This Paper tries to link between the first two the different parts of a marketing mixture: product strategy and costs strategy. To be able to help decision manufacturers to determine the optimum costing technique for product mixture.
Marketers broadly determine something as a lot of money of physical, service, and symbolic qualities designed to gratify consumer needs. Therefore, product strategy entails somewhat more than creating a physical good or service. It really is a total product concept that includes decisions about program design, brand name, trademarks, warranties, promises, product image, and new-product development.
The second factor of the marketing blend is pricing strategy. Price is the exchange value of a good or service. An item will probably be worth only what another person is willing to cover it. Inside a primitive society, the exchange value may be determined by trading a good for some other product. Pricing strategy deals with the large number of factors that influence the environment of a cost.
Table of Contents
This paper will review each of the variables that have an effect on the optimum pricing strategies of something, the researcher will start with defining The merchandise and exploring how product classification make a difference the product combine decision in the organization, then researcher will review the product life cycle and exactly how it make a difference the costs and marketing strategies during the different periods of the circuit. Second the researcher will handle the pricing as one of the marketing strategies and what make a difference the prices strategy either internally in the organization or externally from outside the organization, finally researcher will establish the linkage between costs strategy, online marketing strategy and the merchandise mix.
How to identify the optimum costs strategy for product mix within the organization marketing strategy
What is a product and exactly how product classification can affect the Product mixture decision for a company?
What is the linkage between your product life circuit and online marketing strategy?
What are the several pricing objectives?
What factors are influencing the pricing technique for a product?
What is the linkage between costing strategy, product and online marketing strategy?
Marketing Planning commences with formulating an offering to meet aim for customers' needs or desires, where in fact the customer will evaluate this offering by mainly two elements; product features and quality, and price. (Kotler & Keller, 2009)
Before a fresh product kick off, marketers create marketing programs to increase the chance of success. This is usually a challenging managerial decision because, to create the appropriate pricing levels, managers must have reliable estimates concerning how sales would react to different degrees of a marketing-mix changing. (JACKIE LUAN & SUDHIR, 2010).
The long-term performance of adult product will be afflicted by the included online marketing strategy including costs (BERK ATAMAN, Truck HEERDE, & MELA, 2010).
Product is no more a tangible offering, but it can be more than that, Product can be anything that emerges to market to gratify a want or a need, including physical goods, services, activities, events, folks, places, properties, organizations, information, and ideas. (Kotler & Keller, 2009)
There are numerous areas of product development to consider. Something or service has features: function, appearance, packing, and warranties of performance that help people solve problems. When making something, marketers should address the issue of product classes. (Smith & Strand, 2008)
Products are classified on the basis of; resilience, tangibility and use (consumer or industrial), where each product type has its appropriate online marketing strategy. (Kotler & Keller, 2009)
Durability and Tangibility:
The products can be sub-classified into three categories in line with the sturdiness and tangibility; where goods can be either nondurable goods, durable goods or a service. Nondurable Goods will be tangible, normally used in one or a few uses and they are purchased frequently, such as soap. Durable Goods are tangible goods that survive many uses, such as refrigerators. Services are intangible, inseparable and perishable products.
Consumer Goods Classification:
According to the consumers' shopping practices; products can be sub-classified into convenience, shopping, niche, and unsought products. Consumer purchase Convenience Goods frequently and with minimal work such as soaps and carbonated drinks. When the consumer characteristically compare on bases of suitability, quality and price, this is a Shopping Goods such as furniture. Specialty Goods are goods with unique characteristics for which a sufficient amounts of consumers are prepared to make a special purchasing work such as sportive vehicles. There are another group of goods that consumer doesn't normally think of shopping for such as life insurance which is grouped as Unsought Goods.
Industrial Goods Classification:
According to the goods' relative cost and how they enter in the creation process; Industrial goods can be sub categorised into Materials and Parts, Capital Items, and Supplies and Business Services. Material and Parts are goods that type in the manufacturer's product completely such as recycleables. Capital Items are long lasting goods that assist in developing or taking care of the finished products, such as structures and heavy equipment. Items and Business Services are short-term goods and services that facilitate developing or controlling the done goods, such as maintenance and repair.
