flowchart LR I[Introduction<br/>Slow growth · Negative profit] --> G[Growth<br/>Rapid sales · Rising profit] G --> M[Maturity<br/>Sales peak · Profit peak then ↓] M --> D[Decline<br/>Sales fall · Margin squeeze] style I fill:#FFEBEE,stroke:#C62828 style G fill:#FFF8E1,stroke:#F9A825 style M fill:#E3F2FD,stroke:#1565C0 style D fill:#FCE4EC,stroke:#AD1457
59 Product and Pricing Decisions
59.1 What is a Product?
A product is anything offered to a market for attention, acquisition, use or consumption that might satisfy a need or want — including physical goods, services, experiences, events, persons, places, properties, organisations, information, and ideas (kotlerkeller2022?). Modern marketing treats every offering as a product in this broad sense.
59.1.1 Five product levels (Kotler)
TipKotler’s Five Product Levels (Customer Value Hierarchy)
| Level | What it captures | Example — a hotel room |
|---|---|---|
| Core benefit | The fundamental need served | Rest and sleep |
| Basic product | The basic version | Bed, bathroom, towels |
| Expected product | What buyers normally expect | Clean linen, working AC, courteous reception |
| Augmented product | Goes beyond expectations | Free Wi-Fi, late check-out, welcome drink |
| Potential product | All possible future augmentations | Personalised concierge, AI room control |
59.1.2 Product classification
TipThree Standard Classifications of Products
| Basis | Categories |
|---|---|
| Durability and tangibility | Non-durable goods · Durable goods · Services |
| Consumer goods | Convenience · Shopping · Speciality · Unsought |
| Industrial goods | Materials & parts · Capital items · Supplies & business services |
The most-tested classification in NTA papers is the consumer-goods split:
TipFour Categories of Consumer Goods
| Type | Buying effort | Example |
|---|---|---|
| Convenience | Frequent, low effort | Soap, toothpaste, newspapers |
| Shopping | Compared on suitability, quality, price | Apparel, furniture |
| Speciality | Unique features; brand insistence | Luxury watches, supercars |
| Unsought | Buyer is unaware or doesn’t normally think of buying | Insurance, encyclopaedias |
59.2 Product Life Cycle (PLC)
The classical PLC (Theodore Levitt, 1965) identifies four stages a product passes through (levitt1965?):
TipFour Stages of the PLC
| Stage | Sales | Profit | Marketing emphasis |
|---|---|---|---|
| Introduction | Slow growth | Negative or low | Build awareness; trial |
| Growth | Rapid growth | Rises | Expand distribution; build brand |
| Maturity | Slows; peaks | Peaks then declines | Differentiate; defend share |
| Decline | Falls | Margins squeezed | Harvest or phase out |
A fifth stage — decline / withdrawal or revival — is added by some texts to capture the option of renewing a product instead of letting it die. Modern critics argue PLC is descriptive, not predictive, and that managerial action shapes the curve.
59.3 New-Product Development (NPD)
Kotler’s standard NPD process has eight stages (kotlerkeller2022?):
TipKotler’s Eight Stages of New-Product Development
| # | Stage | Activity |
|---|---|---|
| 1 | Idea generation | Sources: customers, employees, competitors, R&D |
| 2 | Idea screening | Filter against fit and feasibility |
| 3 | Concept development and testing | Translate ideas into customer-facing concepts; test |
| 4 | Marketing-strategy development | Position, price, distribute, promote |
| 5 | Business analysis | Forecast sales, costs, profits |
| 6 | Product development | Build prototypes |
| 7 | Test marketing | Trial in selected geographies |
| 8 | Commercialisation | Full launch — when, where, to whom, how |
The funnel metaphor: many ideas at the top, few launched products at the bottom — typical fail rate of new consumer products is 60–80 per cent (cooper2019?).
