60  Product and Pricing Decisions

60.1 What is a Product?

A product is anything that can be offered to a market for attention, acquisition, use or consumption to satisfy a want or need — Philip Kotler. It includes physical goods, services, experiences, events, persons, places, properties, organisations, information and ideas.

TipWorking definitions
Author Definition
Kotler “Anything offered to a market for attention, acquisition, use or consumption.”
W. Alderson “A bundle of utilities consisting of various features and accompanying services.”
Stanton “A set of tangible and intangible attributes — packaging, colour, price, manufacturer’s prestige, retailer’s prestige, manufacturer’s and retailer’s services.”

60.2 Levels of Product — Kotler’s Five Levels

TipKotler’s five product levels
Level Description Example (hotel)
Core Benefit Fundamental need served Rest, sleep
Generic / Basic Product Minimal version Bed, towel, bath
Expected Product Customary attributes Clean bed, working AC
Augmented Product Beyond expectations Concierge, free Wi-Fi
Potential Product All possible future enhancements Smart room

60.3 Product Classification

TipConsumer goods classification
Type Description Examples
Convenience Frequent, low effort Soap, milk, newspaper
Shopping Compared on price, quality, style Clothes, furniture
Speciality Unique brands; loyalty Luxury cars, designer watches
Unsought Not actively sought Insurance, funeral services

Industrial goods: Materials and Parts (raw, manufactured) · Capital Items (installations, equipment) · Supplies and Business Services (MRO, advisory).

60.4 Product Mix and Product Line

TipProduct mix dimensions (Kotler)
  • Width — number of product lines.
  • Length — total number of items.
  • Depth — variants per item.
  • Consistency — relatedness across lines.

Example: HUL has wide (soaps, detergents, foods, beverages) and deep product mix.

60.5 Product Life Cycle (PLC) — Theodore Levitt (1965)

Theodore Levitt’s “Exploit the Product Life Cycle” (HBR 1965) — four stages with characteristic sales and profit curves.

TipFour stages of PLC
Stage Sales Profit Strategy
Introduction Low, slow Negative Build awareness, high marketing
Growth Rapid Rising Penetration, expand distribution
Maturity Slowing, peak Peaks then declines Differentiation, segment defence
Decline Falling Falling Harvest, divest or rejuvenate
NotePLC criticisms
  • Not all products follow this curve (fads, fashions, styles vary).
  • Self-fulfilling prophecy risk.
  • Hard to identify current stage in real time.
  • Variants: fad (rapid rise+fall), fashion (long S-curve), style (cyclical).

60.6 New Product Development (NPD)

TipEight-stage NPD process (Booz-Allen-Hamilton 1982)
  1. Idea Generation — internal, customers, competitors, suppliers.
  2. Idea Screening — drop bad ideas; “go/no-go”.
  3. Concept Development & Testing — alternative concepts tested with consumers.
  4. Marketing Strategy Development — target market, positioning, 4 Ps.
  5. Business Analysis — sales, cost, profit projections.
  6. Product Development — engineering and prototyping.
  7. Market Testing / Test Marketing — limited launch.
  8. Commercialisation — full launch.
TipModern NPD approaches
  • Stage-Gate Process — Robert Cooper (1988).
  • Lean Startup — Eric Ries (2011): Build-Measure-Learn, MVP.
  • Design Thinking — IDEO; empathise-define-ideate-prototype-test.
  • Agile NPD — sprints, iterative.
  • Open Innovation — Henry Chesbrough (2003).
  • Co-creation — Prahalad-Ramaswamy (2004).

60.7 Diffusion of Innovation — Rogers (1962)

Everett Rogers — Diffusion of Innovations (1962) — adoption follows a bell curve across five adopter categories:

TipRogers’ five adopter categories
Category % of population
Innovators 2.5 %
Early Adopters 13.5 %
Early Majority 34 %
Late Majority 34 %
Laggards 16 %

Geoffrey Moore (1991) added the “Chasm” between Early Adopters and Early Majority that disrupts technology adoption.

60.8 Branding

A brand is a name, term, sign, symbol or design — or a combination — intended to identify the goods or services of one seller and differentiate them from competitors (AMA / Kotler).

TipBrand-related decisions
  • Brand Sponsor — Manufacturer · Private · Licensed · Co-brand.
  • Brand Name — selection criteria (suggest benefits, easy to pronounce, distinctive, extensible).
  • Brand Strategy — Line extension · Brand extension · Multi-brand · New brand · Co-brand.
  • Brand Portfolio — flagship, fighter, premium, value.