The Product Blend is the totality of product lines offered by a corporation. Product blend decisions involve differing their "width", "depth" and "regularity". Combination width refers to the amount of different product lines the company holds. Mix reliability includes assessing the relationship between product lines in conditions of common end uses, prices, distribution outlets and market segments dished up. (Clemente, 2002)
Before a new product release, marketers have to create marketing programs to maximize the opportunity of success. In other words, they need to forecast the marketplace responsiveness to various marketing-mix factors. Although there is considerable literature on new revenue forecasting, there has been scant research related to forecasting marketing-mix responsiveness before a new product introduction. (JACKIE LUAN & SUDHIR, 2010)
Determining the product-mix is one of the most important decisions relating to planning. Such decision implies utilizing limited resources to maximize the web value of the end result from the development facilities. The number produced from each product in a certain time frame leads to utilizing certain resources for that point, consuming certain amount of raw materials, using certain labor skills and various production centers, and so on. The aim of the product-mix decision in the entire production plan is to find the product mixture and the production program that maximizes the full total contribution to income/throughput at the mercy of constraints imposed by reference limits, market demand, and sales forecast. (Al-Aomar, 2000)
The product developer should take into account both marketing and anatomist factors concurrently in a product brand design. (LUO, 2011)
Linkage between Product Classification and Product Mix
In supplying a product line, companies should offer basic program of products and modules that may be put into meet different customers requirements, this process enables companies to provide variety of products and also to lower their development cost, therefore; each product line manager has to understand the profits of every item in his products in order to determine which product mixture strategy to execute, and also to know which what to build, maintain, harvest, or divest. (Kotler & Keller, 2009)
Product classification has implication how companies will formulate their product mixtures and what marketing strategies will be employed per each product mix, knowing at what course is the product along with well orientation of the merchandise combination will be favorably beneficial for both to the producer as well regarding the consumers. The followings are some relations between product classification and product combine. (ADEOTI, 2010)
Durability and Tangibility Classification and Product Combination:
For durable and non-durable goods, there is a reflection on the life span expectancy of the product. These classifications have tactical implications to the company. Durable products are purchased infrequently and require personal advertising. Perishable products need speedy circulation and luxury goods can be priced highly.
Consumer Goods Classification and Product Mixture:
Convenience goods could be staples like food items bought on regular basis often by habit. It might also be impulsive goods that are purchased, not because of planning but because of strongly felt need. It might also be emergency products that are needed to solve an immediate crisis. Brand Name would be very important for staple products while impulse products need a captivating packaging transmission that will draw in the consumers. For disaster products the consumers are less delicate to price, it is therefore a circumstantial product. The understanding, of the buying tendencies of the consumers for each of these sub-categories of convenience goods and the merchandise characteristics will notify the company on the appropriate online marketing strategy options to be taken for higher returns.
Shopping goods are bought alternatively infrequently and are used up very gradually. For homogenous shopping goods the costs should be relatively in the same range with other products in the same homogenous shopping goods category. For heterogeneous shopping goods consumers should think about the tangible features of these products and the associated services on offer before making a buying decision. Consumers are not usually hypersensitive to prices of heterogeneous shopping goods provided the merchandise has some demonstrable benefit over its challengers.
Promotional activity because of this group of shopping goods should concentrate on pointing out unique features of the product rather than low prices.
Specialty goods are products which may have no satisfactory substitutes in the mind of the buyer, where in fact the uniqueness and superiority of the Niche product is due to unrivalled quality superiority or design exclusivity. Specialty brands are what should be created. Developer should be encouraged by this superiority complex of the potential buyers and really should not demean the product quality. Consumers of such products are insensitive to price.
Hence the symbol up could be high for the targeted market, for unsought products, the consumer has no thought need for it. Many services fall into this category, until their effectiveness is known the buyer is not disposed to purchasing them. Personal selling and wide advertisement is required for unsought goods. There may be a need to even establish the merchandise officially on the market place.
Industrial Goods Classification and Product Mixture:
Installations goods are long-lasting products that are not bought frequently. The number of potential buyers at any given time is usually small. These consist of buildings and resolved equipment. The producer must design it to standards and to source post deal services.
Accessory equipment; these comprise of portable manufacturing plant equipment and tools. This equipment will not become area of the completed product; they simply assist in the production process. Quality features, price and services are major factors in vendor selection.
