Product Modification

An adjustment in one or more of a product's characteristics. It is most likely to be employed in the

maturity stage of the product life cycle to give a brand a competitive advantage. Product line extensions
represent new sizes, flavors, or packaging. This approach to altering a product mix entails less risk than
developing a new product.
Three conditions must exist for product modification to improve the firms product mix.
a) The product must be modifiable.
b) The customer must be able to perceive a modification has been made.
c) The modification should make the product more consistent with customers desires.
There are three major ways to modify products.
a) Quality Modifications
(1) Quality modifications are changes relating to a products dependability and durability,
usually executed by altering the materials or the production process.
(2) Reducing quality may allow the firm to lower its price and direct the item at a different
target market.
(3) Increasing quality may allow the firm to charge a higher price by creating customer
loyalty and lowering customer sensitivity to price.
(4) Some companies have been able to increase quality and reduce costs of a product.
b) Functional Modifications
(1) Functional modifications are changes affecting a products versatility, effectiveness,
convenience, or safety; they usually require the product be redesigned.
(2) These modifications can make a product useful to more people and enlarge its market.
(3) These changes can help an organization achieve and maintain a progressive image.
(4) Function modifications are sometimes made as a response to product shortcomings and
help reduce the possibility of product liability lawsuits.
c) Aesthetic Modifications
(1) Aesthetic modifications change the sensory appeal of a product by altering its taste,
texture, sound, smell, or appearance.
(2) Aesthetics of a product can differentiate it from competing brands to gain market share.
(3) The major drawback in using aesthetic modifications is that customers perceive value
subjectively and some may find the product less attractive.

Pricing Decision
Organizations producing goods and services need to set the price for their product. Setting the price
for an organization's product is one of the most important decisions a manager faces. It is one of the
most crucial and difficult decisions a firm's manager has to make. Pricing is a profit planning
exercise. Cost is one of the major considerations in price determination of the product. It is one of
the three major factors which influence ricing decision. The two other factors are customers and
competitors.
Customer: In a situation where the product has many substitutes, customers decide the price. That
is, the demand of customers are the paramount importance in setting the price of the product. In
such a situation, the firm should try to deliver the value, in the form of product and/or service, at the
target cost so that a reasonable profit can be earned. Similarly, under competitive condition, price is
determined by market forces and an individual firm or an individual customer can not influence the
price.

Competitors: When there are only few players in the market, competitors usually, react to the price
changes and, therefore, pricing decisions are influenced by the possible reaction of competitors. As
such management must keep watchful eye on the firm's competitors. That is, knowledge of
competitors' strategy is essential for pricing decision in an oligopoly situation.
Cost: Cost is the third major factor. Its role in price setting varies widely among industries. Some
industries determine price by market forces and in some industries, managers set prices a on the
basis of production costs. Firms want to charge a price that covers its costs like production costs,
distribution costs and costs relate with selling the product and also including a fair return for its effort.
Objectives Of Pricing Policy
Formulation of pricing policy begins with the classification of the basic objectives of the firm. Pricing
objectives have to be in conformity with overall organizational objectives. In most of the situation,
profit maximization is the main objective of price policy, but it is only one objective. Following may be
other objectives of pricing policy in an organization:
1. Pricing the goods based on reasonable costs.
2. Increase the market share or growth rate at the expense of immediate profits.
3. Avoid adverse public reaction consequent on charging high price.
4. Ethical consideration not to reap high profit.
5. Immediate survival of the firm.
6. Charge reasonable price so as to have good relations with government and public at large.
7. Maximization of prestige of the firm rather than profit, and
8. To safeguard against the emergence of new producers in same line.
Although its importance varies from firm to firm, pricing is one of the tools that a firm has at its
disposal in its attempt to reach the stated objectives.