(Detailed brand-management framework in Topic 62.)

60.9 Packaging and Labelling

Packaging — the design and production of the container or wrapper. Often called the “5th P” of marketing. Vance Packard — The Hidden Persuaders (1957) — first highlighted package as a silent salesman.

TipFunctions of packaging
  • Protection — physical, moisture, tampering.
  • Information — ingredients, usage, expiry.
  • Promotion — point-of-sale appeal.
  • Identification — brand recognition.
  • Convenience — handling, dispensing.
  • Sustainability — eco-packaging, recyclability.

Labelling — info + grading + promotion. Legal Metrology Act 2009 (India) and FSSAI rules govern labels.

60.10 What is Price?

Price is the amount of money charged for a product or service, or the sum of values that customers exchange for the benefits of having or using the product. Price is the only marketing-mix element that produces revenue — the others produce costs.

60.11 Pricing Objectives

TipCommon pricing objectives (Kotler)
  • Survival — short-term, cover costs.
  • Maximum current profit — short-term profit max.
  • Maximum market share — penetration; volume orientation.
  • Maximum market skimming — high price, premium segment first.
  • Product-quality leadership — high quality, high price.
  • Other — partial cost recovery (PSU), social objectives.

60.12 Factors Affecting Pricing — Kotler’s 3 Cs

TipThree Cs of pricing
  • Cost — floor; cannot go below long-term cost.
  • Customer demand — ceiling; what customer is willing to pay.
  • Competitor prices — orientation.

Plus: company objectives, marketing mix, environment, regulation.

60.13 Pricing Methods / Approaches

TipMajor pricing methods
Method Idea
Cost-Plus / Mark-up Cost + margin
Target-Return Pricing Price to achieve target ROI
Break-even Pricing Price to cover costs at expected volume
Perceived-Value Pricing Based on customer perception
Value Pricing High quality at lower price
Going-Rate Pricing Follow market
Auction Pricing English, Dutch, sealed-bid
Group Pricing Volume / group discounts
Dynamic / Yield Pricing Real-time variation (airlines, Uber)
EDLP (Everyday Low Price) Walmart
High-Low Pricing Frequent promotions

60.14 Price-Adjustment Strategies

TipPricing adjustments
  • Discounts and allowances — cash, quantity, functional, seasonal, trade-in.
  • Segmented / Discriminatory pricing — by customer, location, time, product form.
  • Psychological pricing — ₹199 instead of ₹200; prestige pricing.
  • Promotional pricing — loss-leader, special-event, low-interest financing.
  • Geographic pricing — FOB-origin, uniform-delivered, zone, freight-absorption.
  • International pricing — country-specific, transfer pricing.
  • Dynamic / Algorithmic pricing.

60.15 New-Product Pricing Strategies

TipTwo new-product pricing strategies
  • Market Skimming — high price initially; harvest premium segment; lower later. Examples: Apple iPhone launches.
  • Market Penetration — low price to capture share fast. Examples: Reliance Jio in 2016.

60.16 Product-Mix Pricing

TipSix product-mix pricing strategies
  • Product-line pricing — price steps across line (Maruti Alto-Wagon-R-Swift-Baleno).
  • Optional-product pricing — base + accessories.
  • Captive-product pricing — main product cheap, complement expensive (printer-cartridge; razor-blade).
  • By-product pricing — sell by-products separately.
  • Two-part pricing — fixed fee + variable (gym membership; mobile rental + usage).
  • Product-bundle pricing — fast-food meals.

60.17 Psychological Pricing

TipPsychological pricing tactics
  • Charm pricing — ₹99, ₹999 (left-digit effect).
  • Prestige pricing — high price signals quality.
  • Anchoring — show original price first.
  • Reference pricing — internal/external reference.
  • Odd-even pricing.
  • Bundle pricing.
  • Decoy pricing — third option makes second look attractive.
  • Price-quality inference.

60.18 Pricing Elasticity

\[E_p = \frac{\% \Delta \text{Quantity}}{\% \Delta \text{Price}}\]

TipElasticity ranges
  • |E| > 1 — Elastic; price increase reduces revenue.
  • |E| = 1 — Unit elastic.
  • |E| < 1 — Inelastic; price increase raises revenue.

60.19 Indian Pricing Context

TipIndian pricing landscape
  • MRP regime — Legal Metrology Act 2009.
  • DPCO 1995 — Drug Price Control Order; NPPA.
  • CCI scrutinises predatory and cartel pricing.
  • GST integrated price taxes from 2017.
  • Sachet pricing — small SKUs at low price (HUL, Marico).
  • Frugal pricing — Tata Nano, Aravind Eye Care, Bajaj CT100.
  • Dynamic pricing — Uber, Ola, MakeMyTrip, BookMyShow.
  • Subscription — OTT (Netflix, Hotstar), SaaS, telecom.