59.3.1 Diffusion of Innovation — Rogers’s Five Adopter Categories
Everett Rogers’s Diffusion of Innovations (1962) identifies five adopter groups (rogers2003?):
TipRogers’s Five Adopter Categories
| Category | Share of population | Behaviour |
|---|---|---|
| Innovators | 2.5 per cent | Risk-takers; first to try |
| Early adopters | 13.5 per cent | Opinion leaders; influencers |
| Early majority | 34 per cent | Deliberate; adopt before the average |
| Late majority | 34 per cent | Sceptical; adopt after the average |
| Laggards | 16 per cent | Tradition-bound; last to adopt |
The percentages are based on a normal distribution. Crossing the chasm between early adopters and early majority is the modern challenge — Geoffrey Moore’s famous addition.
59.4 Branding
A brand is a name, term, sign, symbol, design or combination of these intended to identify the goods or services of a seller and to differentiate them from competitors (AMA). David Aaker and Kevin Lane Keller frame the brand as “the most important asset a company has” (aaker1996?; keller2013?).
59.4.1 Brand Equity (Aaker)
David Aaker’s classical framework lists five dimensions of brand equity (aaker1996?):
TipAaker’s Five Dimensions of Brand Equity
| Dimension | What it captures |
|---|---|
| Brand awareness | Recognition and recall |
| Perceived quality | Judgement of overall quality |
| Brand loyalty | Repeat purchase, advocacy |
| Brand associations | Mental links — attributes, benefits, attitudes |
| Other proprietary assets | Patents, trademarks, channel relations |
Keller’s Customer-Based Brand Equity (CBBE) model adds a hierarchy: Brand Identity → Brand Meaning → Brand Response → Brand Resonance (keller2013?).
59.4.2 Branding decisions
TipCommon Branding Decisions
| Decision | Options |
|---|---|
| Branding strategy | Family branding · Individual branding · Combination · Co-branding · Private label |
| Brand sponsorship | Manufacturer · Distributor · Licensed · Private |
| Brand naming | Descriptive · Suggestive · Coined · Acronym |
| Brand extension | Line extension · Category extension |
| Repositioning | Update brand for new market |
59.5 Pricing — Concept and Objectives
Price is the only element of the marketing mix that produces revenue — the others produce cost. Kotler’s classic definition: price is “the amount of money charged for a product or service, or the sum of the values customers exchange for the benefits of having or using the product or service” (kotlerkeller2022?).
59.5.1 Pricing objectives
TipFive Common Pricing Objectives
| Objective | What the firm seeks |
|---|---|
| Survival | Cover variable costs; stay alive in distress |
| Maximum current profit | Maximise short-run profit |
| Maximum market share | Penetrate; price low to gain volume |
| Market skimming | Set high price for early adopters; lower over time |
| Product-quality leadership | High price reflecting and signalling premium quality |
59.6 Pricing Methods
Three classical families of pricing methods.
59.6.1 Cost-based methods
TipCost-Based Pricing Methods
| Method | Formula |
|---|---|
| Cost-plus | Cost + Markup % |
| Markup | Selling price = Cost ÷ (1 − Markup %) |
| Target return | Set price to yield required ROI |
| Break-even | Cover total cost at expected volume |
59.6.2 Value-based methods
The price is set based on what the customer is willing to pay — derived from customer-perceived value. The textbook prescription for differentiated, value-creating products. EDLP (Everyday Low Pricing) and High-Low Pricing are popular value-based variants.
