 Product Decision: Product Life Cycle- Meaning and concept.

Product Life
Cycle Marketing Strategies. Product Classification. New Product
Development and Innovation.
 Pricing Decision: Significance of Price in Marketing, Determinants of
Price in Marketing. Pricing Methods.
 Product is anything that can be offered to a market to satisfy a want or
need.
 Products that are marketed include physical goods, services, experiences,
events, persons, places, properties, organizations, information and ideas.
 Product Levels : The Customer Value Hierarchy
 A product is more than just a physical item — it has multiple levels, each
adding value to the customer. There are five product levels known as
customer value hierarchy:

 1. Core Benefit
 The fundamental need or benefit the customer seeks. The service or
benefit the customer is really buying.
 Example: A customer buying a mobile phone seeks communication
and connectivity.
 2. Basic Product
 The second level the marketer has to turn the core benefit into a
basic product
 The actual product that delivers the core benefit.

 Example: A smartphone with hardware, screen, battery, etc.

 A hotel room includes a bed, bathroom, towels, desk, dresser etc.
 3. Expected Product
 A set of attributes and conditions buyers normally expect when they
purchase.
 Example: Smartphone with good camera, fast internet, and
touchscreen.
 Hotel guests expects a clean bed, fresh towels, working lamps etc.
 4. Augmented Product
 Extra benefits and services that differentiate the product.
 That exceeds customer expectations.
 Example: Free cloud storage, customer service, warranty, brand
reputation (like Apple's ecosystem).
 5. Potential Product
 All future improvements and transformations the product might
undergo.
 Example: A smartphone with AI features, AR/VR support, or
foldable screen in the future.
Level Description Example (Car)

