10 min readConcept sheetMCQ · PLC stage features, NPD sequence, pricing calculations

Product and pricing decisions

Product decisions cover the product mix, PLC and new-product stages; pricing sets value through cost, demand and competition, with skimming or penetration for launches.

Product levels (Kotler)Core benefit, basic, expected, augmented, potential

NPD stagesEight in Kotler (adapted from the Booz Allen Hamilton model): idea generation to commercialisation

Adopters (Rogers, 1962)Innovators 2.5%, early adopters 13.5%, early majority 34%, late majority 34%, laggards 16%

Skimming vs penetrationJoel Dean (1950): high vs low launch price

Product mix dimensions

Dimension	Meaning	HUL illustration
Width	Number of product lines	Fabric care, skin care, hair care, foods, beverages
Length	Total number of items across all lines	All its brands added together
Depth	Number of variants of each product	Sizes, packs and formulas of one soap
Consistency	How closely the lines relate in use, production or distribution	High: most lines are FMCG sold through the same channels

Worked example: product mix

Problem

A firm has four product lines with 3, 5, 2 and 6 brands. One brand comes in 3 sizes and 2 fragrances. Find the width, length, average length and that brand's depth.

Working

Width = number of lines = 4.
Length = total items = 3 + 5 + 2 + 6 = 16.
Average length = length ÷ width = 16 ÷ 4 = 4.
Depth of the brand = 3 sizes × 2 fragrances = 6 variants.
Check: 4 lines × 4 average = 16 items.

Answer

Width 4, length 16, average length 4, depth 6.

Product life cycle

Stage	Sales and profit	Customers	Typical strategy
Introduction	Low sales; losses; high cost per customer	Innovators	Build awareness and trial; selective distribution; skimming or penetration price
Growth	Sales rise fast; profits rise; competitors enter	Early adopters	Add features and models; enter new segments; intensive distribution
Maturity	Sales peak and flatten; profits high but squeezed	Early and late majority	Modify the market, product or marketing mix; defend share
Decline	Sales and profits fall	Laggards	Prune weak items, harvest, cut costs or exit

New product development (eight stages)

Kotler's sequence, based on the Booz Allen Hamilton model.

1
Idea generation
customers, R&D, staff, rivals, dealers
2
Idea screening
avoid drop-errors (killing good ideas) and go-errors (passing bad ones)
3
Concept development and testing
4
Marketing strategy development
target, positioning, price, distribution, first-year budget
5
Business analysis
sales, cost and profit projections
6
Product development
prototype, functional and consumer tests
7
Market testing (test marketing)
8★
Commercialisation
when, where, to whom and how to launch

★ one-way, controls the pace

Pricing methods

Method	Rule	Basis
Markup pricing	Unit cost ÷ (1 − desired return on sales)	Cost
Target-return pricing	Unit cost + (desired return × invested capital) ÷ unit sales	Cost
Perceived-value pricing	Price set on the buyer's perceived value	Demand
Value pricing / EDLP	A fairly low, steady price for high value (D-Mart) vs high-low pricing	Demand and competition
Going-rate pricing	Price close to rivals' prices	Competition
Auction-type pricing	English (ascending), Dutch (descending), sealed-bid	Competition

Worked example: markup and target-return price

Problem

Variable cost is ₹10 a unit, fixed cost ₹3,00,000 and expected sales 50,000 units. Find (a) the markup price for a 20% return on sales, and (b) the target-return price for a 20% return on ₹10,00,000 invested.

Working

Unit cost = 10 + 3,00,000 ÷ 50,000 = 10 + 6 = ₹16.
(a) Markup price = 16 ÷ (1 − 0.20) = 16 ÷ 0.80 = ₹20.
Check (a): margin = 20 − 16 = 4, and 4 ÷ 20 = 20% of the selling price.
(b) Target-return price = 16 + (0.20 × 10,00,000) ÷ 50,000 = 16 + 2,00,000 ÷ 50,000 = 16 + 4 = ₹20.
Check (b): profit = 4 × 50,000 = ₹2,00,000, which is 20% of ₹10,00,000.

Answer

Both give ₹20 here. Trap: a 20% markup on cost would give 16 × 1.2 = ₹19.20, not ₹20.

Pricing strategies

Market skimming: a high launch price to 'skim' buyers willing to pay more, as with new premium phones.
Market penetration: a low launch price to win share fast, as Jio did with low-priced data in 2016.
Psychological pricing: odd prices (₹99), reference prices and prestige pricing.
Product-mix pricing: product-line, optional-feature, captive-product (razor and blades, printer and ink), by-product and bundle pricing.
Price adaptation: geographical (FOB, zone, uniform delivered), discounts (cash, quantity, functional, seasonal), promotional pricing (loss leaders) and differentiated pricing by segment, form, location or time.
Rogers' adoption factors: relative advantage, compatibility, complexity, trialability (divisibility) and observability (communicability).

How NET asks this

NET asks you to sequence the NPD stages, match PLC stages with features, recall Rogers' adopter percentages, and compute a markup price. Skimming versus penetration comes as assertion-reason.

Exam angle

Typical MCQ: “Unit cost is ₹40 and the desired return on sales is 20%. What is the markup price?” 40 ÷ 0.8 = ₹50. Trap: 40 × 1.2 = ₹48 is a markup on cost, not on the selling price.

Typical MCQ: “Which NPD stage comes right after concept development and testing?” Marketing strategy development, followed by business analysis. Trap: business analysis does not come before the strategy.

Typical MCQ: “What share of adopters are 'early adopters' in Rogers' model?” 13.5%. Trap: innovators are 2.5%; the early and late majority are 34% each.

Remember it

NPD in eight: 'Ideas Should Come More Before Products Meet Customers': idea, screen, concept, marketing strategy, business analysis, product development, market test, commercialise.