60.21 Practice Questions

Q 01LevelsEasy

Kotler's five product levels begin with:

  • AAugmented product
  • BCore benefit
  • CExpected product
  • DPotential product
View solution
Correct Option: B
Core benefit · Generic · Expected · Augmented · Potential.
Q 02PLCEasy

The PLC concept (HBR 1965) was popularised by:

  • AKotler
  • BTheodore Levitt
  • CDrucker
  • DMcCarthy
View solution
Correct Option: B
Theodore Levitt, *"Exploit the Product Life Cycle"* HBR (1965).
Q 03DiffusionMedium

The Diffusion of Innovations theory (1962) is by:

  • AEverett Rogers
  • BGeoffrey Moore
  • CClayton Christensen
  • DEric Ries
View solution
Correct Option: A
Everett Rogers (1962); 5 adopter categories.
Q 04InnovatorsMedium

In Rogers' diffusion model, "Innovators" constitute approximately:

  • A2.5 %
  • B13.5 %
  • C34 %
  • D16 %
View solution
Correct Option: A
Innovators 2.5 % · Early Adopters 13.5 % · Early Majority 34 % · Late Majority 34 % · Laggards 16 %.
Q 05SkimmingMedium

Apple's pricing of new iPhones is an example of:

  • APenetration
  • BSkimming
  • CEDLP
  • DCost-plus
View solution
Correct Option: B
High price initially to harvest premium segment.
Q 06JioEasy

Reliance Jio's 2016 entry pricing is a classic example of:

  • ASkimming
  • BPenetration
  • CEDLP
  • DPremium
View solution
Correct Option: B
Low/free price → mass adoption — classic penetration.
Q 07CaptiveMedium

Cheap printer + expensive cartridges illustrates:

  • ACaptive-product pricing
  • BProduct-line pricing
  • CBundle pricing
  • DOptional-product pricing
View solution
Correct Option: A
Razor-blade / printer-cartridge model.
Q 08Mix dimensionsMedium

"Width" of a product mix refers to:

  • AVariants per item
  • BTotal items
  • CNumber of product lines
  • DRelatedness across lines
View solution
Correct Option: C
Width = number of product lines.
Q 09ConvenienceEasy

Frequently purchased, low-effort goods are called:

  • AConvenience goods
  • BShopping goods
  • CSpeciality goods
  • DUnsought goods
View solution
Correct Option: A
Convenience — soap, milk, newspaper.
Q 103 CsMedium

Kotler's 3 Cs of pricing are Cost, Customer demand and:

  • AChannel
  • BCompetitor
  • CCountry
  • DCurrency
View solution
Correct Option: B
Cost (floor) · Customer (ceiling) · Competitor (orientation).
Q 11ElasticityMedium

When |Ep| > 1, demand is:

  • AInelastic
  • BElastic
  • CUnit elastic
  • DPerfectly inelastic
View solution
Correct Option: B
|Ep| > 1 → elastic.
Q 12EDLPHard

"Everyday Low Price" (EDLP) is most associated with:

  • AWalmart
  • BApple
  • CTata Nano
  • DReliance Jio
View solution
Correct Option: A
Walmart — Sam Walton's EDLP philosophy.
Q 13NPDMedium

Booz-Allen-Hamilton's NPD process has how many stages?

  • A5
  • B6
  • C7
  • D8
View solution
Correct Option: D
Eight: Idea Gen → Screen → Concept → Strategy → Business Analysis → Development → Test → Commercialise.
Q 14Lean StartupMedium

Lean Startup methodology is by:

  • AEric Ries
  • BHenry Chesbrough
  • CRobert Cooper
  • DGeoffrey Moore
View solution
Correct Option: A
Eric Ries (2011) — Build-Measure-Learn, MVP.
Q 15Moore ChasmHard

The "Chasm" between Early Adopters and Early Majority was articulated by:

  • AEverett Rogers
  • BGeoffrey Moore
  • CEric Ries
  • DClayton Christensen
View solution
Correct Option: B
Geoffrey Moore, *Crossing the Chasm* (1991).
Q 16DynamicMedium

Uber's surge pricing is an example of:

  • ACost-plus
  • BDynamic / yield pricing
  • CEDLP
  • DCost leadership
View solution
Correct Option: B
Dynamic pricing — real-time supply-demand.
Q 175th PHard