The main benefit the customer

1. Core Value Transportation or mobility
seeks

The tangible product delivering

2. Basic Product A car with engine, seats, wheels
the core value

3. Expected Product The standard features expected AC, mileage, safety features

5-year warranty, roadside

4. Augmented Product Added value-added features
assistance

Future enhancements &

5. Potential Product Self-driving, EV capability
innovations
 Product Levels – Tata Nexon EV
 Core Benefit: Eco-friendly and cost-effective transportation
 Basic Product: Tata Nexon EV – electric SUV
 Expected Product: Stylish design, safety, range of 250+ km
 Augmented Product: Fast charging, connected tech, service warranty
 Potential Product: AI driving features, improved battery tech
Product Classifications
 Product Classification Based on Durability and Tangibility
 Kotler classifies products based on how long they last (durability) and
their physical presence (tangibility) into three main categories:
 1. Non-durable Goods
 Consumed quickly (one or few uses)
 Low durability
 Purchased frequently
 Generally low priced
 Heavily advertised and widely distributed
 Examples:
 Toothpaste
 Soap
 Bread
 Soft drinks
 2. Durable Goods
 Tangible products
 Survive many uses over time
 Require more personal selling and after-sales service
 Higher price, bought less frequently
 Examples:
 Refrigerator
 Smartphone
 Car
 Furniture
 3. Services
 Intangible and perishable
 Cannot be stored or owned
 Simultaneous production and consumption
 Require customer involvement and quality control
 Examples:
 Haircut
 Banking
 Education
 Hotel stay
 Consumer Goods Classificati0n
 These are goods bought by individuals for personal consumption
 a) Convenience Products
 Purchased frequently, immediately, and with minimal effort.
 Impulse goods are purchased without any planning or search effort
 Emergency goods are purchased when a need is urgent.
 Usually low-priced and easily available.
 Examples: Soap, toothpaste, soft drinks, newspapers
 b) Shopping Goods
 Consumers spend time and effort comparing quality, price, and style.
 Homogenous shopping goods are similar in quality but different enough in
price to justify shopping comparisons.
 Heterogenous shopping goods differ in product features and services that
may be more important than price.
 Less frequently purchased.
 Examples: Clothes, shoes, mobile phones, home appliances
 c) Specialty Products
 Unique characteristics or brand identity.
 Consumers make special effort to buy; price is not a major concern.
 Examples: Luxury cars (BMW), designer clothing, Rolex watches,
iPhone
 d) Unsought Products
 Consumers do not think of buying or don’t know about until needed.
 Often require aggressive promotion.
 Examples: Life insurance, fire extinguishers, Encyclopedias
 2. Industrial Products
 These are bought for further processing or use in business operations.
 a) Materials and Parts
 Used directly in production.
 Examples: Steel for auto industry, cotton for textile firms
 Raw materials or components.
 Raw materials fall into two major groups: farm products (Wheat, cotton,
livestock, fruits and vegetables)
 Natural Products (fish, lumber, crude oil, iron ore)
 Manufactured materials and parts fall into two categories: component
materials (iron, yarn, cement, wires) and component parts (small motors,
tires, castings)
 Component materials are usually fabricated further – pig iron is made into
steel, and yarn is woven into cloth
 Component parts enter the finished product with no further change in
form, as when small motors are put into vaccum cleaners, and tires are on
automobiles.
 b) Capital Items
 Long-term assets that help in production or operations.
 Examples: Machinery, tools, buildings, computers
 Includes two groups: Installations and equipment
 Installations consist of buildings (factories, offices) and heavy equipment
(generators, drill presses)
 Equipment comprises portable factory equipment and tools (hand tools,
lift trucks) and office equipment (computers, desk tops)
 c) Supplies and Services
 Short-term goods and services for daily operations.
 Examples: Office stationery, lubricants, maintenance services
 Suppliers are of two kinds: maintenance and repair items (paint, nails,
brooms)
 Operating supplies (lubricants, coal, writing paper, pencils)
 Business services include maintenance and repair services(window
cleaning, copier repair) and business advisory services (legal,
management consulting, advertising)
Product Differentiation
 Form: Many products can be differentiated in form – the size, shape or
physical structure of a product.
 Amul Butter vs. Ghee – Both are dairy products made from milk fat, but
they are differentiated in form:
 Amul Butter comes as a solid, packaged block with added salt and
preservatives, ready for spreading or cooking.
 Amul Ghee is a liquid or semi-solid form of clarified butter, used for
traditional Indian cooking and religious rituals.
 Features: Most products can be offered with varying features that
supplement its basic function.
 Apple iPhone vs. Other Smartphones (e.g., Android phones):
 Apple differentiates the iPhone through unique features such as:
 Face ID (facial recognition technology)
 iOS operating system (exclusive to Apple)
 iMessage and Air Drop (exclusive Apple ecosystem features)
 Titanium body or Ceramic Shield (in premium models)
 Performance Quality:
 Performance quality is the level at which the product’s primary characteristics
operate.
 Bajaj Pulsar vs. Hero Splendor (Motorcycles in India):
 Hero Splendor is positioned as a low to average performance bike — known for
fuel efficiency, low maintenance, and affordability.
 Bajaj Pulsar offers high to superior performance — with more powerful engines,
better acceleration, sportier handling, and features like disc brakes and digital
consoles.
 Both serve different customer needs, but are differentiated based on their
performance level, making this a strong example of performance-based
product differentiation.
 Conformance Quality:
 Buyers expect products to have a high conformance quality, which is a
degree to which all the produced units are identical and meet the
promised specifications.
 Conformance quality refers to the degree to which a product's design
and operating characteristics match pre-established standards or
specifications — essentially, how consistently the product meets
promised quality.
 The Toyota Corolla is widely known for:
 Consistent manufacturing quality across global plants
 Reliable performance over time
 Low defect rates
 Minimal variation between units of the same model
 Durability
 Durability, a measure of the product’s expected operating life under natural
or stressful conditions, is a valued attribute for certain products.
 Buyers will generally pay more for vehicles and kitchen appliances that have a
reputation for being long lasting.
 Reliability
 Reliability is a measure of the probability that a product will not
malfunction or fail within a specified time period.
 Repairability
 Repairability is a measure of the ease of fixing a product when it
malfunctions or fails.
 Ideal repairability would exist if users could fix the product themselves
with little cost in money or time.
 Style
 Describes the product’s look and feel to the buyer.
 Aesthetics play a key role in branding
 Style has the advantage of creating distinctiveness that is difficult to copy.
Product Life Cycle
 Product Life Cycle (PLC) Marketing Strategies refer to the different
marketing approaches adopted during each stage of a product’s life in the
market — from its introduction to eventual decline. Understanding the
PLC helps marketers adapt strategies to maximize profits, extend product
longevity, and plan new product development.
 1. Introduction Stage
 Goal: Build product awareness and develop a market.
 Characteristics:
 High costs (product development & promotion)
 Low or negative profits
 Few competitors
 Limited customer awareness
 Marketing Strategies:
 Promotion: Heavy advertising to build awareness (e.g., influencer
marketing, teaser ads).
 Pricing: Penetration pricing (low to attract customers) or skimming (high
to recover costs).
 Distribution: Selective; focus on early adopters.
 Product: Basic version to test market response.
 Example:
When Apple launched the first iPhone, it used skimming pricing and
