.

2.3.Basis for product pricing

2.3.1. Based on demand in the target market

Determining demand in the target market serves two basic problems: determining aggregate demand and determining price elasticity of demand.

- Determine aggregate demand:

Aggregate demand = n*q*p

With: n: Number of customers in the target market with certain assumptions q: average number of products that 1 customer buys

p: expected selling price

- Determine the price elasticity of demand

Demand = Income/Price

● Demand increases when income increases or when prices decrease

● Demand decreases when income decreases or when price increases Ed =

With: Ed: Elasticity coefficient