59.6.3 Competition-based methods
TipCompetition-Based Pricing
| Method | What it does |
|---|---|
| Going-rate / parity pricing | Match competitors |
| Premium / discount | Price higher / lower than competitors based on positioning |
| Sealed-bid pricing | Auction / tender setting |
59.7 Pricing Strategies
TipCommon Pricing Strategies
| Strategy | What the firm does | Best for |
|---|---|---|
| Skimming | High initial price; lower over time | Innovative products with limited substitutes |
| Penetration | Low initial price to capture share | Mass-market, price-sensitive |
| Psychological / Odd-even | Use price endings (₹999) to influence perception | B2C |
| Premium / Prestige | High price as a quality signal | Luxury goods |
| Promotional | Loss leaders, special-event, discount | Drive traffic / clear stock |
| Discriminatory | Different prices to different segments | Air tickets, software, education |
| Bundle | Sell multiple products as a package | Telecom, fast food |
| Captive product | Low price for the main product, high for the consumable | Razors and blades; printers and ink |
| Two-part | Fixed fee + variable fee per use | Utilities |
59.7.1 Pricing in India — Statutory Constraints
TipIndian Statutory Constraints on Pricing
| Source | What it does |
|---|---|
| Drugs (Price Control) Order under the Essential Commodities Act, 1955 | Caps prices of essential medicines (NPPA) |
| Competition Act, 2002 | Prohibits anti-competitive pricing — predatory and abuse of dominance |
| Consumer Protection Act, 2019 | Prohibits unfair trade practices and misleading prices |
| GST Acts, 2017 | Taxation effect on price |
| Legal Metrology Act, 2009 | MRP, package marking |
| Sectoral regulators (TRAI, IRDAI, RBI, SEBI) | Sector-specific pricing rules |
59.8 Practice Questions
Q 01
Levels
Medium
In Kotler's five product levels, "free Wi-Fi" and "complimentary breakfast" at a hotel are best classified as:
View solution
Correct Option: D
Beyond expectations = augmented product. Core = need (rest); Basic = bed/bath; Expected = clean linen, AC.
Q 02
PLC
Easy
In the standard product life cycle, profits typically peak during the:
View solution
Correct Option: C
Profits peak in the maturity stage and then decline as competition intensifies and prices fall.
Q 03
NPD
Medium
In Kotler's eight-stage NPD process, "test marketing" comes:
View solution
Correct Option: B
Sequence: idea generation → screening → concept testing → marketing strategy → business analysis → product development → test marketing → commercialisation.
Q 04
Rogers
Medium
In Rogers's adopter categories, "early adopters" comprise approximately:
View solution
Correct Option: B
Rogers: Innovators 2.5%, Early adopters 13.5%, Early majority 34%, Late majority 34%, Laggards 16%.
Q 05
Aaker
Medium
Which of the following is NOT one of Aaker's five dimensions of brand equity?
View solution
Correct Option: C
Aaker's five: awareness, perceived quality, loyalty, associations, other proprietary assets. Profitability is an outcome, not a dimension.
Q 06
Skimming vs Penetration
Medium
A firm launching an innovative new smartphone with a high initial price aimed at early adopters, planning to lower it later, is using:
View solution
Correct Option: B
Skimming = high initial price aimed at early adopters; lowered as the market expands. Penetration = the opposite.
Q 07
Captive
Medium
Pricing razors low and razor blades high is an example of:
View solution
Correct Option: B
Captive-product pricing — low price for the main product, high price for the consumable. Razors-blades, printers-ink, console-games.
Q 08
Crossing Chasm
Medium
The concept of "crossing the chasm" — the difficulty of moving from early adopters to the early majority — was popularised by:
View solution
Correct Option: B
Geoffrey Moore's 1991 book Crossing the Chasm — a defining concept in technology marketing.
ImportantQuick recall
- Product = anything offered to satisfy a need. Kotler’s five levels: Core · Basic · Expected · Augmented · Potential.
- Consumer goods: Convenience · Shopping · Speciality · Unsought.
- PLC (Levitt 1965): Introduction → Growth → Maturity → Decline. Profits peak in maturity.
- Kotler’s NPD: 8 stages — Idea generation → Screening → Concept test → Marketing strategy → Business analysis → Product dev → Test marketing → Commercialisation.
- Rogers diffusion: Innovators 2.5% · Early adopters 13.5% · Early majority 34% · Late majority 34% · Laggards 16%. Crossing the chasm (Moore).
- Aaker brand equity: awareness, perceived quality, loyalty, associations, other proprietary assets. Keller CBBE hierarchy.
- Pricing — three families: cost-based, value-based, competition-based.
- Pricing strategies: skimming, penetration, premium, psychological, promotional, discriminatory, bundle, captive product, two-part.
- India: NPPA / DPCO, Competition Act 2002, Consumer Protection Act 2019, Legal Metrology Act 2009.