intense advertising to create hype among tech enthusiasts and innovators.
 2. Growth Stage
 Goal: Maximize market share and build brand preference.
 Characteristics:
 Rising sales and profits
 Entry of competitors
 Expanding market
 Greater consumer acceptance
 Marketing Strategies:
 Promotion: Highlight differentiators, build brand loyalty.
 Pricing: May reduce price to remain competitive.
 Distribution: Expand channels (retail, e-commerce).
 Product: Improve features, offer new variants.
 Example:
Ola and Uber introduced ride-sharing in India with aggressive
promotions; during growth, they expanded to new cities, added features
like ride-sharing, auto-rickshaws, and premium rides.
 3. Maturity Stage
 Goal: Defend market share while maximizing profit.
 Characteristics:
 Peak sales
 Saturated market
 Intense competition
 Profit margins decline
 Marketing Strategies:
 Promotion: Focus on reminders, brand loyalty campaigns.
 Pricing: Competitive pricing, offers, discounts.
 Distribution: Maximize availability across platforms.
 Product: Diversify product line, improve quality, and add services.
 Example:
Maggi Noodles in India is in the maturity stage. Nestlé has introduced
variants (oats Maggi, atta Maggi, cheesy Maggi) and frequent promotional
offers to retain interest.
 4. Decline Stage
 Goal: Reduce expenses and consider exit or rejuvenation strategies.
 Characteristics:
 Declining sales
 Changing customer preferences
 Emergence of new technologies
 Product may become obsolete
 Marketing Strategies:
 Promotion: Minimal or targeted only to loyal users.
 Pricing: Discounts to clear inventory.
 Distribution: Limit to profitable channels.
 Product: Phase out or rebrand.
 Example:
Compact digital cameras have declined due to smartphone cameras.
Companies like Canon have reduced production and shifted focus to high-
end DSLRs or mirrorless cameras.
Product Systems and Mixes
 A product system is a group of diverse but related items that function in a
compatible manner.
 For eg. Smartphone product lines come with attachable products
including headsets, cameras, keyboards, e books, voice recorders, and
Music system.
 A product mix (also called a product assortment) is the set of all products
and items a particular seller offers for sale.
 A product mix consists of various product lines
 A company’s product mix has a certain width, length, depth, and
consistency.
 1. Product Mix Width
 Definition: The number of different product lines a company offers.
 Example:
ITC Ltd. has a wide product mix:
 Foods (Aashirvaad, Sunfeast)
 Personal care (Fiama, Vivel)
 Cigarettes (Gold Flake, Classic)
 Stationery (Classmate)
 Width = 4 product lines
 2. Product Mix Length
 Definition: The total number of products in all product lines.
 Example:
Continuing with ITC:
 Aashirvaad has 4 products (Atta, Spices, Instant Mixes, Salt)
 Sunfeast has 5 (Biscuits, Cakes, Pasta, Noodles, Cookies)
 Fiama has 3 (Soaps, Body Wash, Shampoos)
 Length = 4 + 5 + 3 = 12 products
 3. Product Mix Depth
 Definition: The number of variations of each product in a line (e.g.,
flavors, sizes, models).
 Example:
In Sunfeast Biscuits, depth includes:
 Flavors: Chocolate, Vanilla, Butter, Orange
 Pack Sizes: ₹5, ₹10, ₹20, family pack
 Depth = multiple variants of a single product
 4. Product Mix Consistency
 Definition: How closely related the product lines are in terms of end
use, production, or distribution.
 Example:
 Hindustan Unilever (HUL): All product lines like soaps, shampoos,
detergents, and cosmetics are related — personal care and home care.
 High consistency due to common manufacturing and distribution channels.
 These four product-mix dimensions permit the company to expand its
business in four ways. It can add new product lines, thus widening its
product mix.
 It can lengthen each product line
 It can add more product variants to each product and deepen its product
mix
 A company can pursue more product-line consistency.
 1. Concept of New Product Development (NPD)
 New Product Development (NPD) is the process by which companies
bring new products to the market — either by creating entirely new
offerings or significantly improving existing ones — to meet customer
needs, respond to competition, or leverage new technology.
 Types of New Products:
 New-to-the-world products (e.g., Apple’s first iPhone)
 New product lines (e.g., Tata’s entry into electric vehicles)
 Additions to existing lines (e.g., Maggi introducing oats noodles)
 Improvements/revisions (e.g., new versions of Microsoft Windows)
 Repositioned products (e.g., Dettol soap marketed for skincare)
 Cost-reduced products (e.g., budget smartphone variants)
 3. New Product Development Process
 A widely used model includes 8 stages:
 Idea Generation – Brainstorming ideas (internal or external sources)
 Idea generation is the first and most crucial stage in the New Product
Development (NPD) process. It involves brainstorming, collecting, and
developing new product concepts that can meet market needs or
capitalize on emerging opportunities.
 In marketing, idea generation is about identifying customer pain
points, market gaps, and trends to create innovative products that
provide value and competitive advantage.
 1. Sources of New Product Ideas
 Ideas can come from various sources, including:
 Customers (Feedback, surveys, complaints, unmet needs)
 Competitors (Analyzing rival products for improvements)
 Employees (Sales, R&D, and marketing teams' insights)
 Market Trends (Emerging technologies, social changes, economic shifts)
 Distributors & Suppliers (Industry insights, material innovations)
 Internal R&D (Company-driven innovation and experiments)
Open Innovation (Collaborating with startups, universities, or
crowdsourcing)
 Techniques for Generating Ideas
 Marketers use different creative methods to generate ideas, such as:
 Brainstorming (Group discussions to spark creativity)
 Mind Mapping (Visualizing ideas around a central concept)
 SCAMPER Technique (Substitute, Combine, Adapt, Modify, Put to
another use, Eliminate, Reverse)
 Customer Co-Creation (Involving users in idea development)
 Trend Analysis (Studying market shifts and consumer behavior)
 Problem-Solution Approach (Identifying consumer problems and
solving them)
 2. Idea Screening – Filtering out unviable ideas
 Idea screening is the second stage in the New Product Development
(NPD) process, following idea generation.
 It involves evaluating and filtering the generated ideas to identify the
most viable, profitable, and market-ready concepts before investing
significant resources.
 The goal of idea screening is to:
Eliminate weak or impractical ideas early
Focus on high-potential opportunities
Reduce risks and costs before full-scale development
 Purpose of Idea Screening
 Avoids wasted resources (time, money, effort) on unfeasible ideas.
 Prioritizes ideas with the best market potential.
 Aligns with business goals (profitability, brand positioning, growth).
 Identifies potential risks (technical challenges, market competition).
 Screening Criteria
 Marketers and product teams assess ideas based on:
 A. Market Feasibility
 Is there a real customer need?
 What is the target market size?
 How strong is the competitive landscape?
 1. Is there a real customer need?
 Example: Patanjali Ayurved
 Need Identified: Rising demand for natural, Ayurvedic, and chemical-
free products in India.
 Why It Worked: People were increasingly seeking traditional wellness
solutions, and Patanjali met this need with a wide product range.
 2. What is the target market size?
 Example: Jio (Reliance Jio Infocomm)
 Market Size: Over a billion mobile users in India; data usage was rising
but still underserved.
 Why It Worked: Jio offered free/affordable internet initially, targeting the
mass market across rural and urban India, and quickly gained over 400
million users.
 3. How strong is the competitive landscape?
 Example: Ola (Ride-hailing service)
 Competition: Faced strong competition from Uber in urban mobility.
 Response Strategy: Differentiated with localized pricing, payment
options (Ola Money), and auto-rickshaw/taxi integrations tailored to
Indian cities.
 Technical & Operational Feasibility
 Can the company develop the product with existing technology?
 Are raw materials and supply chains available?
 Does the company have the production capabilities?
 1. Can the company develop the product with existing technology?