Raw materials; these are goods which may have been produced only enough to make handling convenient and safe. They enter into the manufacturing process basically in their natural condition. They originate either from agriculture or from business such as mining and lumbering. Illustrations are cotton, man cue, crude engine oil and most farm produce.
Fabricating materials; these experience some degree of initial processing before they go into the product production process. This may be a comparatively basic step such as changing iron ore into pig iron or wheat into flour. In other conditions an component may be completely prefabricated, such as an automobile tire or a power motor for home kitchen appliance. The more difficult a product is, the more likely it is to contain both natural and fabricating materials.
Facilitating goods; they are operating items that are used up in the procedure of the firm but do not become part of the product. They are usually budgeted as expenses and have brief life. The goal of such goods is to keep carefully the foundation goods working properly and also to assist in the handling and offer of the joining goods. Cases are lubricating petrol; saw blades, cider forms and labels.
The Product Life Cycle
Product life-cycle (PLC) like humans, products likewise have an arc. From delivery to death, human beings pass through various periods e. g. beginning, growth, maturity, decline and death. A similar life-cycle sometimes appears regarding products. The merchandise life cycle goes through multiple phases, will involve many professional disciplines, and requires many skills, tools and techniques. Product life routine (PLC) has to do with the life of a product on the market regarding business/commercial costs and sales actions. (Niemann, Tichkiewitch, & Westkmper, 2008)
Product value and life are usually likely to follow the product life routine (PLC), wherein products are expected to move from an investment toward a profitable adult peak that ends when the product is eliminated. However; Christiansen et al assume that the value of something is relational which human relationships between products and individuals are created, broken, and recreated. Value creation is a never-ending process, for the reason that the product should be considered to be a process where value constructions are constantly negotiated in acting professional systems. (Christiansen, Varnes, Gasparin, Storm-Nielsen, & Vinther, 2010)
Flexibility and adaptability which make it possible for the product to go to new places and participate in new qualification procedures and attach to new actors and become part of new sites.
The capability to hook up to different systems simultaneously within a network that stresses the high-end market attaching to the necessity for having a distinctive product for some, being a traditional piece of sculpture-furniture to others and being related to modern day creative expressions to yet others.
A strong primary that provides the merchandise with a distinctive and significant personal information or expression, enabling temporal interpretations or improvements and alterations.
Framing devices that help position the product in configurations that continue to present the product as relevant and useful in changing systems in a context where others are constantly looking to get customers to attach to other systems.
Serendipity-as fortune and misfortune cannot be accurately forecasted or determined when the out- come is something of multiple links over very long time spans among probably numerous individual and non-human stars.
Linkage between Product Life Pattern and marketing Strategies
The product life cycle notion provides important insights for the marketing planner in anticipating innovations throughout the many stages of an product's life. Knowledge that profits believe a predictable style through the stages which promotional emphasis must switch from product information in the early periods to heavy campaign of contending brands in the later ones should improve product planning decisions. Since marketing programs will be revised at each stage in the life span cycle, an understanding of the characteristics of all four product life pattern stages is critical in formulating successful strategies. (Skidmore, 2005)
Skidmore (2005) has divided the merchandise life circuit into mainly four periods;
In the early stages of the merchandise life circuit, the firm attempts to market demand for its new market offering. Because neither consumers nor distributors may be familiar with the merchandise, marketers must use promotional programs to inform the marketplace of the item's supply and clarify its features, uses, and benefits. New-product development and introductory promotional campaigns are expensive and commonly business lead to losses in the first level of the merchandise life cycle. Yet these expenditures are essential if the company is to gain later.
Sales climb quickly during the product's growth level as new customers join the first users who are actually repurchasing that. Person-to-person recommendations and prolonged advertising by the company induce others to make trial acquisitions. The business also starts to earn earnings on the new product. But this motivates competitors to go into the field with similar offerings. Price competition appears in the progress stage, and total industry profits peak in the later part of the stage. To get a larger share of an evergrowing market, firms may develop different variants of something to target specific segments.
Industry sales initially increase in the maturity stage, but eventually reach a saturation level at which further growth is difficult. Competition also intensifies, increasing the option of the product. Businesses concentrate on capturing rivals' customers, often dropping prices to help expand their appeal. Sales level fades late in the maturity level, plus some of the weaker competition leave the marketplace. Businesses spend heavily on promoting adult products to protect their market share and to recognize their products from those of rivals.
