MKTG90005 Chap.8 Product and Pricing Strategy
Product and Pricing Strategy
Product and price express one value logic. The chapter separates core benefit, actual product and augmented value, then evaluates product-line stretch, filling, modification, innovation and removal. Pricing begins with an objective and triangulates cost, customer value and competitive reference.
The assessed skill is alignment: explain what the customer gains and gives up, how the new offer affects the wider portfolio, which price logic fits the strategic role and what performance signal will trigger revision. Product-line decisions affect more than the sales of one item. They can shift brand meaning, cannibalisation, channel complexity, inventory and support.
Pricing choices also shape reference and competitor response. Cost provides an economic floor, customer value informs willingness to pay and competition sets a market comparison. A strong recommendation uses all three while making one logic primary, then reviews realised price, mix, contribution, retention and customer explanation.
What this chapter covers
- 01
Core, actual and augmented product
- 02
Product-line depth and breadth
- 03
Stretch, filling and modification
- 04
Pioneering and follower choices
- 05
Pricing objectives and strategic role
- 06
Cost, value and competition bases
Worked example · free
Price a compact product extension
- 1Define the customer gap around size, mounting and weather reliability rather than a generic cheaper speaker.
- 1Give the extension a distinct urban-mobility role and preserve the parent brand's durability proof.
- 1Begin with customer value, check competitor reference and ensure contribution covers support rather than passing through all cost savings.
- 1Track incremental customers, flagship substitution, realised price, return reasons and portfolio contribution.
Key terms
- Core product
- The core product is the underlying customer benefit or problem resolution that motivates the purchase.
- Augmented product
- The augmented product adds services and experiences such as delivery, advice, warranty, onboarding or community.
- Line stretch
- A line stretch extends a product line upward, downward or in both directions to reach a different price or value tier.
- Value-based pricing
- Value-based pricing begins with customer benefits and alternatives that shape willingness to pay, then checks cost and competition.
- Product line
- A product line is a related set of offerings managed through choices about depth, breadth, stretch and removal.
- Cannibalisation
- Cannibalisation occurs when a new offering takes demand from another offering in the same portfolio.
Product and Pricing Strategy FAQ
How should product layers be analysed?
Start with the customer outcome, then identify the actual features, quality and brand that deliver it, followed by augmented services such as advice, delivery or warranty. Determine which layer carries the intended difference and whether operations can provide it consistently across the selected channel.
When can cannibalisation be acceptable?
Cannibalisation may be acceptable when a new offer improves retention, defends against a rival, moves customers to stronger contribution or serves a distinct use. Evaluate the portfolio effect, incremental customers, complexity and brand meaning rather than judging the new item only by its own sales.
How should cost, value and competition be combined in pricing?
Use the chosen strategic objective to decide which lens leads, then triangulate. Cost establishes economic reality, customer value informs willingness to pay and competition shapes reference and response. A price is defensible only when the offer's role, customer trade-off and expected behaviour are explicit.
How should a product be removed?
Choose phase-out, run-out or immediate withdrawal according to demand, inventory, customer risk and strategic harm. Plan communication, replacement, service and channel transition. A slow exit can preserve trust but consume attention, while an abrupt drop may be justified when safety, severe loss or contradiction outweigh disruption.
Assessment move
Draw the three product layers for several offers and identify where the strategic difference actually sits. Practise product-line decisions by naming the customer gap, portfolio role, cannibalisation risk, operational complexity and exit condition. Compare upward and downward stretch, line filling, modification, run-out and immediate withdrawal through their strategic consequences rather than definitions alone.
For pricing, begin with the objective, then write what cost, value and competition each contribute to the decision. Track list price, realised price, volume, mix, contribution and retention separately so one favourable number does not hide a weak result. In every case, write the customer trade-off in one sentence and predict competitor response.
Finish by setting the signal that would make management adjust the product, the price or the target rather than changing all three at once. Build a small decision table that separates evidence available before launch from signals observable afterward. This makes assumptions visible and prevents the outcome from being used to rewrite the original rationale.
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