 Example: Tata Passenger Electric Mobility (Tata Motors EVs)
 Context: Tata is leveraging its existing R&D and engineering capabilities
to develop electric vehicles like the Tata Nexon EV.
 Why It Fits: Uses in-house technology and partnerships (e.g., with Tata
Power and Tata Chemicals) to support EV development without needing
external tech innovation.
 2. Are raw materials and supply chains available?
 Example: Amul (Dairy Industry)
 Context: Amul operates through a vast cooperative supply chain of over
3.6 million milk producers.
 Why It Fits: Raw milk is available consistently through its structured
procurement system, ensuring smooth supply chain operations even in
rural areas.
 3. Does the company have the production capabilities?
 Example: Serum Institute of India
 Context: During COVID-19, Serum Institute ramped up vaccine
production, becoming the largest producer of Covishield.
 Why It Fits: It had the infrastructure, bioreactors, and skilled workforce
to scale up manufacturing quickly under pressure.
 Financial Viability
 What are the estimated costs (R&D, production, marketing)?
 What is the expected ROI (Return on Investment)?
 Is the pricing strategy competitive and profitable?
 Strategic Fit
 Does the product align with the company’s brand and vision?
 Does it complement existing products or cannibalize them?
 Does it leverage the company’s core competencies?
 1. Does the product align with the company’s brand and vision?
 Example: Tata Tea's “Jaago Re” Campaign
 Product Fit: Tata Tea launched a series of products under a socially aware
branding platform.
 Strategic Fit: The product didn’t just sell tea; it stood for awakening and
social consciousness, aligning with Tata’s values of ethical leadership
and community development.
 2. Does it complement existing products or cannibalize them?
 Example: Britannia’s launch of NutriChoice Biscuits
 Context: NutriChoice targeted health-conscious consumers, without
hurting the market for traditional treats like Good Day.
 Strategic Fit: It complemented the portfolio by expanding into a new
segment without cannibalizing core products.
 3. Does it leverage the company’s core competencies?
 **Example: Asian Paints launching Beautiful Homes Services
 Core Competency: Expertise in home décor and paints.
 Strategic Fit: The service offering (interior design, consultation,
execution) leveraged their brand knowledge and logistics network,
not venturing far from their strengths.
 3. Concept Development & Testing – Testing product idea with target
consumers
 Concept development and testing is the third stage in the New Product
Development (NPD) process, following idea screening.
 At this stage, the selected ideas are refined into detailed product
concepts, which are then tested with target customers to assess their
appeal and feasibility before moving to full-scale development.
 This phase helps businesses:
Transform rough ideas into clear, market-ready concepts
Validate demand and customer preferences early
Reduce the risk of launching an unsuccessful product
 Key Aspects of Concept Development & Testing
 1. Concept Development
 This involves turning a screened idea into a well-defined product
concept that describes:
 Core Benefits – What problem does it solve? (e.g., "A smartphone with a 7-day
battery life")
 Target Market – Who is it for? (e.g., "Busy professionals who travel frequently")
 Positioning – How is it different from competitors? (e.g., "Longest-lasting
battery in its price range")
 Features & Specifications – Key functionalities (e.g., "5000mAh battery, fast
charging")
 Example 1: Ather 450X (Electric Scooter)
 Core Benefit:
Solves the problem of rising fuel prices and urban pollution by offering a
smart, eco-friendly alternative to petrol scooters.
 Target Market:
Environment-conscious urban youth and professionals (age 22–40) in
metro cities.
 Positioning:
“India’s smartest electric scooter with unmatched performance and
connectivity.”
 Example 2: Akshayakalpa Organic Milk
 Core Benefit:
"Delivers pure, chemical-free, organic milk directly from certified farms to
health-conscious consumers."
 Target Market:
Parents, fitness enthusiasts, and people avoiding preservatives.
 Positioning:
"India’s first certified organic milk brand ensuring health from farm to
home."
 Concept Testing
 Once the concept is developed, it is tested with potential customers to
gather feedback before investing in production.
 Methods of Concept Testing
 Surveys & Questionnaires – Quantitative feedback (e.g., "How likely are you
to buy this product?")
 Focus Groups – In-depth discussions with a small group of target customers.
 Prototype Testing – Letting users interact with a mock-up or MVP (Minimum
Viable Product).
 A/B Testing – Comparing two versions of a concept to see which performs
better.
 Online Crowdsourcing – Platforms like Kickstarter to gauge interest and pre-
orders.
 Key Questions in Concept Testing
 Do customers understand the product’s value?
 How appealing is the concept compared to alternatives?
 What price would they be willing to pay?
 What improvements or concerns do they have?
 4. Business Analysis – Profit projections, break-even analysis
 Business Analysis is the fourth stage in the New Product
Development (NPD) process, following concept development and
testing.
 This stage involves a detailed financial and market evaluation to
determine whether the proposed product will be profitable,
sustainable, and strategically viable before committing significant
resources to development.
 The goal is to:
Assess the commercial potential of the product
Estimate costs, revenue, and profitability
Identify potential risks and challenges
Ensure alignment with business objectives
 Key Components of Business Analysis in NPD
 1. Market Demand & Sales Potential
 Target Market Size: Estimate the number of potential customers.
 Sales Forecasting: Predict sales volume using historical data, surveys, or
test marketing.
 Market Trends: Analyze industry growth, consumer behavior, and
demand shifts.
 2. Cost Analysis
 Development Costs (R&D, prototyping, testing)
 Production Costs (materials, labor, manufacturing)
 Marketing & Distribution Costs (advertising, logistics, retail
partnerships)
 3. Pricing Strategy & Revenue Projections
 Competitive Pricing Analysis: Compare with rival products.
 Value-Based Pricing: Determine what customers are willing to pay.
 Break-Even Analysis: Calculate how many units must be sold to cover
costs.
 4. Profitability & ROI (Return on Investment)
 Gross Margin Analysis (Revenue – Cost of Goods Sold)
 Net Profit Estimation (After all expenses)
 Payback Period (Time to recoup investment)
 5. Risk Assessment
 Market Risks (Competition, changing trends)
 Operational Risks (Supply chain, production delays)
 Financial Risks (Overbudgeting, low ROI)
 6. Resource & Capability Evaluation
 Does the company have the skills, technology, and infrastructure to
develop and launch the product?
 Are there supply chain or regulatory hurdles?
 Methods Used in Business Analysis
 Feasibility Study
 Examines whether the product is technically, financially, and
operationally possible.
 SWOT Analysis
 Evaluates Strengths, Weaknesses, Opportunities, and Threats related
to the product.
 Break-Even Analysis
 Determines the minimum sales needed to cover costs.
 Sensitivity Analysis
 Tests how changes in pricing, costs, or demand affect profitability.
 Scenario Planning
 Prepares for best-case, worst-case, and most-likely outcomes.
Product Development
 Product Development is the fifth stage in the New Product
Development (NPD) process, where the approved concept transitions
from an idea into a tangible, market-ready product. This stage
involves designing, engineering, and prototyping the product while
ensuring it meets customer needs, technical specifications, and business
objectives.
 Key Steps in Product Development
 1. Design & Engineering
 Industrial Design: Focuses on aesthetics, ergonomics, and user
experience (e.g., Apple’s sleek iPhone design).
 Technical Specifications: Engineers develop blueprints, materials, and
functionalities (e.g., Tesla’s battery technology).
 Regulatory Compliance: Ensures the product meets safety and legal
standards (e.g., FDA approval for food products).
 2. Prototyping
 Physical Prototypes: 3D-printed models or handcrafted samples (e.g.,