Packaging is often called the:

  • A5th P
  • BHidden cost
  • CFirst touch
  • DSilent salesman
View solution
Correct Option: A
Often called the "5th P" of marketing; "silent salesman" — both apply.
Q 18Charm pricingEasy

Pricing at ₹999 vs ₹1000 is:

  • ASkimming
  • BCharm / psychological pricing
  • CPenetration
  • DEDLP
View solution
Correct Option: B
Charm pricing exploits left-digit effect.
Q 19DPCOHard

India's drug pricing is regulated by:

  • ACCI
  • BNPPA under DPCO
  • CSEBI
  • DRBI
View solution
Correct Option: B
National Pharmaceutical Pricing Authority under DPCO 1995.
Q 20Match conceptsHard

Match:

(i) PLC (a) Eric Ries
(ii) Diffusion (b) Geoffrey Moore
(iii) Chasm (c) Theodore Levitt
(iv) Lean Startup (d) Everett Rogers
  • A(i)-(c), (ii)-(d), (iii)-(b), (iv)-(a)
  • B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • C(i)-(b), (ii)-(c), (iii)-(d), (iv)-(a)
  • D(i)-(d), (ii)-(a), (iii)-(c), (iv)-(b)
View solution
Correct Option: A
PLC — Levitt; Diffusion — Rogers; Chasm — Moore; Lean Startup — Ries.

60.21.1 Advanced Format Questions

AR 1Assertion-ReasonHard

A: Skimming pricing sets a high initial price.
R: Penetration pricing sets a low initial price to gain market share.

  • ABoth true; R explains A
  • BBoth true; R does not explain A
  • CA true, R false
  • DA false, R true
View solution
Correct Option: B
S 1Statement-basedMedium

PLC stages: (i) Introduction. (ii) Growth. (iii) Maturity. (iv) Decline.

  • AAll four
  • B(i) and (ii) only
  • C(iii) and (iv) only
  • D(i), (ii), (iii) only
View solution
Correct Option: A
S 2Statement-basedHard

Pricing methods: (i) Cost-plus. (ii) Value-based. (iii) Competition-based. (iv) Dynamic pricing.

  • AAll four
  • B(i) and (ii) only
  • C(iii) and (iv) only
  • D(i), (ii), (iii) only
View solution
Correct Option: A

60.22 Quick Recall

ImportantQuick recall
  • Product — anything offered to satisfy need (Kotler).
  • Five levels: Core · Generic · Expected · Augmented · Potential.
  • Classification: Convenience · Shopping · Speciality · Unsought (consumer); Industrial.
  • Mix dimensions: Width · Length · Depth · Consistency.
  • PLC — Levitt (HBR 1965): Intro · Growth · Maturity · Decline. Variants: fad, fashion, style.
  • NPD 8 stages (Booz-Allen 1982); Stage-Gate (Cooper 1988); Lean Startup (Ries 2011) — MVP; Design Thinking; Agile; Open Innovation (Chesbrough 2003); Co-creation (Prahalad-Ramaswamy).
  • Diffusion — Rogers (1962): 2.5 % Innovators · 13.5 % Early Adopters · 34 % Early Majority · 34 % Late Majority · 16 % Laggards.
  • Chasm — Moore (1991).
  • Branding (Topic 62 detail).
  • Packaging — 5th P (Vance Packard 1957).
  • Price = only revenue-producing mix element.
  • Kotler’s 3 Cs: Cost · Customer · Competitor.
  • Pricing objectives — Survival · Max current profit · Max share · Max skim · Quality leader.
  • 11 pricing methods: Cost-plus · Target-return · Break-even · Perceived-value · Value · Going-rate · Auction · Group · Dynamic · EDLP · High-Low.
  • New-product: Skimming (Apple) vs Penetration (Jio 2016).
  • Mix pricing: Product-line · Optional · Captive · By-product · Two-part · Bundle.
  • Psychological: Charm (₹99) · Prestige · Anchoring · Reference · Decoy.
  • Adjustments: Discounts · Segmented · Promotional · Geographic · Dynamic.
  • Elasticity — |Ep| >1 elastic; <1 inelastic; =1 unit.
  • India: Legal Metrology 2009 · DPCO 1995 / NPPA · CCI predatory rules · GST 2017 · sachet pricing · frugal · dynamic (Uber, BMS) · subscription.
  • Modern: subscription · freemium · dynamic / AI · outcome-based · pay-what-you-want · carbon-conscious · PaaS.