Sales continue to fall season in the decrease stage of the product life cycle. Earnings also decline and could become deficits as further price lowering occurs in the reduced market for that. The decline level is usually the effect of a product creativity or a transfer in consumer personal preferences. The decline stage of an old product can be the growth level for a new product.
The meaning of the purchase price is broader than the original definition "The price of a product or service is the amount of monetary units a customer has to pay to receive one unit of that service or product". (Blois, Gijsbrechts, & Campo, Oxford Textbook of Marketing, 2000)
Blois et al (2000) have assumed more in Harm and Speh classification of the prices where they believe that the price of an industrial good includes much more than the seller's price, where they may have concluded that implications of costing is crucial to managers facing the costs decision, therefore decision-makers have to consider the multidimensional view on prices. Additionally, they have to recognize that complex costs techniques may be needed, including a 'system' of charges for different types of customers, product plans, and time periods. This observation is the essence of strategic costs.
"STRATEGY is the means by which an organization seeks to attain its aims" (Adrian. , 2000)
Adrian (2000) discussed how Strategic decisions about pricing cannot be manufactured in isolation from other proper marketing decisions, so, for example, a strategy that seeks a premium price position must be matched up by product development strategy that creates a superior product and a promotional strategy that establishes in purchasers' minds the worthiness that the product offers.
Adrian (2000) then described the connection between costing strategy and the idea of positioning, in which a strategy that merged high price with poor may be considered by customers as poor value and they're more likely to desert such companies where they have a choice of suppliers. For most companies, such a strategy is not sustainable. A high quality/low price proper position can happen very appealing to potential buyers, but it too may not be sustainable.
Back to Blois et al (2000) where they outlined how the price is also a component of the marketing blend and therefore effects on overall sales via its contribution to the consumers' understanding of the product's image.
Marketing attempts to accomplish certain aims through its rates decisions. Research has shown that pricing goals vary from organization to firm. Some companies try to maximize their revenue by pricing their offerings very high. Others use low prices to get home based business. (Palmer, 2000)
Profit maximization is the basis of a lot of monetary theory. However, it is difficult to apply in practice, and many firms have considered a simpler profitability objective-the target go back goal. For example, a firm might specify the purpose of a 9 percent go back on sales or a 20 percent profits on return. Most target go back pricing goals express the desired profitability in terms of a go back on either sales or investment.
Another exemplory case of costing strategy is sales maximization, under which management sets an acceptable minimum amount level of success and then attempts to increase sales. Sales expansion is viewed as being more important than brief run gains to the firm's long-term competitive position.
A second volume purpose is market talk about; the ratio of market controlled by a certain company, product, or service. One company may seek to attain a 25 percent market talk about in a certain industry. Another may choose to maintain or develop its market talk about for particular products or product lines.
Objectives not related to profitability or sales size; can be either of sociable and/or ethical concerns, status quo goals, and image goals are often used in costs decisions. Community and ethical factors play an important role in some pricing situations. For instance, the price of some goods and services is dependant on the planned consumer's capacity to pay. For example, some union dues are related to the income of the users.
Internal factors impacting pricing
Company objectives and strategies
An essential element of effective prices is their reliability with company targets and overall marketing strategy. The realization of company aims necessitates the development of an overall online strategy. To work and efficient, the business's rates decisions must match this strategy, and become consistent with decisions on other marketing-mix elements. Also, prices should not be arranged as an 'afterthought'. Reflections on appropriate prices should take place at the time the product, communication, and syndication are conceived, because the different instruments of the combine have a 'synergetic' influence on the marketplace. There is sufficient research that the impact of rates strategies and set ups is determined by the companies' communication and distribution methodology and on the product's characteristics. (Blois, Gijsbrechts, & Campo, Oxford Textbook of Marketing, 2000)
Costs have usually played a major role in costs decisions. They constitute a basic ingredient for setting a price floor or lower boundary on acceptable prices.
Costs can be labeled along different sizes. (Blois, Gijsbrechts, & Campo, Oxford Textbook of Marketing, 2000)
First dimensions concerns the amount to which costs can be directly attributed to specific products; where costs can be either immediate traceable, indirect traceable or general costs. Direct traceable costs can be immediately associated with individual products, including the cost of raw materials. Indirect traceable costs are not directly associated with, but can with some effort be traced back again to, individual products, including the cost of filling shelves is illustrative of the type. Basic costs, finally, cannot be linked to specific products, such as administrative overhead costs. Assessing immediate traceable costs, and attributing indirect traceable costs, are important for prices.