Dyson’s 5,127 vacuum prototypes).
 Digital Prototypes: Software simulations (e.g., car aerodynamics testing
in CAD software).
 Minimum Viable Product (MVP): A basic version for early testing (e.g.,
Dropbox’s initial demo video).
 3. Testing & Refinement
 Functional Testing: Checks performance, durability, and safety (e.g.,
crash tests for cars).
 User Testing: Gathers feedback from target customers (e.g., beta testing
apps like Instagram Reels).
 Iterative Improvements: Refines the product based on test results (e.g.,
Samsung’s foldable phone enhancements).
 4. Sourcing & Supply Chain Setup
 Supplier Selection: Partners with manufacturers for raw materials (e.g.,
Nike’s footwear suppliers).
 Cost Negotiation: Balances quality and budget (e.g., IKEA’s flat-pack
furniture logistics).
 Production Planning: Scales up from prototypes to mass production
(e.g., Coca-Cola’s bottling process).
 5. Cost Finalization & Pricing Strategy
 Bill of Materials (BOM): Lists all components and costs (e.g., iPhone’s
screen, chips).
 Pricing Model: Decides between skimming, penetration, or value-based
pricing (e.g., Tesla’s premium pricing).
 Profit Margins: Ensures the product is financially viable (e.g.,
McDonald’s $1 menu profitability analysis).
Test Marketing
 Test marketing is a crucial step in the New Product Development
(NPD) process where a product is introduced to a limited market to
evaluate its performance before a full-scale launch. It helps businesses
assess customer response, refine marketing strategies, and minimize risks.
 Key Objectives of Test Marketing
 Evaluate Customer Acceptance – Determine if the target audience likes
the product.
 Test Marketing Mix – Assess pricing, promotion, and distribution
strategies.
 Identify Potential Issues – Discover flaws in the product or marketing
approach.
 Forecast Sales & Profitability – Estimate demand before a full launch.
 Optimize Marketing Strategy – Adjust campaigns based on real-world
feedback.
 Types of Test Marketing
 Standard Test Market
 The product is launched in a few selected cities/regions.
 Real-world conditions are used to measure performance.
 Example: A soft drink company tests a new flavor in 3 cities.
 Controlled Test Market
 Conducted with the help of research firms that manage store placements and
promotions.
 Faster and more controlled than standard test markets.
 Example: A snack brand tests packaging variations in select supermarkets.
 Simulated Test Market (STM)
 Uses virtual or lab-like environments where consumers are exposed to ads
and mock purchases.
 Uses surveys and data modeling to predict success.
 Example: A tech company tests a new smartphone concept in a virtual store.
 Online Test Marketing
 Uses digital platforms (e-commerce, social media ads) to test demand.
 Example: A fashion brand tests a new clothing line via Facebook ads
before mass production
 Steps in Test Marketing
 Select Test Markets – Choose locations that represent the broader target
market.
 Develop a Marketing Plan – Define pricing, advertising, and
distribution strategies.
 Launch the Product – Introduce the product in the test market.
 Monitor Performance – Track sales, customer feedback, and competitor
reactions.
 Analyze Results & Adjust – Decide whether to proceed, modify, or halt
the launch.
 Test marketing is a vital checkpoint in NPD, allowing businesses to
validate their product and marketing strategies before committing to a
full-scale launch. Companies like Pepsi, Apple, and Procter &
Gamble frequently use test marketing to ensure success.
 Commercialisation
 Commercialization is the final and most critical stage in the New
Product Development (NPD) process, where a product is launched into
the market on a full-scale basis. This phase involves executing the
marketing plan, manufacturing, distribution, and sales strategies to
ensure the product’s success.
 Key Objectives of Commercialization
 Full Market Launch – Introduce the product to the entire target market.
 Maximize Sales & Profitability – Achieve business goals through
effective execution.
 Establish Brand Presence – Build awareness and loyalty among
consumers.
 Scale Production & Distribution – Ensure supply meets demand.
 Monitor Performance – Track success and make adjustments if needed.
 Steps in Commercialization
 Finalizing Production & Supply Chain
 Ramp up manufacturing to meet expected demand.
 Ensure logistics and distribution networks are ready.
 Implementing Marketing Strategies
 Launch advertising campaigns (TV, digital, print, social media).
 Execute promotional activities (discounts, free samples, influencer
marketing).
 Pricing Strategy
 Set competitive pricing based on market research and cost analysis.
 Decide on introductory offers (e.g., early-bird discounts).
 Distribution & Sales Launch
 Ensure product availability in retail stores, e-commerce platforms, etc.
 Train sales teams to effectively pitch the product.
 Post-Launch Monitoring & Adjustments
 Track sales, customer feedback, and market response.
 Modify strategies if needed (e.g., rebranding, price adjustments).
 Factors Influencing Commercialization Success
 Market Readiness – Is there a strong demand for the product?
Competitive Advantage – Does the product stand out from
competitors?
Budget & Resources – Are there enough funds for large-scale
marketing?
Timing – Is the launch aligned with market trends (e.g., seasonal
demand)?
 Example of Successful Commercialization
 Apple’s iPhone Launch (2007)
 Massive marketing campaigns created hype.
 Strategic partnerships with telecom providers ensured distribution.
 Continuous updates kept the product relevant.
 Post-Launch Evaluation of New Product Development (NPD) in
Marketing
 Post-launch evaluation is a critical phase in the New Product
Development (NPD) process where marketers assess the performance of
a newly launched product in the market.
 This evaluation helps in determining whether the product meets its
objectives, identifying areas for improvement, and making data-driven
decisions for future strategies.
 Key Steps in Post-Launch Evaluation
 1. Performance Metrics Analysis
 Marketers track key performance indicators (KPIs) to evaluate success:
 Sales Performance – Compare actual sales vs. forecasted sales.
 Market Share – Assess the product’s share in the category.
 Profitability – Analyze margins, costs, and break-even point.
 Customer Acquisition Cost (CAC) – Cost of acquiring each new
customer.
 Return on Investment (ROI) – Measure financial returns against
marketing spend.
 2. Customer Feedback & Satisfaction
 Surveys & Reviews – Collect feedback on customer satisfaction (CSAT),
Net Promoter Score (NPS), and product usability.
 Social Media & Online Sentiment – Monitor brand mentions,
complaints, and trends.
 Product Returns & Complaints – Identify common issues affecting
customer experience.
 3. Competitive Benchmarking
 Compare the product’s performance against competitors in terms of:
 Pricing
 Features
 Market positioning
 Promotional effectiveness
 4. Distribution & Channel Performance
 Evaluate retail and online distribution effectiveness.
 Assess stock availability, shelf placement, and retailer feedback.
 5. Marketing & Promotional Effectiveness
 Analyze the success of advertising, digital marketing, and promotional
campaigns.
 Measure engagement rates, click-through rates (CTR), and conversion
rates.
 6. Product Improvements & Iterations
 Identify flaws, bugs, or unmet customer needs.
 Plan product updates, modifications, or line extensions.
 7. Long-Term Viability Assessment
 Forecast future demand and sustainability.
 Decide whether to continue, modify, or discontinue the product.
 4. Concept of Innovation
 Innovation in marketing and product development refers to introducing
something new or improved — a product, process, or business model —
that delivers greater value to customers or businesses.
 The word Innovation comes from the latin word ‘innovatio’ meaning to
renew or change
 Any thing new to the market is considered innovation
 “the development of new products, changes in design of established
products, or use of new materials or components in the manufacture of
established products”.
 Why product innovation is important:-
 Increasing sales and profits
 Increasing competitive advantage
 Offering more benefits
 Reduced cost
 Improving quality
Type of Innovation
Type Description Example

