CMA Product Development & Pricing Strategy 2 — Questions and Answers
Question 1: What is 'price elasticity of demand'?
- The flexibility a company has in changing its pricing
- A measure of how sensitive consumer demand for a product is to changes in price (Correct answer)
- The range of prices a product has had over its lifetime
- The cost of changing a product's price in advertising
Correct answer: A measure of how sensitive consumer demand for a product is to changes in price
Price elasticity of demand measures how much the quantity demanded of a product changes in response to a change in its price.
Question 2: Which new product development stage involves creating a small-scale version of the product to test functionality?
- Idea screening
- Concept testing
- Prototype development (Correct answer)
- Commercialization
Correct answer: Prototype development
Prototype development creates a working model of the product to test its functionality, design, and user experience before full production.
Question 3: What is 'cannibalization' in product portfolio management?
- Competitors stealing your customers
- A new product in a company's portfolio reducing the sales of an existing product in the same portfolio (Correct answer)
- A pricing strategy to undercut competitors
- A marketing tactic to attract competitor customers
Correct answer: A new product in a company's portfolio reducing the sales of an existing product in the same portfolio
Cannibalization occurs when a company's new product takes sales away from its own existing product rather than gaining new customers.
Question 4: What is 'competitive pricing' strategy?
- Setting prices significantly above all competitors
- Setting prices based solely on production costs
- Pricing products based on what competitors are charging (Correct answer)
- Pricing products based on customer willingness to pay
Correct answer: Pricing products based on what competitors are charging
Competitive pricing sets prices in relation to what competitors are charging, aiming to stay aligned with or slightly below the market rate.
Question 5: In the context of product development, what is 'concept testing'?
- A legal review of a product concept
- Testing a product idea with potential customers to evaluate appeal and viability before development (Correct answer)
- A financial feasibility analysis
- A technical review of manufacturing processes
Correct answer: Testing a product idea with potential customers to evaluate appeal and viability before development
Concept testing presents a product idea to the target audience to assess interest, relevance, and likelihood of purchase before committing to development.
Question 6: What is a 'loss leader' pricing strategy?
- Selling a high-margin product first
- Pricing a product below cost to attract customers who will then buy other profitable products (Correct answer)
- Selling products only at a loss during clearance
- A strategy exclusively used for luxury products
Correct answer: Pricing a product below cost to attract customers who will then buy other profitable products
A loss leader is priced below cost to drive customer traffic, with the expectation that customers will also buy other higher-margin products.
CMA Product Development & Pricing Strategy 2
What is 'price elasticity of demand'?