Equally crucial is the variation between variable and resolved costs. Which of these components should enter into the costs decision depends upon the company's purpose. For profit-maximizing companies, set cost might not exactly affect optimum prices. Yet, for not-for-profit companies maximizing sales or participation subject to a deficit constraint, fixed cost may have a significant effect on feasible outcomes. The company's time horizon also has a fundamental effect on the costs to be considered. Whether costs are fixed or variable depends upon the time structure adopted by the business.
Cost dynamics; where Short-term costs may differ from long-term cost levels consequently of changes in the level of company functions. Economies of size arise if the price per unit reduces with the productivity level in a given period. This may be the result of the facility to share corporate and business resources across products, the use of more efficient (large-scale) production facilities, long production runs, usage of volume special discounts in buys, or shipment completely carload or truckload plenty. Experience results are another major way to obtain declining production costs.
Linkage between cost and costing strategy
As argued above, costs are related to price surfaces: they typically set a lower bound on prices. The contribution margin for a product equals its price minus its product changing cost: if negative, advertising the product at that price brings about a damage; if positive, at least area of the resolved cost can be retrieved. While this theory seems utterly simple, this conversation illustrates that the conviction and quantification of most relevant costs may be far from evident. The idea of costs as a 'price floor' is 'blurred' by product inter-dependencies, cost dynamics, cost allocation over route associates and company subsidiaries, and the pursuit of multiple company aims. Yet, knowledge of basic cost components remains a crucial insight to the prices decision, and companies should shoot for a total picture of varied cost issues. (Blois, Gijsbrechts, & Campo, Oxford Textbook of Marketing, 2000)
External factors impacting pricing
AS well as there are inner factors that have an impact on the firm, there's also many exterior factors that impact the firm that must definitely be considered when prices are established. It is useful to consider these in four categories; first the characteristics of the customers themselves and then three areas of the surroundings within which the firm runs. (Blois, Gijsbrechts, & Campo, Oxford Textbook of Marketing, 2000)
Price-volume romantic relationship (price sensitivity)
The customers' price awareness is usually measured by the price elasticity; the purchase price elasticity is the comparative change in demand (sales) caused by a relative change in the unit price of the product. The price elasticity is influenced by four factors; firstly, assessed price sensitivities depend on how 'demand' is quantified: market-share changes in respond to price are usually larger than sales changes. Second of all, the 'character' of the purchase price change affects elasticity benefits. Market reactions to a 'regular' price change may be different from respond to temporary promotional price slashes. Thirdly, the amount of price elasticity depends upon syndication and communication, but especially on product characteristics. Products with a distinctive brand value are reported to be less sensitive to price changes. Finally, price elasticity changes over the product life routine (PLC). The original view is the fact price sensitivity rises as the merchandise evolves over the life cycle, price sensitivity first declines as the merchandise steps from the introduction to the progress and maturity stage, and then boosts in the decline period of the PLC.
The traditional microeconomic picture of an consumer who effectively registers all prices and price changes, and acts 'rationally' after them to be able to maximize his tool, has been falsified for a long time. Consumers are heterogeneous in their degrees of price search, knowledge, and recall precision. Consumers also change in the positioning of their appropriate price range: they have got different higher and cheap limits, different reference price levels, and different latitudes of acceptance around the guide price. A wide range of factors may explain these differences. Economical factors, such as perceived price differences, budget constraints, and income levels, are a first way to obtain heterogeneity. Search and purchase costs stemming from time constraints, freedom restrictions, age, household composition, and location, also have an impact on consumer price control and evaluation. Finally, human-capital characteristics such as time-management skills and basic knowledge may come into play. Fourthly, the amount of price processing depends on the expected psychosocial results from price information collection and product adoption, which are generally related to culture and peer group. Finally, consumer qualities like variety-seeking versus devotion cause consumers to behave differently to prices. As will be argued in subsequent sections, identification of consumer heterogeneity is essential for effective rates: professionals should exploit these differences in the introduction of pricing strategies and tactics.