Product Innovation New or Significantly improved Smartwatches

product

Process Innovation Improved Production or Delivery Automation in Food Packaging

Methods

Marketing Innovation New Strategies or Channels Zomato’s Meme based Marketing

Business Model Innovation Changing the way business is done Netflix’s subscription based
streaming model
Strategies for New Product & Innovation
Strategy Explanation Example
Customer Driven Innovation Products designed based on Google maps features based on
Consumer Insights consumer feed back
Open Innovation Collaborate with external sources Samsung’s start up accelerator
(Start ups, Universities)
Incremental Innovation Gradual Product Improvements I phone model upgrades
Disruptive Innovation Breakthrough products creating OYO’s low cost aggregation model
new markets
Blue Ocean Strategy Creating uncontested market space BYJU’s digital learning in a new
way
Stage gate approach Project is reviewed at each stage to Used in Pharma and tech
reduce risk industries
Pricing Decisions
 Definition:
Pricing decisions refer to how a company determines the price at which it
will sell its products or services to customers.
 Price is the amount of money a customer pays to buy a certain quantity of
a product or service.
 Price is the only element in the marketing mix that creates sales revenue;
the other elements are costs. Philip Kotler
 Pricing is the process of determining the price that an organization should
ask from purchasers for the product or service it supplies” WG leader and
Kyritsis.
 Significance of Pricing Decisions
 Revenue Generation: Price × Quantity sold = Revenue
 Market Positioning: Price reflects product quality and image
 Competitive Advantage: Effective pricing can win market share
 Customer Perception: Affects value perception
 Profitability: Direct impact on profit margins
 Illustration:
 Premium Pricing: Rolex (status symbol)
 Penetration Pricing: Jio (low initial pricing to capture market)
Objectives of Pricing
 To maximise Profits
 This is most effective in monopolistic markets. Pricing decisions are often
made to achieve maximum profits
 Price Stability
 A consistent pricing policy builds consumer trust and enhances the firm’s
reputation
 Market Share
 Depending on their strategic goals or changes in market conditions,
companies may set competitive in the market over time
 Competition
 Pricing objectives may focus on responding effectively to market competition
 Ability to pay
 Higher prices can be charged to those with greater purchasing power,
depending on the target market
 Resource mobilization
 Prices are set to support expansion and efficient resource utilization.
Role of pricing in Marketing Strategy
 Pricing is crucial to a company’s marketing strategy, as it directly impacts
its earnings and profit
 Determination of Profit
 Setting the right price helps the company meet its profit goals
 Competition Weapon
 Setting the right prices helps the company meet its profit goals
 Modification of Sales Volume
 Adjusting product prices can increase or decrease sales volume, which can
lower units costs and boost overall profit.
 Market Share
 Market share is considered a meaningful measure of the success of a firm’s
marketing strategy.
 Demand Control
 Companies use this strategy to balance supply and demand
 Market Status
 Consumers often see higher price as a sign of better quality
 Product Positioning
 It contributes to the product’s identity and influences how it is viewed.
 Capturing the market
 This strategy helps attract more customers and build a strong market
presence quickly.
Importance of Pricing
 Flexibility
 It allows companies to respond quickly to market changes. Eg. Lowering the
price can help boost sales if sales drop during a specific period.
 Creating impression
 Setting a fair and reasonable price creates a positive impression and builds
customer trust
 Sales promotion
 Lowering the price of a product for a short period will help companies attract
the attention of more customers and thereby improve their sales
 Fighting competition
 In competition based pricing, a company sets its prices based on competitor’s
charges, giving less importance to factors such as production costs and
customer demand
 Brand Image
 Consumers often support brands that charge fair prices and avoid those that
use unfair pricing practices.
 Supports in increasing market share
 It is one of the most important factors, indicating how well customers and
the market accept the product
 It helps to obtain a target rate of return on investment
 Pricing is used to achieve a desired return on investment
 It helps achieve a target rate of return on sales
 It helps to stabilize the market or the market price
 It reduces customer sensitivity to product price
Determinants of Pricing Decisions
Internal Factors External Factors

Cost of Production Competition

Company Objectives (Profit, Sales) Customer Demand

Product Lifecycle Stage Market Trends

Brand Image Government Regulations & Taxes

Marketing Mix Consistency Economic Environment (Inflation)

Factors affecting Pricing Decisions
 Internal Factors
 Costs
 The most decisive factor
 Prices are generally set above the production cost to cover all expenses and ensure a
reasonable profit for the manufacturer.
 Objectives
 Many companies have established marketing goals or objectives and pricing
contributes its share in achieving such goals.
 Some of the objectives are
 Target rate of return, Stability in prices, Maintenance or increase of the share of the
market, Meeting or preventing competition, Maximising profits.
 Product-Quality Leadership
 A company might aim to be the product quality leader in the market. Many brands
strive to be “affordable luxuries” – products or services characterised by high levels of
perceived quality, taste, and status with a price just high enough not be out of
consumer’s reach.
 Brands such as Starbucks coffee, Mercedes and BMW cars, Taj Luxury have positioned
themselves as leaders in quality, with premium pricing and a very loyal customer base.
 External Factors
 Buyer’s Perceptions (Demand)
 In consumer oriented marketing, the consumers influence the price. If the consumer
does not consider the value of the product worth the price, he will refuse to buy.
 With the multiplicity of choices available to the consumer, the first influence dictating
the manufacturer in pricing the product is the consumer itself.
 This makes it clear that not only must the total demand be determined but also the
rate at which this demand must be met.
 Competition
 No manufacturer is free to fix his price without considering competition,
unless he has a monopoly.
 Distribution Channels
 As a rule, the consumer knows only the retail or ultimate price.
 But there is a middleman working in the channel of distribution between the
manufacturer and the consumer
 The compensation paid to them must be included in the ultimate price the
consumer pays.
 Legal restraints, Government interferences such as control of prices,
levying taxes etc are other considerations which also affect the pricing of
products.
Major Pricing Strategies
 Cost-Based Pricing – Add margin to cost
Ex: Local bakery adds 30% profit over cost
 Value-Based Pricing – Based on customer perceived value
Ex: Starbucks charges higher for ambience + quality
 Competition-Based Pricing – Based on rival prices
Ex: Airline ticket pricing on similar routes
 Skimming Pricing – High initial price, then reduce
Ex: New tech gadgets like PS5
 Penetration Pricing – Low price to gain market entry
Ex: Ola/Uber initial discounts
Kinds/Methods of Pricing
 Penetration Pricing
 Used to help a product enter the market and establish a strong position
 Adopts a low price in the initial stages
 Skimming Pricing
 A new product is initially priced very high
 The Price is then gradually lowered as competitors enter the market.
 Cost – plus pricing
 Simplest pricing method
 The firm calculates the cost of producing the product and adds on a
percentage of profit to the price to the give the selling price.
 Full cost pricing – which includes both variable and fixed costs, then adds a
percentage make up
 Direct Cost pricing – which includes only variable costs plus a markup
 Limit Pricing
 Limit Pricing is a pricing strategy used by established firms (incumbents) to
discourage or prevent new firms (potential entrants) from entering the
market.
 Suppose a monopolist can maximize profits by charging ₹100 per unit.
 If new entrants see this, they may enter and charge similar prices.
 To prevent this, the monopolist sets a limit price of ₹70 per unit.
 Since the incumbent has lower average costs (say ₹60) due to economies of scale, it
still earns profit.
 But potential entrants with higher average costs (say ₹80) cannot survive at that price,
so they stay out.
 Price Discrimination
 Price discrimination is when a company charges different prices for
the same product or service to different customers, not because of
differences in cost, but because of differences in what customers are
willing (or able) to pay.

