CPM CPM Product Development & Pricing Strategy 2 — Questions and Answers
Question 1: What is the primary goal of 'value-based pricing'?
- Matching competitor prices exactly
- Setting price equal to production cost plus a fixed margin
- Pricing based on the perceived value to the customer (Correct answer)
- Pricing to achieve a target return on investment
Correct answer: Pricing based on the perceived value to the customer
Value-based pricing aligns price with what customers believe the product is worth, rather than cost or competition.
Question 2: Which of the following best describes a 'line extension'?
- Entering an entirely new product category
- Adding a new variant to an existing product line under the same brand (Correct answer)
- Acquiring a competitor's product portfolio
- Rebranding an existing product with a new name
Correct answer: Adding a new variant to an existing product line under the same brand
A line extension adds a new variety, size, flavor, or form to an existing product line, leveraging established brand equity.
Question 3: The 'augmented product' in Kotler's product levels refers to:
- The core benefit the customer seeks
- The physical, tangible product
- Additional services and benefits beyond the core product (Correct answer)
- The brand name and packaging
Correct answer: Additional services and benefits beyond the core product
The augmented product includes warranties, after-sales service, delivery, and installation that exceed customer expectations.
Question 4: Which pricing tactic involves setting the price of a core product low while charging more for consumables or accessories?
- Bundle pricing
- Captive product pricing (Correct answer)
- Psychological pricing
- Premium pricing
Correct answer: Captive product pricing
Captive product pricing (e.g., razors and blades, printers and ink) profits from the necessary accessories rather than the core item.
Question 5: A product that is in the 'decline' stage of its life cycle would most likely receive which strategic recommendation?
- Increase R&D investment
- Expand distribution channels
- Harvest or divest the product (Correct answer)
- Launch an aggressive marketing campaign
Correct answer: Harvest or divest the product
In the decline stage, companies typically harvest remaining profits or divest to reallocate resources to more promising products.
Question 6: What does the term 'cannibalization' mean in product portfolio management?
- A new product takes sales from a competitor
- A new product reduces sales of the company's own existing products (Correct answer)
- A product line is discontinued to save costs
- Two products are bundled together at a discount
Correct answer: A new product reduces sales of the company's own existing products
Cannibalization occurs when a new product or variant erodes the sales of an existing product within the same company's portfolio.
CPM CPM Product Development & Pricing Strategy 2
What is the primary goal of 'value-based pricing'?