Industrial decision is thought to be more 'logical' and based on more complete information. Price would, for example, be less often used as an excellent signal in professional settings. Other factors including the importance in the total cost of the end product and the value in the performing of the finish product are deemed more important determinants of the purchase price sensitivity of commercial purchasers than of specific consumers.
In identifying prices, the competitive environment should explicitly be accounted for. The amount of demand associated with confirmed company price highly is determined by prevailing competitive prices. Furthermore, in a vibrant environment, not only must current prices of competition be taken into consideration, but so should competitive reactions. Competitive retaliation may attenuate rates effects. It might even provoke price wars where prices of all market players are systematically reduced, possibly to unprofitable levels. Careful evaluation of competition is, therefore, a prerequisite for effective costs.
Most companies operate in just a marketing route: they obtain products, components, and/or materials from suppliers; and many go their products onto intermediaries before they reach the end-users. The characteristics of the route, and the (associated) reactions of route members, strongly influence the type of the pricing problem as well as the effectiveness of alternative prices strategies, set ups, and instruments.
Consumer charges regulations
Governments can influence final consumer prices indirectly through VAT rates. They are able to also control prices immediately by imposing price ceilings or price flooring for specific product categories. Besides imposing limitations on absolute prices, government authorities can limit the independence of companies to improve prices. Examples of such steps are (temporal) price freezes aimed at slowing inflation; or polices on sale periods, limiting the time period during which merchandise can be offered discounted.
Restrictions on competitive costing and route pricing
Manufacturers' costing decisions are further constrained by government rules that try to preserve competition and prevent monopolies and collusion among firms. Horizontal price mending consists of agreements among competitors to fix prices at a certain level. As these contracts may reduce competition and increase consumer prices, they are really prohibited by the Sherman Function in the USA and by Article 85 of the Treaty of Rome in the EU. Price agreements between manufacturers and their distributors are also illegitimate when they permit manufacturers to enforce minimum amount resale prices (vertical price repairing or resale price maintenance).
In international marketplaces, government regulations can affect prices indirectly through transfer duties and other import obstacles that increase costs. Import duties will bring about price differences between local and export marketplaces, and possibly among export markets. Just like predatory pricing regulations, anti-dumping restrictions prohibit companies from charging unfairly low prices in export marketplaces with the intention of injuring domestic competitors.
Linkage between Costs, Product and Marketing Strategy
Pricing has historically been area of the marketing function with cost and margin impact evaluation coming from money. Also, sales has a major stake and desire for product rates and charges strategy, but way more from the standpoint of always seeking more aggressive price points and special discounts. (Calogridis, 2006)
A products or services must be priced before they are produced or even developed. (Christen, 2005) A demanding pricing strategy can improve customer adoption rates, grow profitability, and increase return on investment. A strategy that quantitatively actions customer value, evaluates the nature of the creativity (whether minor, major, or disruptive), and assesses the level of the merchandise life cycle could possibly be the difference between success and inability. (BURTON & HAGGETT, 2007)
H1: Understating The Product and the Product classification will help how companies can formulate their product mixtures and what marketing strategies will be employed per each product combination.
H2: The product life cycle notion provides important insights for the marketing planner in anticipating advancements throughout the various stages of an product's life.
H3: knowledge of basic cost components remains an essential suggestions to the prices decision, and companies should strive for a total picture of varied cost issues.
H4: An perfect pricing approach will require well knowledge of the merchandise and product life pattern in order to create the right cost and the right product mixture.
Researcher has explored two main areas related to the online marketing strategy; Price and Product; that happen to be two main concepts of the marketing 4Ps, the researcher has began with defining what is the merchandise and the way the product classification can affect the business decision while formulating its product mixture, the researcher then began to investigate what is the linkage between the product and marketing strategy during the different stages of the merchandise life circuit. Thereafter; researcher reviewed the next P; the rates; exploring different factors affecting the costing strategy of a firm such as cost, competition, legislations etc and what is linkage between charges and product.
Thus expanding the optimum pricing for something will need to understand the merchandise itself and its own classifications in order to set the right product mix which will accordingly lower the production cost. Furthermore the merchandise life cycle notion provides important insights for the marketing planner which can only help him again to boost his cost during the various levels of the product life. And eventually that will help him to decide the optimum rates strategy.
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