•Airlines: A flight ticket costs different amounts depending on when you book, even though it’s the
same seat.
•Movie theatres: Lower ticket prices for students or seniors.
•Software licenses: A company might charge businesses more than individuals for the same software.
 Predatory Pricing
 Predatory pricing is when a company deliberately lowers its prices to
very low levels (sometimes even below cost) with the goal of driving
competitors out of the market.
 Once rivals are too weak or forced to exit, the company can raise prices
again and enjoy market power.
•Amazon (early 2000s): Accused of selling books at very low prices to weaken traditional
bookstores.
•Reliance Jio (2016): Offered free calls and dirt-cheap data, which forced competitors like
Aircel out of the telecom market
 Value based pricing
 Value-based pricing means setting the price of a product based on the
customer’s perceived value of it, rather than on the actual cost of making
it.
•Apple iPhone: The cost to make an iPhone is much less than the selling price. But people pay a premium
for brand, design, and ecosystem.
•Starbucks coffee: Customers pay ₹300 for coffee that might cost only ₹30 to make, because they value
the experience, brand, and convenience.
•Pharmaceuticals: A life-saving drug is priced high, reflecting its value to the patient, not just its
production cost.
 Going rate pricing
 Going-rate pricing means a company sets the price of its product mainly
based on the prevailing market price (the “going rate”), rather than
its own costs or demand.
 The company basically follows the industry norm or competitor’s
price, adjusting only slightly.
 Common in markets where products are fairly similar and competition is
intense.
 Examples
 Petrol pumps: All fuel stations in a city usually sell at the same price,
following the going rate.
 Cement industry: Companies often charge nearly identical prices.
 Farm products: Farmers sell crops like wheat or rice at the market’s going
rate.
 Target Pricing
 Target pricing means setting a product’s price based on what
customers are willing to pay (the “target price”) and then designing the
product and controlling costs so the company can still make a profit at
that price.
 Instead of “cost + profit = price,”
it works as → Market price – Desired profit = Allowable cost.
 Example:
 Suppose customers are only willing to pay ₹10,000 for a new washing
machine.
 The company wants a profit margin of ₹2,000.
 That means the product must be made and delivered within ₹8,000 cost.
 Engineers and managers then work to design the machine efficiently
enough to meet this target cost.
 Break even pricing
 Break-even pricing is when a company sets the selling price of a product
just high enough to cover its total costs (fixed + variable), but without
making any profit.
 It’s the minimum price a company can charge without losing money.
 Often used as a starting point for pricing decisions or when companies
want to enter a market at very low risk.
 Marginal cost pricing
 Marginal cost is the additional cost incurred for producing one more unit of
an output
 The marginal cost pricing policy is a method of setting the price of a product
equal to the additional cost of producing an extra unit of product.
 Demand oriented Pricing policy
 This pricing policy is driven by the level of demand for a product or service
rather than the cost of production.
 Airline Tickets
 During festival seasons (like Diwali or Christmas), demand for flights
increases. Airlines raise ticket prices because customers are willing to pay
more.
 In off-season, when demand is low, the same airlines reduce ticket fares
to attract passengers.
 Hotel Rooms
 Hotel prices in Goa are very high in December (peak tourist season)
due to high demand.
 The same hotel room may be available at half the price in July (off-
season) when demand is low.
 Competition oriented Pricing Policy
 According to a competition oriented pricing policy, a company sets its prices
based on the prices charged by its competitors
 Competition-oriented pricing (also called competitive pricing) is a
policy where a company fixes the price of its product based on the prices
charged by competitors, rather than only on costs or demand.
 Examples of Competition-Oriented Pricing
 Mobile Service Providers
 Jio, Airtel, and Vodafone Idea set their recharge pack prices almost in line with each
other. If one introduces a new low-cost plan, others quickly adjust.
 Airline Industry
 If Indigo reduces airfare on a route, competitors like Air India and SpiceJet also lower
prices to attract passengers.
 Supermarkets / Retail Chains
 Big Bazaar, Reliance Fresh, and D-Mart price daily essentials (like rice, sugar, oil)
very close to each other to avoid losing customers.
 E-commerce Platforms
 Flipkart and Amazon keep similar prices on popular electronics (mobiles, TVs,
laptops). If one offers a price drop, the other usually matches it.
 Sealed bid Pricing
 This competitive pricing policy involves requesting quotations from
suppliers and selecting the one with the lowest price
 It is commonly used in construction projects, capital goods purchases, B2B
transactions, and government contracts.
 Sealed bid pricing is a strategy mainly used in tendering or contract
bidding situations.
 Here, different companies (bidders) submit their price quotations secretly
in sealed envelopes (or digitally now) for supplying goods or services.
 The buyer (like government or a big company) opens all the bids at the same
time and usually selects the lowest bidder who meets all the requirements.
 Suppose the Government of India invites tenders for building a highway
project.
 Company A submits a sealed bid of ₹500 crore
 Company B submits a sealed bid of ₹480 crore
 Company C submits a sealed bid of ₹465 crore
 When the tenders are opened, Company C wins the contract because it
offered the lowest price (assuming all technical conditions are satisfied).
 Psychological Pricing strategies
 Psychological Pricing means fixing the price of a product in such a way that
it has a psychological impact on the customers, making them feel the product
is cheaper, more valuable, or more attractive than it actually is.
 It is based on the idea that customers do not always think rationally about
prices; instead, emotions, perceptions, and mental shortcuts influence their
buying decision.
 Common Types of Psychological Pricing with Examples
 Charm Pricing (Odd Pricing)
 Prices are set just below a round number (e.g., ₹99 instead of ₹100).
 Customers tend to perceive ₹99 as significantly cheaper than ₹100, even
though the difference is only ₹1.
 Example: A T-shirt priced at ₹499 seems cheaper than one at ₹500.
 Prestige Pricing
 Setting a higher price to give the impression of premium quality.
 People often assume expensive products are of higher value.
 Example: Luxury brands like Rolex or Louis Vuitton deliberately price
high to maintain exclusivity.
 BOGO (Buy One Get One) or Bundle Pricing
 Customers feel they are getting more value for money.
 Example: "Buy 1 Shirt, Get 1 Free" feels like a better deal than a 50%
discount, even though both can be equal mathematically.
 Reference Pricing
 Showing a higher "original price" next to the discounted price to make the
new price look more attractive.
 Example: A mobile phone marked as "₹20,000 – Now at ₹14,999" makes
the buyer feel they saved ₹5,001.
 Price Appearance & Size
 Using smaller font for the price or omitting the currency symbol to make
it look less intimidating.
 Example: Displaying "299" instead of "₹299" in restaurants or stores.
 Even Pricing for Quality Perception
 Some businesses use round numbers to reflect quality and trust.
 Example: A doctor may charge ₹500 consultation (not ₹499) to signal
professionalism and seriousness.
 Promotional Pricing Strategies
 Promotional pricing means temporarily reducing the price of a product
or service to attract customers, increase sales, clear stock, or fight
competition. It is short-term and often used during festivals, special events,
or product launches.
 Main Promotional Pricing Strategies with Examples
 Discounts and Sales
 Offering a reduced price for a limited period.
 Example: “Flat 40% Off on all clothing this Diwali” by fashion retailers.

 Buy One, Get One Free (BOGO)

 Customers get an extra product free with purchase.
 Example: “Buy 1 Pizza, Get 1 Free” at Domino’s.
 Cashback Offers
 A portion of the money is returned after purchase.
 Example: Paytm or Amazon Pay offering “₹200 cashback on orders above
₹1000.”

 Seasonal or Festival Pricing

 Lowering prices during festivals, holidays, or end-of-season sales.
 Example: Big Billion Days (Flipkart) or Amazon Great Indian Festival.
 Flash Sales
 Huge discounts for a very short period to create urgency.
 Example: “90% Off – Only for 2 hours” on Myntra app.

 Coupons and Vouchers

 Customers use codes to get discounts.
 Example: Swiggy offering “Use code SWIGGYIT for ₹100 off on orders
above ₹500.”
 Bundle Pricing (Combo Offers)
 Selling multiple products together at a lower combined price.
 Example: McDonald’s Meal Combos (Burger + Fries + Coke at ₹199 instead of
₹250 separately).

 Loss Leader Pricing

 Selling one product at a very low price (even at loss) to attract customers who
will buy other profitable items. This pays if the revenue on the additional sales
compensates for the lower margins on the loss leader items.
 Example: Supermarkets selling sugar at ₹1/kg to attract shoppers who will also
buy other groceries.
 Free Samples or Trial Pricing
 Giving the product free or at very low price to promote trial.
 Example: Free 1-month trial of Netflix or Spotify

 Special Event Pricing

 Linking discounts to special occasions or company anniversaries.
 Example: “Anniversary Sale – Everything at Half Price” at a store’s 10-year
celebration.
 Cash Rebates
 Auto companies and other consumer goods companies offer cash rebates to
encourage purchase of the manufacturer’s products within a specified time
period.
 Low interest financing
 Instead of cutting its price, the company can offer customers low interest
financing. Automakers have used no interest financing to try to attract more
customers.
 Longer payment terms
 Sellers, especially mortgage banks and auto companies, stretch loans over
longer periods cand thus lower the monthly payments. Consumers often
worry less about the cost (interest rate) of a loan and more about whether
they can afford the monthly payment.
 Warranties and service contracts
 Companies can promote sales by adding a free or low cost warranty or
service contract
Discounts & Allowances
 Discounts and Allowances in Pricing
 Discounts and allowances are reductions in the basic price of goods
or services, given by sellers to buyers as an incentive.
They are used to encourage purchases, build loyalty, promote bulk
buying, speed up payments, and clear stock.
 Common Types of Discounts
 Trade Discount (Functional Discount)
 Discount offered by a manufacturer to trade channel members if they
will perform certain functions, such as selling, storing and record
keeping.
 Given by manufacturers/wholesalers to retailers or intermediaries.
 Encourages channel partners to stock and promote products.
 Example: A manufacturer offers a retailer 20% off list price.
 Cash Discount
 Reduction offered for prompt or early payment of bills.
 Encourages faster cash flow.
 Example: “2/10, net 30” → 2% discount if paid within 10 days, otherwise full
payment due in 30 days.
 Quantity Discount
 Price reduction on buying large quantities.
 Helps in bulk sales and economies of scale.
 Example: “Buy 100 units, get 10% off.”
 Seasonal Discount
 Offered to encourage purchases in off-seasons or early buying in advance of
the peak season.
 Example: Discounts on woolen clothes in summer, or on air conditioners in
winter.
 Cumulative Discount (Loyalty Discount)
 Reward for repeat purchases over a period of time.
 Encourages long-term buyer-seller relationships.
 Example: A wholesaler gets 5% off after purchasing goods worth ₹5 lakh in
a year.
 Common Types of Allowances
 Trade-in Allowance
 Reduction in price when a buyer exchanges an old product for a new one.
 Common in automobile and electronics industries.
 Example: ₹15,000 exchange value on an old fridge when buying a new one.
 Promotional Allowance
 Given to channel partners (retailers/wholesalers) for promoting or
advertising the product.
 Example: A company reimburses a retailer for running a local ad
campaign.
 Advertising Allowance
 A specific form of promotional allowance where the manufacturer
compensates dealers for advertising expenses.
 Slotting Allowance
 Paid to retailers to place a manufacturer’s product on store shelves
(common in supermarkets).
 In summary:
 Discounts = direct price reductions (trade, cash, quantity, seasonal,
cumulative).
 Allowances = price reductions linked to special actions by the buyer
(trade-in, promotional, advertising, slotting).
New Product Pricing Policy
 Price Skimming (Skim-the-Cream Pricing)
 The company sets a high initial price to “skim” maximum revenue from
segments willing to pay more.
 Gradually, the price is reduced to attract more price-sensitive customers.
 Suitable for: Innovative, unique, or technologically advanced products
(e.g., new smartphones, electronics).
 Example: Apple launches a new iPhone at a high price, then reduces
prices after newer models arrive.
 Penetration Pricing
 The company sets a low initial price to attract a large number of
customers and gain quick market share.
 Once brand loyalty is built, the company may increase prices.
 Suitable for: Highly competitive markets, products with mass appeal
(e.g., FMCG, internet services).
 Example: Jio in India introduced telecom services at very low prices to
quickly capture market share.
 Competitive (Parity) Pricing
 The new product is priced in line with competitors’ products.
 Helps avoid price wars and positions the product as a comparable
alternative.
 Suitable for: Markets with well-established competitors.
 Example: New detergent brands pricing at a similar level to Surf Excel or
Ariel.